In what situations should an organization outsource strategy-critical activities?

Foluso Aribisala

Foluso Aribisala

Managing Partner/CEO at Workforce Group | Passionate About Unleashing People/Organisational Performance & Growth.

Published Sep 1, 2021

Should you do it yourself, or outsource to someone else?

In response to the Covid-19 pandemic induced economic challenges and the increasingly competitive business environment, most organisations are facing intense pressure to reduce overheads, enhance operational efficiency, improve customer experience and grow revenues. 

As a result, outsourcing tasks and entire business function has become an integral part of almost every organisation’s operations, particularly for services for which they have limited internal expertise. Some critical business tasks and function will always require internal attention, as it would be foolish to outsource critical activities that your organisation can do better or more efficiently than others. This is where your business creates distinct value.

However, other things, which in most cases is still a lot, can and should be carefully considered to be outsourced. 

But outsourcing is not something you can decide overnight, poorly planned outsourcing could actually result in erosion of service value and cost escalation. On the other hand, a well-planned and executed outsourcing decision can help executives sleep better at night, knowing that the responsibility for deliverables is in safe and capable hands.

But how do you decide which tasks or functions to outsource, and which to keep in-house?

For instance, if you are the CFO of a company in the healthcare or hospitality industry. Should you outsource your HR, IT or Marketing or retain these functions internally? 

Would the decision be the same for an IT Firm or a Consulting firm like Workforce Group? If you worked for an Airline, would you outsource your front desk, catering and cleaning or hire staff directly to deliver these functions internally? What if you managed a luxury hotel?

Outsourcing can have a significant impact on your performance and bottom line. It can reduce overheads, bring fresh expertise to your business, increase speed to market, free up your time for innovation and other vital/strategic activities. But there are risks, too, which is why it’s important to adopt a scientific approach to deciding what and who to outsource to.

So, how can you be sure that you're making the right choice of what to outsource for your business?

The Outsourcing Decision Matrix is a useful tool to help business owners, entrepreneurs and decision makers identify which tasks or functions should be keep in-house, and which can be safely outsourced. The Matrix, identifies the two most important factors that you should consider when you're thinking about outsourcing a task or role:

1. The strategic importance of the task or function. Does the task or function in question differentiate and give your business a competitive advantage?
2. The task or function impacts on your operational performance. How much does the task or function contribute to the smooth running of your organisation? And how much disruption does it cause if it's done badly?

The Outsourcing Decision Matrix

The Matrix is divided into 4 actionable quadrants:

1. Form a strategic alliance. Tasks and functions in this quadrant are strategically important, but contribute little to operational performance, so could be outsourced safely to a trusted and proven strategic partner. The strategic partner shares control of the task/function and works with your internal team, but remains independent. For example, a bank could outsource its advertising to an agency. While the bank is closely involved in the message and tone of the advertisements, the content, production and channels are handled by the agency. This approach can be applied to managing a few other functions like ATM/POS deployment, Software Development etc. Although the business needs to retain control of these tasks/functions to ensure they are done exactly as it wants, they are relatively insignificant in terms of cost or smooth running. Therefore, such tasks may not be worthy of full in-house focus. 
2. Retain. Tasks and functions in this quadrant are of high strategic importance and have a big impact on operational performance of the organisation. Retain these tasks/functions in-house and keep the maximum level of control possible. For the bank, the treasury operations, risk management and credit processes are strategically critical, and would usually be retained internally. These are some of the organisation’s core competencies and make a massive contribution to differentiate, enhance customer experience and ensure the smooth running of the business.
3. Outsource. Activities in this quadrant are important for successful operational performance, but are not strategically important. These can be outsourced with little risk. For example, the bank can outsource the HR Operations, Customer Service, Call Centre Management, Address Verification, Security, Cleaning, Facility Management, Logistics, Catering, Sales, IT Support, Event Management, Legal, Administrative and Accounting Services. These are generally not sources of competitive advantage and are very unlikely to differentiate the organisation. While these task/functions do impact operational performance, they’re simply not worth building capability in-house to deliver.
4. Eliminate. Some tasks/functions are not important to your organisation's overall strategy, and do not make a significant contribution to its day-to-day operational performance. You should consider eliminating these activities completely, where possible. But do consider the potential impact of eliminating an activity, as it may still be important to your employees, team or the organisation. For example, let's say your company runs a subsidised day care center for staff’s children. It might be expensive to run, and it isn't part of your core operation, but it may help you to staff and retain staff (strategic importance)while simultaneously reducing absences related to childcare (operational performance).

The quadrant in which the task or process falls will give you a strong indication as to whether you should outsource it, retain it, eliminate it, or form a strategic alliance. You will need to consider each situation carefully, factoring in your organisation’s unique context, customers, suppliers, regulatory requirements and your industry as a whole to judge each situation on its own merits.

6 steps for making effective outsourcing decisions

Conclusion:

Whatever your line of business, outsourcing is an essential tool for gaining competitive advantage because it allows you to concentrate on the essential. To insource or outsource is now a strategic decision every 21st century organisation must make as it will impact the quality and cost of services and above all the bottom-line. Your business may be struggling to achieve its goals and aspirations or may even be at risk of outright failure due to the inability to effectively manage both core and non-core functions simultaneously. 

At workforce Group we pride ourselves on the depth of our expertise and our strategy first consultative approach to dealing with every outsourcing brief. With over 17 years hands on experience and 7,000+ outsourced associate staff with some of the leading and most interesting organisations across Africa, we are well equipped to help you design and mitigate the risk associated with outsourcing, while ensuring your business derives the intended benefits.

To find out about how your business can win with outsourcing, contact us on or visit our website at www.workforcegroup.com to schedule a free consultation with me or one of our senior consultants.