Outsourcing by definition is an agreement in which one company hires another company to be responsible for a planned or existing activity that is or could be done internally, and sometimes involves transferring employees and assets from one firm to another. It has also been described as one of the major organizational and industry shifts of the 20th century.
However, Outsourcing is a term that is often misused, overused and abused, when it is used to refer to an element of subcontracting or to describe a procurement activity. Actually, Outsourcing is more than this. It is best defined as:
“… the transfer to a third partyÂ of the continuous management responsibility for a provision of a service governedÂ by a service level.” (Gay and Essinger, 2000)
The following points summarize what choices need to be made and how the business can implement these decisions:
- Identify whatâ’s a core activity and whatâ€™s not.
- Competitive Edge: To maintain a competitive edge, is it necessary to perform an activity internally?
- Vulnerability: What is the potential vulnerability that could arise from theÂ failure of the activity outsourced?
- If an activity is to be outsourced does it meet the criteria of:
- Specificity: Specify what attributes it needs.
- Measurability: The technology to measure the attributes must be reliableÂ and accessible to both the company and the vendor.
- Predictability: If there is a variation in delivery, you must be able to identifyÂ what else will be impacted.
- Understand the cost drivers of the activity to be outsourced.
- Understand the legal requirements.
- Develop clear selection criteria.
- Understand the industry assumptions and the role of the supplier in yourÂ industry. Generate detailed profiles of the supply base from your analysis.
- Understand the management, the culture and the operational capabilities ofÂ the company that will become your partner.
- Develop a contracting model to manage:
- Manage the relationship, make it work.
At STS, we work with you to analyse your business needs and current market trends to keep a competitive edge against other competitors and thrive despite economic odds. We help you measure and develop your core and non-core business functions to ensure that our partnership with you will result in optimum performance and reflect better customer experience in the medium-term and the long-term.