Companies have recently begun to consider outsourcing as more than an excess-work/low-labor tactic and more of a competitive strategy. Strategic outsourcing helps you get the most from your internal resources. What should you outsource? The best processes for outsourcing require the least supervision and design. Look for firms that are proficient and predictable, and with whom you can communicate well; then analyze some important factors.
 

• Determine the activities that represent core competencies. These activities let you provide value to your customers and provide you with a competitive advantage. You should not outsource core activities.

• Consider elements that are vital, yet not core competencies. Maintain processes and services that give you the edge. If a vendor clearly can perform the process more efficiently, then it is probably an opportunity for outsourcing.

• Evaluate market efficiency, costs, and competition. Suppliers are better able to compete for your business in a more competitive market.

• Examine the costs of managing the outsourcing function. The costs should be less than managing the function internally.

• Estimate the cost of processing the task in-house.

• Finally, request bids from potential suppliers including transaction and maintenance costs.

Because outsourcing lets you turn your resources and energies to your core competencies, many important cost savings are not directly measurable. You may not need to assess all the advantages of outsourcing in order for it to be profitable. Some opportunity costs do not directly translate into dollars, yet contribute to profit through a better utilization of resources. Two notable costs are those incurred by suppliers and the costs of changing to a new supplier. Organizations should not outsource core competencies or strategic processes that provide competitive advantage. The decision should include an internal analysis of the core activities and an external analysis of market conditions. If firms can minimize costs associated with managing the partnership, they should outsource the process.

In an effective outsourcing relationship, the supplier satisfies all the outsourcer's needs. Costs are minimized. Both understand and agree with each other's intentions. Patterson and Hass (1999) suggest that these elements must be present:

• Clear shared objectives They lay the foundation and communicate the goal.

• Mutual need

• Risk sharing Parties assume comparable or nearly comparable risks. An imbalance of power can compromise the partnership.

• Mutual trust Begins, grows, and develops over time as both partners establish their commitment to making the partnership work.

• Mutual reliability Both parties need to know they can count on their partner to stick with them even when difficult decisions and actions must be taken.

• Cooperation When each organization is successful, both can and should reap the benefits of success. Unilateral decisions or actions destroy the trust and the respect that have been established.

• Commitment by management Top management must support the changes in systems, organizational structure, and culture.

• Management needs to realign any adversarial attitudes of its staff by communicating a vision while also promoting trust in the new relationship.

Companies may fear they will lose skills by outsourcing. This happens, but the loss will not match the supplier's skills, and the outsourcer can re-direct efforts to core activities. Another fear is of a breach of confidentiality. A secure signed and dates confidentiality agreement will protect both parties and put them at ease. Can the outsourcer lose control over the contractor? Successful outsourcing depends upon a partnership in which the objectives of both parties are clear and in writing.