A Key Strategic question: to outsource or not?

A Key Strategic question: to outsource or not?

Outsourcing came to prominence in the 1980s and depending on the industry and geographical region, has been cyclical, It has now become a business consideration globally irrespective of the size and nature of organizations. Furthermore, it has become an enormous political debating point across the globe, particularly in the United States during the last presidential campaigning.

Out sourcing can be defined as the delegation of a company’s non-core activity from its internal infrastructure and resources to a third-party entity that would be regarded as expert in the management or execution of the delegated activity.

Even though outsourcing has been a part of the global market place for such a long period of time, senior executives and board members of organizations continue to ask the question of whether to outsource or not? The ultimate consideration whether an outsource or not pertains to whether an organization can improve its competitiveness. The decision is really that simple.

Outsourcing can bright with it a plethora of competitive  advantages such as focus, cost efficiencies, talent sourcing, knowledge, speed to market, flexibility and accountability – all critical success factors of a competitive business.

Conversely, the downsides of outsourcing may be substandard quality, security, lessened control, employee dissatisfaction or considerably longer time to get products to market.

The potential downsides of outsourcing, unfortunately, generally impede and organisation’s ability to work through a process that clearly determines whether out sourcing will make it more competitive. With careful thought and commitment to outsources relationship, the risks associated with these potential downsides can be mitigated or even alleviated.

Organisations need to be very clear interms of which business activities (or in terms of which business activities) need to be outsourced but also to be clear on the benefits and outcomes expected to be gained from the outsourcing arrangement – financial or otherwise.

The key question pertaining to which activities need to be outsourced, having in mind the end goal of increasing competiveness as an organization, is that of whether any particular activity is a strategic  function or of strategic importance or not.

Organisations that are prominent corporate citizens may even consider the potential economic and social factors that may be associated with outsourcing in the decision – making process. Albeit and admirable standpoint, it may complicate and cloud getting an answer to question, and if this point holds enough sway within an organization, it could detract from the aforementioned consideration pertaining to whether to outsource or not.

Although this will be a geographical specific, some economies, such as the United States for example, have experienced tremendous economic indicators since the peak of outsourcing and offshoring. Since mid-2003 the US economy has grown be around 20% added almost seven million jobs and accelerated wage growth to more than 4% in the last year.

The point at which an organization makes its decision to outsource or not, is one enormous juncture in that organisation’s competitive existence in the robust global marketplace. Assuming the decision is to outsource, and efficient and effective transition of activities needs to be made. This in itself can be a large job and needs a systematic and methodical approach.

Depending on the scale and complexity of activities being outsources, organizations should consider appointing an outsourcing expert who can work closely with your organization to manage this critical deliverable.

Author: Mark Manolas


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