ONE STOP Outsourcing

Outsourcing is the act of transferring some of an organization's recurring internal activities and decision rights to an outside provider.

Outsourcing reasons:

Main reasons to outsource

What is critical is that you understand your reasons for considering Outsourcing and the benefits you seek.

Main reasons to outsource

What is critical is that you understand your reasons for considering Outsourcing and the benefits you seek.

* Organizationally driven reasons :
- Enhance effectiveness by focusing on what you do best
- Increase flexibility to meet changing business conditions
- Increase flexibility to meet demand for products
- Increase flexibility to meet demand for services
- Transform the organization
- Increase product and service value, customer satisfaction

* Improvement-driven reasons :
- Improve operating performance
- Obtain expertise, skills and technologies
- Improve management and control
- Improve risk management
- Obtain innovative ideas

* Financially driven reasons :
- Reduce investments in assets and free up those resources for other purposes
- Generate cash by transferring assets to the provider

* Revenue-driven reasons :
- Gain market access and business opportunities through the provider's network
- Accelerate expansion by tapping into the provider's developed capacity, processes, and systems
- Expand sales and production capacity

* Cost-driven reasons :
- Reduce costs through superior provider performance and the provider's lower cost structure
- Turn fixed cost into variable costs

* Employee-driven reasons :
- Give employees a stronger career path
- Increase commitment and energy in non core areas

Outsourcing versus strategic outsourcing

The outsourcing initiative becomes strategic when it is aligned with the organization's long-term strategies, when the typical outsourcing benefits will emerge over several years, and when the results will be significant to the organization.

Strategic outsourcing takes outsourcing to a higher level by asking fundamental questions about outsourcing's relevance to the organization and its :
- Vision of its future
- Current and future core competencies
- Current and future structure
- Current and future costs
- Current and future performance
- Current and future competitive advantage

What changes have occur so that outsourcing is now embraced as an important restructuring tool ? Here are some of them :

- Large organizational size is no longer a competitive advantage
- Small, agile niche competitors can now change industries and costs structures overnight
- Competitive pressures are more severe in a global economy
- Product and service cycle times have reduced dramatically, and time based competition demands quicker response
- Investors demand a focused management that delivers
- Bottom line performance, growth, and size are no longer predictors of future profits
- Significant operating and financial performance improvements are critical to success, and long term survival.

Another reason to outsource

Obtain expertise. Skills and Technologies that would not otherwise be available.

Inhibitors to outsourcing

- Uncertainty
- Loss of control
- Loss of core competencies
- Employee unhappiness
- Risks of failure

Provider qualifications :

Skills and performance

* Hard qualifications :
- Ability to deliver
- Experience to deliver
- Strengths
- Superior performance
- Deserved positive reputation
- Proven customer satisfaction
- Strong capitalization
- Proven management capabilities
- Shared approach to problem solving
- Commitment to continuous improvement

* Soft qualifications :
- Trust/security/ confidentiality
- Positive attitude
- Good chemistry
- Good cultural fit
- Flexibility to change
- Cost conscious
- Willingness to share cutting-edge knowledge
- Clear vision of their market

Outsourcing scope : Service specifications

- Service within the scope of the agreement
- Service outside the scope of the agreement

Price comparison and evaluation

- Cost structure
- Profit motivations and requirements
- Understanding of the problems and needs
- Assumptions about solving the problems and the needs
- Perceptions about the market's existing pricing environment

Questions to be asked :

- Experience (learning) curve
- Scale of operations
- Processes of operation
- Performance levels
- Quality of management
- Different factors of productions costs

Principles of fairness for a sound partnership :

- You deserve to get the service you need (to satisfy the
reasons to outsource), which the provider agrees to deliver
- The provider deserves to get a fair price for that service
- You deserve fair market value for the assets transferred
to the provider
- Mistakes will occur on both sides
- The final deal must be seen as a win-win deal at the end
of the negotiation and throughout the after-negotiation period

 

 

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