Profits or Perils? The Bottom Line on Outsourcing
Outsourcing is fast becoming a fixture in the organizational models of the 21st century.
At first confined to nonstrategic business activities such as cleaning, transport, or legal services, outsourcing now encompasses functions that are closer to the core. As suppliers become more tightly integrated into the fabric of a company's basic business operations, the risks attending the failure of these relationships escalate. In fact, the very viability of the company can be threatened.
Nevertheless, outsourcing offers strategic and economic benefits that are too compelling to ignore. When it works, outsourcing decreases costs, increases flexibility, enhances expertise, increases discipline, and provides the freedom to focus on core business capabilities. So the question is: How do you make outsourcing work? More important, how do you make strategic outsourcing work?
Working with clients across a range of industries, Booz Allen Hamilton has identified six flaws in the way traditional outsourcing has been applied and managed:
Decision-Making Flaws
An emphasis on the "simple stuff" ignores most of the cost base.Noncore activities are outsourced too automatically. Insufficient consideration is given to the full economic impact of outsourcing.
Implementation Flaws
A lack of appropriate attention is paid to supplier selection.Ongoing supplier relationships are poorly managed.The organization is unable to transform itself to manage new processes and relationships.
Booz Allen has developed a framework that enables companies to avoid these missteps. Geared specifically to the more complex challenges of strategic outsourcing, the framework walks companies through six critical assessments:
- Strategic priority and risk
- Market considerations
- Internal versus external capabilities
- Economic evaluation
- Ability to manage the supplier
- Ability to manage the new processes
Outsourcing is increasingly not just a make-or-buy decision; it's a make-or-break decision. Booz Allen's six-step approach helps companies develop a firm understanding of what should and should not be outsourced and learn how best to manage these new supply relationships.
Read the Booz Allen study "Profits or Perils? The Bottom Line on Outsourcing."
study posted October 2001
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