Outsourcing Or Not: My Business Function Assessment Approach with Checklists

Outsourcing Or Not: My Business Function Assessment Approach with Checklists

AT Kearney is continuously looking for opportunities to help their customers survive the economic turmoil. This time they revisited the make vs. buy option. Their findings can help you to make decisions on outsourcing possibilities. Hans Lodder presents his assessment approach and some checklists.

The discussion regarding make or buy is quite old. Late management consultant Peter Drucker wrote in the late fifties of the previous century that every function in an organization is a candidate for outsourcing, except marketing (create customers today) and innovation (create customers tomorrow). Since then many have invented and re-invented the make or buy option to reduce costs and increase Return On Investment (ROI).

Let I start with presenting again the table with advantages and disadvantages of make or buy.

Advantages and Disadvantages of Make or Buy
Make Buy
Advantages Utilizes internal capacity Frees up resources
Absorbs fixed costs Reduces capital demand
Protects intellectual property Increases flexibility
Improves Return on Capital
Disadvantages Introduces unnecessary complexity Raises quality concerns
Diverts time and attention away from higher valued activities Introduces supplier risks

This is a well tread territory, so I leave out clarifications. The interesting question is when the balance goes from make to buy, with as minimum make situation that you cannot outsource the creation of customers. I shall sketch an approach for an outsourcing assessment with checklists, so you can start immediately.

What you need is an organization assessment to check whether a function is worth keeping, or that it can (should?) be outsourced. AT Kearney sees 4 assessment criteria:

  • Strategic value
  • Performance
  • Technology
  • Technology per logical unit

Strategic value and performance are logical choices. Technology also, because technology enables opportunities. Technology per logical unit determines whether all units have the same technology maturity level. This is often not the case.

The assessment should decide on the question whether we have a core or support function, as defined in the next table:

Attributes of Core vs. Support Functions
Core function
  • High strategic value and high performance.
  • Supports and sustains growth.
Support function
  • Complements core.
  • Strategic value and performance lower.
  • Future outlook unsure.

This table does not say how you should perform this assessment. This is where 'regular' work comes in. You need answers to questions as:

  • Who are my customers?
  • In what product/market combination do I work?
  • How can I perform a little bit better than my competitors?

You will find detailed discussions and answers on these questions in many of our Results2Match Community blogs. Some examples:

How do you decide on make or buy? We like to hear from you. Share your experiences with the Results2Match Community!

Are you looking for cost reduction alternatives that enable sustainable growth? Do you want your options validated by an independent management consultant? Have you ever considered a business strategy round table that let you inspect your business from a complete new perspective? Contact Hans Lodder now, and invite him to help you!

Do you prefer your own employees to be capable of guiding strategic sessions? Did they have the appropriate training? Are they guided and coached? Let Hans Lodder run your business competence improvement program!

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