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Outsourcing Matrix

Outsoucing Decision Matrix

(Source: Flickr)

The outsourcing matrix may prove useful in the consulting case interview, either as a standalone framework or as part of a larger profitability framework.

With the view to reducing costs, there are three questions that a firm would do well to consider:

  1. How long will it take to reduce major cost drivers?
  2. Are the activities strategically important?
  3. To what extent do the activities contribute to operational performance?

Outsourcing Matrix

A company will want to eliminate or outsource costly activities that have low strategic importance. If the activity has a low contribution to operational performance it can be eliminated, and if it has a high contribution to operational performance it should be outsourced.

A company will want to retain control of activities that have high strategic importance. This can be done by pursuing business as usual or by forming a strategic alliance or increasing efficiency.

Common cost reduction techniques include:

1. Procurement

  • Consolidate procurement or renegotiate supply contracts.

2. HR Management

  • Reduce labour costs through decreasing salaries, training, overtime, benefits and healthcare, introducing employee stock ownership, and right sizing.

3. Technology Development

  • Use IT and digital technology to reduce communication and organisational costs.
  • Employ more advanced production technology.

4. Logistics

  • Partner with distribution companies (e.g. FedEx).

5. Operations

  • Outsource manufacturing to a lower cost jurisdiction (e.g. China/India/other).
  • Improve the utilisation rate of plant, property and equipment.
  • Relocate headquarters to lower cost city, region or country.

6. Finance

  • Reduce working capital including inventory and accounts receivable.
  • Refinance outstanding debt.
  • Divest non-core assets.

[For more information on consulting interviews, please download “The HUB’s Guide to Consulting Interviews“.]

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