Despite the many practical and economic benefits of outsourcing, it is not unusual for many business owners and managers to agonize and question what to do when they are thinking about whether to outsource or not. What tasks should be performed in-house? What tasks should be outsourced?
One of the most important benefits of outsourcing is how it can improve innovation — especially by freeing up time when you outsource time-consuming activities. To achieve this important goal as well as other outsourcing benefits, Back Office Pro recommends that you employ a practical and effective tool: the Outsourcing Decision Matrix. In this article, Back Office Pro describes which functions to outsource or keep in-house.
An Introduction to the Outsourcing Decision Matrix
The Outsourcing Decision Matrix was originally conceived by Dornier in 1998 — it was a helpful management breakthrough that still holds true today. This tool is a simple and straightforward matrix with four quadrants that help you visualize whether to consider outsourcing or not.
In-house functions are typically those that are strategically important — by keeping these tasks internal, business managers can control the most vital processes directly. On the other hand, operations that should be readily considered for external outsourcing are those which must be done to keep the business running but are not important to overall strategy — by outsourcing these often time-consuming tasks, an organization will “free up” time for managers and other employees to apply themselves to “more important” work at hand such as improving innovation.
The 4 Quadrants of the Outsourcing Decision Matrix Tool
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 Customized Outsourcing Decision Matrix
How should you use the Outsourcing Decision Matrix to make effective outsourcing decisions? Here is a three-step process:
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 individualized 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. By one estimate, there can frequently be a 15 percent plus or minus variation around the axis midpoint — the need for flexibility should be anticipated.
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
After all is said and done, outsourcing is supposed to make your life easier while also making your business more competitive and successful. While the Outsourcing Decision Matrix is a useful tool for taking your business to where you want to go, don’t be surprised if you think that you still need more help to complete this challenging but important journey.
You should not overlook one of the most important resources available to your business in your outsourcing decision-making process — a global outsourcing partner such as Back Office Pro. Your strategic evaluation process should not only focus on the benefits of outsourcing but also take into consideration mistakes and problems to avoid with outsourcing. Back Office Pro has been a successful outsourcing company for over a decade, and you should listen to what they have to say about how to make your outsourcing experience more successful.
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– BackOfficePro
