The decision of externalization
The decision of externalization

The decision of externalization

BSS 30/01/2018 Various

An outsourcing decision is the result of a combination of motivations that place the company in a new management situation. On the one hand, it faces risks of opportunism and a situation of dependence vis-à-vis external suppliers or service providers. On the other hand, learning opportunities may arise. In fact, we suggest that the problems that characterize many outsourcing operations often come from the mismatch between the motivations of the initial decision and the management modalities. Therefore, we propose to make the link between the different types of motivations and management methods.

Resources, skills and management methods

Outsourcing can be motivated by the existence of a differential of resources and skills between the outsourcing company and the best providers or suppliers.

When the resource and skills gap is small, control management is well suited. If the number of providers or potential suppliers is sufficient, market control is recommended. The competition is sufficient to determine the best offer. If not, bureaucratic control is better.

Opportunity and management modalities

When the risk of opportunism is very high, it is strongly discouraged to resort to outsourcing. However, this can also be motivated by a difference in resources and skills or a need for flexibility. In this case, the risk of opportunism is not always negligible.

Flexibility and management methods

Outsourcing helps to increase flexibility by converting fixed costs into variable expenses since the outsourcing company pays a fee for the sole benefit instead of investing in people and equipment.

When the need for flexibility is low and the outsourcing firm is not in a position of unfavorable dependence on a small number of external partners, market control is well suited. The competition provides all the information necessary for decision-making and outsourcing makes it easy to "avoid investing in equipment when it is used for a certain time" (recovery company)