Outsourcing: When and how should it be done?

Abstract

Business functions that can be successfully outsourced are diverse, bridging from manufacturing to human resources to product design. The analysis deals with key enablers and barriers to successful outsourcing. Outsourcing is differentiated from offshoring, and unique offshoring risks are explored, but the focus is on outsourcing. A decision framework is created to aid outsourcing decisions, and this model is tested against an example from the hard disc drive industry. This proposed business model is closed loop, showing how important regular re-evaluation is in the outsourcing decision process. Major drivers such as reduced labor cost are often overstated relative to other risks and issues such as intellectual property protection, quality and supplier capabilities. When looking to outsource, an organization should be careful not to farm out work related to the core competencies of the firm, as they are how the organization best provides value to end customers. Although if it is a short-term need; outsourcing of a core competency may be acceptable in a specific business situation.