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.

Outsourcing Decision Matrix is a 2 X 2 matrix where the horizontal axis represents operational value, whereas the vertical axis represents strategic value. It helps in determining the strategic importance of the business’s processes to determine the best methods for conducting the same.
The activities that are the most effective, both strategically and operationally should be performed in-house. These activities help in maintaining quality performance and help the company in having a competitive advantage.
The activities that have lower strategic importance, but have a higher operational importance are the ones that should be typically outsourced. However critical they are, they possess the least risk and can therefore, be outsourced.
The organization can also enter into strategic alliance for activities that are strategically important but lower in operational importance. A trusted partner can help in such a scenario.
Any other activity should be considered for elimination as it is only leading to wastage of resources and no value addition to the customers.


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