What is outsourcing Outsourcing is the transfer of ownership of a business process to a supplier Critical elements: –Buyer owns the results of the process, not the process itself –Supplier’s ownership of process includes control of management and resources

Four criteria for outsourcing Core Competence –Allows focus on developing and leveraging core competence and serving customers better Economic value –Utilize scale, improve process efficiencies and reduce total cost of ownership Risk mitigation –Remove some sources of risks and reduce the magnitude of existing risks Quality improvement –Enhanced products and services

If starting our business today, do we want to develop this capability internally? Would we want to staff this process with our best associates? Does this process create or defend an unique competitive advantages of COF Is this process directly contributing to our business growth? Would customer satisfaction or loyalty suffer if we did not own this process Questions to ask on core competence

Determine our total costs of ownership for performing the process in-house Determine the pricing for outsourcing Value of avoiding future investments Revenue gained due to improved speed-to-market and customer satisfaction as a result of outsourcing Switching costs Complete cost vs. benefit analysis Questions to ask on economic value

Would outsourcing help us to mitigate some existing risks by transferring it to suppliers? What’re impacts on people by redefining jobs, and restructuring reporting relationship? Would outsourcing hurt our relationship and closeness with end customers? Would outsourcing leak our proprietary information? Would outsourcing expose us to unwanted legal liabilities? Questions to ask on risks

Would external capabilities lead to better products and services than our internal capabilities? Would we have access to suppliers’ expertise not available internally? Would we have increased responsiveness to markets and customers? Would we be able to take advantage of suppliers’ capacity flexibility, scalability and continuing investment not available in house? Questions to ask on quality

Decision tree Core Process? Invest and Nurture in house Positive Economic Value after Cost Benefit analysis? Would create Unacceptable Level of risks? Top-quality In-house Capabilities? Outsource activities Yes No