No company stands alone.
Every company somehow works with other companies to maintain their business, as it cannot have all the capabilities required for its commercial activities.
It is a standard of outsourcing processes
There have been several international standards for outsourcing. The Outsourcing Professional Body of Knowledge (OPBOK), published by the International Association of Outsourcing Professionals®, is a great example.
It is fair to say that the successful integration of an outsourcing process into a business strategy is a key to commercial success.
However, outsourcing is a profound process and can be quite complicated.
Making make-or-buy decisions
According to the OPBOK, it is recommended to outsource a capability when (1) it is not one of the core competences, and (2) the benefit of such outsourcing overrides its risks and downside.
For instance, if the organization in consideration of outsourcing has low maturity or capability in a core area, or a souorce of differentiation from its competition, it should also use the option of outsourcing, provided it can also proceed with risk management/mitigation.
Positive and negative risks (opportunities/threats)
Secondly, outsourcing involves risk management and change management among numerous other knowledge areas.
Risks associated with outsourcing are typically categorized into the below risk groups. The term “risk” here refers exclusively to “threats,” or “negative risks” (a possible event that causes an adverse impact on the outcome of a business objective) in terms of project management, to avoid confusion:
- Strategic risks: loss of control, loss of opportunity to learn, etc.
- Operational risks: loss of employees to the service provider/vendor, etc.
- Result risks: negative impacts on the achievement of business objectives, etc.
- Financial risks: overall impact on financials. All risks ultimately should be materialized into financial impacts.
Looking at both sides of each coin
When thinking of risks, I mean, threats and even opportunities, it is imperative to always think of both upside and downside of each item, as each event can have both of them.
It is also crucial to think of residual (remaining after risk responses take place) and secondary (arising as a result of risk responses) risks.
For consideration of benefits to make a make and a buy or go/no-go decision, you can use these aspects to cover the whole situation:
- cost reduction
- delivery acceleration
- capacity enhancement
- risk transfer/sharing
- better quality
- regulatory compliance
- learning from service provider/supplier
- process management
Conclusion
There is a whole lot more about outsourcing, but these are the foundation of it. It is highly recommended to refer to the entire book of the OPBOK, especially for those in positions to make purchase decisions.
References
Jane Chittenden. (2014) Outsourcing Professional Body of Knowledge – OPBOK Version 1.0, Zaltbommel: Van Haren Publishing.