By Jeff Richards
Managing Partner
In today’s highly competitive global environment, many companies are asking the question, “Is outsourcing right for us?” The short answer is probably a qualified yes. In my last post I presented some of the benefits of outsourcing. Some part of almost every organization could undoubtedly benefit from an outsourcing assessment. But which part?
Determining what to outsource
One approach to determining what services to outsource is to place processes/functions in a matrix like this, where the horizontal axis is your organization’s current competency and the vertical axis is the value that the given process brings to your organization.
- Current Competency (the horizontal axis) – This is usually well understood, and is simply a rating of your organization’s competency when benchmarked with service providers.
- Process Value (the vertical axis) – This concept is slightly more complex. Essentially, business functions that are common or generic to all businesses, such as telephone services, payroll administration, IT operations, etc., are in the bottom row. If a function is specific, but common, to an industry, then it falls about half way up. An example of this would be fleet management for the transportation industry. Things that are unique to an individual organization that are perceived to add significant competitive advantage and are not commonly available in the industry are high on the scale. These are the reasons a company has a market share and loyal customers.
Evaluating the cells in the matrix
Things in the red (bottom left cell) are “no-brainer” outsourcing targets. These are functions that every business needs, such as telephone management services, data center management or other back-office functions, but are not in your organization’s area of expertise. It is easy to find providers that can do these functions better and, usually, cheaper.
The yellow areas (cells surrounding the bottom left corner) need to be evaluated on the merits of the function and the corporate direction. Collections often falls into the yellow areas, and should be evaluated based on factors such as the collection rate, cost of collection and the community service policy.
The green areas (top row and right hand column) generally are not good outsourcing candidates. If there are performance issues with the processes in these cells then they should probably be fixed internally and leveraged, possibly even spun off as business units. For example, a customer loyalty program is unique and not generally available. If your company were to perfect such a program, become competent at delivery and attain positive results, this program would be placed in the upper right of the matrix. Outsourcing the application would probably reduce the amount of time your company holds a unique competitive advantage, and this could easily offset any potential outsourcing cost savings.
IT application development tied to new product introduction for an organization may reside in any of the cells in the matrix. It would depend on how strategic it is viewed and how well it is performed.
Conclusion
Evaluating outsourcing nearly always leads to improved business processes, either through internal improvements or outsourcing. So while outsourcing is not for every company, nearly all companies will benefit from periodically asking the question “Is outsourcing right for us?”
About Jeff Richards
As an inspirational leader with the ability to develop the “big picture” strategy then drive it down to executable tactics for implementation, Jeff leads our Professional Services team. Clients benefit from Jeff’s 25+ years of experience developing and implementing transformative business strategies.
Jeff’s experience spans both industry (including Materials, Operations and IT Management) and consulting. He developed a unique global perspective during his tenure in significant P&L management-level positions in both Asia and Europe.
About CIO Professional Services
CIO Professional Services LLC is a top-rated IT (Information Technology) consulting firm, based in the San Francisco Bay Area, specializing in strategic IT consulting and business / IT alignment. Companies come to us seeking assistance with their information technology strategy as well as to source interim CIO / CTO employees or fractional CIO / CTOs.
