Make it yourself, or outsource to someone else?
What should be done in-house and what should be outsourced? It is worthwhile to invest some strategic planning to answer these questions as the answers can have huge effects on your organization’s short-term and long-term success.
Making the right decision can add significantly to your organization’s bottom line in terms of cost savings and increased efficiency. Outsourcing can bring fresh minds to your business, and it can also free time up for innovation and other vital tasks. However, making the wrong decision can put your business at a competitive disadvantage. Perhaps you’ll lose control of proprietary information, or receive products that don’t meet your organization’s quality standards.
So, how can you ensure that your organization makes the right decision?
The Outsourcing Decision Matrix helps you see clearly which tasks, processes, or functions you should keep in-house – and which can be safely outsourced. In this article, we’ll examine the Outsourcing Decision Matrix and see how your organization can use it to make better outsourcing decisions.
Understanding the Tool
The Outsourcing Decision Matrix, shown in Figure1, helps you consider two important factors in outsourcing a task:
- How strategically important is the task to your business? Strategically important tasks are sources of competitive advantage.
- What is the task’s impact on your organization’s operational performance? Tasks which have a high impact on operational performance are those which, if done well, contribute greatly to the smooth running of the organization or, if done badly, greatly disrupt it.
The quadrants are as follows:
- Form a strategic alliance– Tasks in this quadrant are high in strategic importance, but contribute little to operational performance. So, although you need to retain control of them to ensure they are done exactly as you want, or you get the quality you want, they are relatively insignificant in terms of cost or smooth running and so not worthy of full in-house focus.
- Retain– Tasks in this quadrant are high in strategic importance and have a big impact on operational performance. These tasks should be kept in-house so that your organization keeps maximum control
- Outsource– Tasks this quadrant are important for successful operational performance, but are not strategically important. These tasks could safely be outsourced.
- Eliminate– Tasks in this quadrant are not important to your organization’s overall strategy and nor do they make a significant contribution to its day-to-day operational performance. Although you might not be able to eliminate these tasks completely, it’s important to check why you’re doing them.
Using the Outsource decision making matrix
Step 1: Identify your task’s strategic importance
Analyze the task’s strategic importance to your business.
Is this task vital to your company’s competitive advantage? Is it part of what makes your business unique? Does it play a major part in your customers’ selection of your products or services over those of your competitors?
Step 2: Identify contribution to operational performance
Decide how important this task is to your company’s day-to-day operational performance. Will your operations rapidly grind to a halt if it’s done badly?
Step 3: Plot your task on the matrix
Now that you know where your task is on the vertical scale of strategic importance, and where it is on the horizontal scale of operational performance, plot the task onto the matrix.
The quadrant in which the task falls will give you a strong indication as to whether it should be outsourced, retained, strategically aligned, or eliminated.
Of course, this is only a starting point for your decision to outsource. Carefully consider the details of every situation before you decide whether outsourcing or keeping it in-house is your solution