Making The Outsourcing Decision
by Michelle Kelley and Michael Jude
Published December 2005; Posted May 2006

Abstract:

Outsourcing is firmly entrenched in business, so companies naturally seem to focus more on the benefit side of the decision-making process than on the accompanying costs. When both benefits and costs are fully factored into the decision-making, however, outsourcing often turns out to be only a marginally good, or even a poor investment.

Our own experience with the outsourcing of human resources functions, IT functions and, most recently, call center functions confirms this common tendency to focus on outsourcing savings while overlooking outsourcing costs. Moreover, and regardless of the function being outsourced, companies often overlook the same five cost components: process, contracts, communications, quality and change.

In this article, we focus on these rarely acknowledged costs, because they can materially affect the outsourcing decision. We also offer recommendations to properly address these issues and produce successful outsourcing outcomes. The key is a complete decision model that fully recognizes all outsourcing costs and implications.

About the authors:

Michelle Kelley and Michael Jude are both business analysts at Sun Microsystems.

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