How and when to outsource your business functions?

How and when to outsource your business functions?

Outsourcing by definition is an agreement in which one company hires another company to be responsible for a planned or existing activity that is or could be done internally, and sometimes involves transferring employees and assets from one firm to another. It has also been described as one of the major organizational and industry shifts of the 20th century.

However, Outsourcing is a term that is often misused, overused and abused, when it is used to refer to an element of subcontracting or to describe a procurement activity. Actually, Outsourcing is more than this. It is best defined as :


“… the transfer to a third party of the continuous management responsibility
for a provision of a service governed by a service level.”

(Gay and Essinger, 2000)

The following points summarize what choices need to be made and how
the business can implement these decisions:


1. Identify what’s a core activity and what’s not.
2. Competitive Edge: To maintain a competitive edge, is it necessary to perform an activity internally.
3. Vulnerability: What is the potential vulnerability that could arise from the failure of the activity outsourced.
4. If an activity is to be outsourced does it meet the criteria of:
Specificity: Specify what attributes it needs.
Measurability: The technology to measure the attributes must be reliable and accessible to both the company and the vendor.
Predictability: If there is a variation in delivery, you must be able to identify what else will be impacted.
5. Understand the cost drivers of the activity to be outsourced.
6. Understand the legal requirements.
7. Develop clear selection criteria.
8. Understand the industry assumptions and the role of the supplier in your industry. Generate detailed profiles of the supply base from
your analysis.
9. Understand the management, the culture and the operational capabilities of the company that will become your partner.
10. Develop a contracting model to manage:
11. Manage the relationship, make it work.