Outsourcing Decision Matrix

Outsourcing – Time to make a decision.

It is not unusual that you are sitting there reading about outsourcing and agonising and questioning what to do when you are thinking about whether to outsource or not. What should I outsource? What should I keep in-house? What will people say if they find out? Will it be too hard to work with an offshore team? These and many more questions will be flying around while the many practical and economic benefits of outsourcing will be sitting front of mind.

Time-consuming activities are the bane of many a business. One of the best benefits of outsourcing is freeing yourself and your team from these time-consuming activities. But how do you determine what activities these could be?

A decision matrix!

What is the Outsourcing Decision Matrix

The idea is simple, divide your thinking into four quadrants that help you visualise whether to consider outsourcing or not.

Functions that should be considered for outsourcing are those which must be done to keep the business running but are not important to the overall strategy of the business. Outsourcing these tasks will ultimately “free up” managers and other employees to apply themselves to “more important” work such as improving innovation.

In-house functions are typically those that are strategically important and business managers can control the most vital processes directly by keeping these tasks internal.

The 4 Quadrants of the Outsourcing Decision Matrix

The four quadrants of the Outsourcing Decision Matrix consist of the following:

Form a Strategic Alliance — This is the most appropriate quadrant for tasks that add little to operational performance but are nevertheless high in strategic importance. In simplest terms, these operations do not need to be done in-house and can be fulfilled via a strategic alliance that still allows control from a distance.

Retain — Operations in this quadrant should be kept in-house. These tasks represent activities that are both high in strategic importance and have a significant impact on operational results. You and your business managers should maintain maximum control and should not outsource these operations.

Eliminate — In addition to identifying candidates for outsourcing, the decision matrix can also help you identify candidates to be eliminated entirely. These tasks represent operational tasks that do not contribute in a meaningful way to daily business performance and are not important to your overall business strategy. Why keep them at all?

Outsource — Tasks that are not strategically important but are important for successful performance of operations belong in this quadrant. They are not worth spending valuable in-house time for managing and should be outsourced to a cost-effective outsourcing company.

How to Create Your Customised Outsourcing Decision Matrix

A simple three step process can be applied  to make effective outsourcing decisions:

Step 1 — Identify the Strategic Importance of an Operational Task

Ask a series of questions such as the following: Does the task contribute to what makes your company unique? Is it vital to your competitive position? What role does the task play in how customers view your services, products, and company?

Step 2 — Identify How Operational Tasks Contribute to Daily Performance

Next, you should think about the role of each task in terms of the impact on daily operations: How important is it really? If the task is performed badly, what will happen? Will operations come to a halt if the task is delayed or incomplete?

Step 3 — Position Each Operational Task on the Decision Matrix

After performing the first two steps, you are ready to “plot” each task on your individualised decision matrix. However, this is also an excellent point to review where you initially placed tasks on the horizontal scale (operational performance) and vertical scale (strategic importance). If you didn’t do so already, you should seek a consensus among key managers as to their assessment of the strategic and operational assessment of each task. Wide disagreements should be a warning sign to look at specific tasks more closely.

As with any two-by-two matrix, you should be prepared to apply common sense where necessary. The lines between quadrants cannot always be perfectly determined.

Remember that the best starting point is actually before Step 1 — creating a list of all operational tasks associated with a specific business unit. When this list is assembled, ask department heads or other managers to be as narrow as possible.

Strategic Choices – Making Outsourcing Easier

As with any major decision, overall outsourcing should make life easier and make your business more successful and cost effective. Evaluate your tasks and outsource options and determine if you proceed to outsource with a reliable partner, like Tandem NZ and will you be able to realise the key benefits.

 

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