How to Outsource and What Parameters Should We Consider While Outsourcing
MAKE VERSUS BUY
Strategic
By assessing the relative costs and risks of making or buying, companies can leverage their skills and resources for increased profitability James Brian Quinn • Frederick G Hilmer
T
approaches, when properly combined, allow managers to leverage their companies’ skills and resources well beyond levels available with other strategies:
WO NEW STRATEGIC
• Concentrate the firm’s own resources on a set of “core competencies” where it can achieve definable preeminence and provide unique value for customers.1 • Strategically outsource other activities – including many traditionally considered integral to any company – for which the firm has neither a critical strategic need nor special capabilities.2 The benefits of successfully combining the two approaches are significant. Managers leverage their company’s resources in four ways. First, they maximize returns on internal resources by concentrating investments and energies on what the enterprise does best. Second, well-developed core competencies provide formidable barriers against present and future competitors that seek to expand into the company’s areas of interest, thus facilitating and protecting the strategic advantages of market share. Third, perhaps the greatest leverage of all is the full utilization of external suppliers’ investments, innovations, and specialized professional capabilities that
James Brian Quinn is Buchanan Professor of Management at the Amos Tuck School of Business Administration, Dartmouth College. Frederick G. Hilmer is Dean of the Australian Graduate School of Management, University of New South Wales. This article is reprinted by permission of the publisher from the Sloan Management Review, Summer 1994. Copyright © 1994 Sloan Management Review Association. All rights reserved.
1
For notes, see page 70.
48
THE McKINSEY QUARTERLY 1995 NUMBER 1
outsourcing would be prohibitively expensive or even impossible to duplicate internally. Fourth, in
Strategic
By assessing the relative costs and risks of making or buying, companies can leverage their skills and resources for increased profitability James Brian Quinn • Frederick G Hilmer
T
approaches, when properly combined, allow managers to leverage their companies’ skills and resources well beyond levels available with other strategies:
WO NEW STRATEGIC
• Concentrate the firm’s own resources on a set of “core competencies” where it can achieve definable preeminence and provide unique value for customers.1 • Strategically outsource other activities – including many traditionally considered integral to any company – for which the firm has neither a critical strategic need nor special capabilities.2 The benefits of successfully combining the two approaches are significant. Managers leverage their company’s resources in four ways. First, they maximize returns on internal resources by concentrating investments and energies on what the enterprise does best. Second, well-developed core competencies provide formidable barriers against present and future competitors that seek to expand into the company’s areas of interest, thus facilitating and protecting the strategic advantages of market share. Third, perhaps the greatest leverage of all is the full utilization of external suppliers’ investments, innovations, and specialized professional capabilities that
James Brian Quinn is Buchanan Professor of Management at the Amos Tuck School of Business Administration, Dartmouth College. Frederick G. Hilmer is Dean of the Australian Graduate School of Management, University of New South Wales. This article is reprinted by permission of the publisher from the Sloan Management Review, Summer 1994. Copyright © 1994 Sloan Management Review Association. All rights reserved.
1
For notes, see page 70.
48
THE McKINSEY QUARTERLY 1995 NUMBER 1
outsourcing would be prohibitively expensive or even impossible to duplicate internally. Fourth, in