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:
- How long will it take to reduce major cost drivers?
- Are the activities strategically important?
- To what extent do the activities contribute to operational performance?
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:
- 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.
- Partner with distribution companies (e.g. FedEx).
- 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.
- 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“.]