What is In & Outsourcing ?
All organisations have a value chain, the value chain represents the series of steps where the organisation apply their capability to the inputs to a process to create an output that has a greater value than the combined cost of the total input resource costs. (Porter’s Value chain model)
Most organisations do not carry out every task or activity themselves and what they do is focus on their core competence and business and where they create value in their product or service and buy-in resources where they can acquire more cost effectively (Make-Buy-Rent Decisions).
Where an organisation decides to externally source resources (People, Materials, Process etc.) then this is called sourcing. Where these externally acquired resources are located within the organisations infrastructure it is known as In-sourcing, where they are located and managed externally to the Organisations infrastructure then this is known as Out-Sourcing.
Some other terms which convey a different meaning but are often used in the context of In/Out sourcing as follows:-
Off-Shore: Relates to where an activity is carried out that is supplied to the core buying organisation. It usually means out of the home country and often overseas. It can apply to a organisations own functions or bought in functions
Far-Shore: As with Off-Shore, however usually means there is a significant geographic distance, on another continent, from another culture.
Near Shore: Means close to the related organisation unit and activity geographically and often culturally, for practicality it can be considered a local extension of core organisation activity.
Right Shore: Refers to an organisation that has a mix of in-house, near and far shore activity to maximize the value in their total value chain.
Drivers to consider In or Out-sourcing
There are many driver’s that cause an organisation to consider In or Outsourcing, here are just a few:
- Core competence management: For the specific activity under consideration it is determined it is not a required internal core competence or strategic in nature and a 3rd Party who has this area as a core competence can provide it quicker, more cost effectively and to a higher standard .
- Short Term or Tactical need: There is a projected peak in demand for an activity, resource or skill that cannot be justified as a fixed long term investment therefore it makes business sense to In or Out-Source.
- Flexibility: By having a 3rd Party partner (In or Out) the organisation will have greater flexibility to achieve better outcomes by having access to the 3rd party capacity and/or competence.
- Cost: On a straight Make-Buy-Rent analysis there is sufficient cost advantage to In or Out-Source
- Political: either an internal or an external political driver causes the organisation to consider In or Out-Sourcing
Change Management relating to In-Out Sourcing
For every Organisation considering In or Out-Sourcing change is inevitable. Each situation and circumstance will be different, however that said some of the considerations remain the same.
- Some elements of the formal structure will change
- Job roles will change
- Certain roles may become redundant
- New skills and processes will be required
- Alignment between our Organisation that that of our supplier will change
- New people and cultures will be involved
- Location of activities will change.
These are just some of the many considerations. What is recognised is that Management will be required to plan and manage a change process to realise the planned benefits from In-Outsourcing.
Where HOMI fits in the process of In or Out Sourcing
HOMI is an ideal tool to assist the change managers and teams in both Organisations. It can be used as follows:
Due Diligence and Planning
In selecting a partner/supplier it provides effective factual based information on the Competence and Capability of potential suppliers during the selection process. Because it tells us the maturity of the supplier and gives effective information on their human and operational systems we can identify the best possible partner considering not just the normal business case conditions but also their ability to mobilise and integrate with us to deliver the service/product. (Prevention)
Preparation for change
By completing the survey on the relevant units in both Organisations we can validate their capability to change and integrate and take the right actions/interventions to make sure that there is a smooth mobilisation of the new value chain components. We can also do Gap Analysis to identify significant gaps that need to be closed. (Prevention)
During the change
By completing surveys during the change process we can monitor progress, identify issues, monitor the impact of earlier interventions and carry out any remediation necessary.
As part of the continuous change and improvement process, surveys and reports are useful metrics and guides for the combined resources in the value chain to follow a road map that leads to operational excellence in performance.