What is Outsourcing Decision Matrix?

An Outsourcing Decision Matrix is a tool used to identify which business processes and operations are worth outsourcing, with the goal of reducing costs, creating efficiency, and deploying more resources towards innovation.

Using an Outsourcing Decision Matrix is vital for identifying the strategic importance of your business’s processes and activities and determining the best approach for conducting each one. The matrix is a 2×2 chart, with the X-axis based on overall contribution to the company’s operational performance, and the Y-axis based on strategic value. Activities that are high in value both strategically and operationally should be kept in-house, as those are essential to the company’s performance and competitive advantage.

Activities that are high in strategic value but lower in operational importance might benefit from a strategic alliance, where the activity is shared with a trusted partner that has the competency to effectively execute the activity and can take on some of the overhead cost.

Business processes that are high in operational importance but low in strategic value are those that are prime candidates for outsourcing. While they are still important activities that are critical for the business’s daily functioning, they are not essential to the company’s competitive advantage and pose minimal risk to outsource.

Activities that are low in both strategic and operational value should be considered for elimination altogether, as every business process should have a purpose that ties directly to customer value. Using the matrix is a helpful starting point, however it will be necessary to apply in-depth understanding of the business and its external environment to determine whether outsourcing will be truly beneficial.