Strategic Outsourcing
...ultant executes and implements a contract. Why Companies Use Outsourcing The most common reasons for outsourcing fall into the following six categories: 1. Organizational — Enhance your effectiveness by focusing on what you do best, while you increase your fl exibility to meet changing business conditions, demand for products and services and technologies. Outsourcing can transform the organization, increase the value of your stock, products and services, and improve customer satisfaction. 2. Improvement-driven — Outsource to improve operating performance and to obtain expertise, skills and technologies that otherwise would not be available. You can also improve management, control and risk management. Outsourcing lets you acquire ideas and improve your credibility by associating with superior providers. 3. Financial — Reduce investments in assets and free up those resources for other purposes by outsourcing, which also lets you generate cash by transferring assets to the provider. 4. Revenue — Gain market access and business opportunities through the provider’s professional network. Accelerate expansion by tapping into the provider’s developed capacity and systems. Expand sales and production during periods when you cannot finance such growth. 5. Cost — Reduce costs through superior provider performance and the provider’s lower cost structure. Turn fixed costs into variable costs. 6. Employee-driven — Give employees a stronger career path. Increase their commitment and energy in other areas. Three kinds of outsourcing are available to a company: • Individual outsourcing involves moving specific jobs out of the organization, such as using an outside contractor instead of a systems auditor or a technical writer. • Functional outsourcing refers to moving a functional cost center (such as accounting) out of the organization. • Process outsourcing involves moving an entire process out of the organization — for example, outsourcing administrative processes, such as human resources or technology development. Outsourcing Methodology According to Maurice F. Greaver II´s (1999) “Strategic Outsourcing” the seven steps to successful outsourcing are (17): 1. Planning initiatives — This step consists of project management, finding outsource advisers and setting objectives. Outsource advisers are consultants from a variety of disciplines. The project adviser needs three skills: management, outsourcing experience and independent observation. 2. Exploring strategic implications — This step consists of organizational structure, determining core competencies and aligning outsourcing with your firm’s strategy. The major elements of organizational structure are determining vision, size and vertical integration; establishing a functional hierarchy and creating a structured process. Properly articulated, vision helps employees understand that outsourcing strengthens your company’s core competencies. “Core competencies are those functions that the organization can do as well as or better than any other organization in the world” (Nickels/McHugh/McHugh 254). 3. Analyzing costs and performance — This thoughtful step consists of evaluating existing and projected ...