The Strategic Outsourcing Matrix Tool

Abstract

Strategic Question: Are we properly outsourcing key elements of our cost structure?

Summary: Questions regarding whether to “in-house” or “outsource” various aspects of a firm’s product/service delivery is one every company has to wrestle with. Implicit in that decision is the strength or viability of the supply chain in comparison to the capabilities of the organization. This tool brings the entire outsourcing question into quick focus. The Strategic Outsourcing Matrix uses a 9-box structure to help organizations better understand and position those key activities that comprise their cost structure. Sorting criteria are (1) the ability of the organization to be cost competitive in providing each particular component or process, and (2) the criticality of that component or process to the function of the product or service. The plot points then fall into three categories: (1) “Distinctive Competencies” — those activities that are critical to success and cost competitive that must remain and be nurtured in house; (2) “Strategic Alliances” — those activities critical to success but beyond the company’s ability to do themselves; and (3) “Outsourcing candidates” — those items neither critical to success nor internally cost competitive that should be considered for outsourcing through normal supply chain management. The output format of the chart, contrasted with the organization’s “current state” provides a mechanism for discussion, definition of potential improvements, and a means to arrive at consensus for action plans.

Citation

Fairbanks, S. and Buchko, A. (2018), "The Strategic Outsourcing Matrix Tool", Performance-Based Strategy, Emerald Publishing Limited, Leeds, pp. 197-208. https://doi.org/10.1108/978-1-78743-795-120181016