Outsourcing Analysis Part II: That’s My Core?


In our last Blog we talked about how we source for a function, which is to say the process of deciding (and executing) the “how and where” a function is performed. In the last few years the movement has been once-sided, with functions primarily being outsourced. However, every firm has at one point or another also “insourced”, taking functions away from outside providers and moving the management and/or production inside the corporation. The farther back we go in time, the more likely the sourcing decision was not well discussed or analyzed. These early decisions may have been flawed, and difficult to justify today. Some outsourcing decisions are corrections to older decisions. Add new technologies, changes in regulations and changes in business practices, and it becomes clear why there has been so much focus on sourcing decisions in most major firms.  Each of you needs to understand and fully participate in the sourcing process. Our last Blog asked you to look at the current sourcing options your firm uses. If you missed the last Blog, take a look a then catch up with us.  With sourcing options in hand, today we are going to look more closely at the justifications for each location. Let’s start with The Core!

Seak to managers who regularly work with Outsourcing projects; they will tell you that you never outsource core functions. But when you try to get a definition of  the Core,  agreement breaks down. The best answer may be that the Core is a combination of business practices and cultural imperatives. An undisputed Core function in one firm maybe Non-Core in another, and constant changes in technology, business practices, and regulations modify out Core definition. You need to know what is your Core, and you need to periodically re-evaluate your Core… just as you need to preiodically re-evaluate your budget. Today, we’re going to pick up where we left off yesterday, and continue to build our model for Legal processes. Lets dig in and see if we can define what is core for thes serrvices.

  1. Regulations: Do you,  or your firm, believe that it is illegal or that it would be an infraction of government regulations to outsource this work?    
  2. Contractual Obligations: A contract can specify that work is restricted to employees. Some US government contracts restrict work to US citizens. How many contracts carry these restrictions, and are they all restricted by exactly the same (standard) clause? Is there anything in writing, but outside of the contract, that restricts sourcing of workers?
  3. Verbal Agreements: A bit more difficult to deal with is a verbal agreement. Who made the agreement and when? How is the agreement documented (in an email, the minutes of a client meeting, CRM notes)? If there is no documentation, how do you know the client believes that is an agreement?
  4. Legal Ethics: Unlike most other professions, law has very specific (and numerous) ethical rules. Does an outsourcing project violate a rule of ethics? For example, maximizing profitability through outsourcing might be an ethical violation (an issue previously raised with paralegals). Of course, sharing the financial benefits of outsourcing with clients might resolve the issue.
  5. IP Risk: Do you have truly proprietary processes that cannot be exposed to the outside world? Is this process quantitatively different from the process used by your competitors? Are they patented, trademarked, or otherwise protected? What is the monetary risk from exposing your processes?
  6. Efficiency: Can the work be performed internally more efficiently (better quality, lower cost, faster turnaround) than through any other means? Be prepared to quantitatively support this position.
  7. Tradition: More often than not, this is how the Core is defined. But in a firm wide discussion of sourcing options, this is not a strong justification for employee workers/managers. Are there other factors to be considered? Re-review this list. 

This is just the 1st “gate” that a sourcing decision must pass. Your organization may have additional, or different, Core issues than this Legal example.  Still, this exercise should help you. The next gate might examine if the work should remain in-house, but be performed by temporary or outsourced staff.  Next, at least for legal work, would be to determine if the function could be performed by outside legal counsel (usually not though of as “outsourcing”). Then you should move on to “gates” such as near shoring, and offshoring. Each gate will have several questions that you need to ask about the function. For example, under local outsourcing you might ask if moving the function to a different location will interfere with the performance of the function. There are obviously many other questions. Build a spreadsheet based on these options and let’s compare notes in tomorrow’s blog, when we put the finishing touches on our outsourcing tool.

Remember, you can make your analysis process as simple or as complicated as you like. Tomorrow I will provide you with a spreadsheet based on this discussion. You can then add to it, or remove sections, as you see fit. But for today… that’s my Niccolls worth!

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This entry was posted in Best Practices, Common Sense Contracting, Decision Making, Delivering Services, Improvement, Continuous or Not, Uncategorized, Unique Ideas and tagged , , , , , , , . Bookmark the permalink.

One Response to Outsourcing Analysis Part II: That’s My Core?

  1. Tobi Lemings says:

    Hello, just stumbled on this page from stumbleupon. It is not blog post I would typically read, but I liked your thoughts on it. Thanx for making something worth reading!

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