During the past 15 years, companies have outsourced to a handful of cities in India, China and Eastern Europe for offshore service functions with hopes to reduce costs and gain a strategic advantage. Unfortunately, many companies have experienced mixed results as there are several problems facing these popular spots. However, companies can benefit when they pick the right processes to outsource, assess operational and structural risks and match organizational forms to their needs.
Rank Processes by Value
Many companies focus their efforts on choosing countries, vendors and negotiating prices, but do not spend time evaluating which services they should and should not offshore. Without a standard methodology for differentiation, it can be difficult to distinguish among products that companies should control in-house and those that they could obtain from overseas vendors. It is essential to determine how each product helps companies create value for customers as well as capture that value for themselves. Products, which vary among businesses, should be ranked between these two criteria and then added together to arrive at a total ranking for each.
Using this methodology allows businesses to create a value hierarchy- the higher the ranking, the more crucial it is to the company strategy. This provides managers with proper information to determine the most desirable products or processes to be considered for outsourcing.
Identify and Manage Risk
Many organizations fail to take into consideration all of the risks that accompany offshoring. A simple cost/benefit analysis is often not enough as it ignores many of the latent risks involved. It is essential for companies to be prepared to tackle the major r ...