Process/Strategy Matrix for Outsourcing Decisions in Business Management
Process /strategy matrix by Paul Harmon will be useful in deciding how the process should be managed, it gives two variable one Is importance and other is complexity and dynamics. There may be other variables to consider in practice such as culture, cost and savings and quality. It should be used flexibly by considering all the variable affecting the current and future prospects of the organization. Advantages and disadvantages should be considered before reaching the final decision.
How to assess the Strategic importance?
Strategic importance can be assessed by asking what would happen if a process is abandoned. If it impacts the business objective (Quality, cost control and reputation etc) materially (more than insignificant) than it can be assessed as high strategic importance like threatening to the survival of business. Strategic importance can also be assessed by identifying key stakeholders. If the process affecting the key stakeholders like customers, Tax authorities and shareholder (depends on situation) than the strategic importance of the process is high.
How to assess the Process Complexity and Dynamics?
Process complexity is the difficulty of the process, which requires more knowledge, skill, licenses and experience required to carry out the activities. Some activities requires technical knowledge and membership of professional bodies, like accounting, taxation and finance, while some activities can be done by any experienced person like marketing, purchase and sales as these activities does not require any memberships. More complex the activity more control is required as complexities can lead to errors.
Dynamics are the frequency of change required in the process. Process needs to be changed every time indicators of change available like Change in Search Engine (Google, Msn and Yahoo etc) algorithms may require structure of the website to be changed. Dynamics can be assess in terms of time limits to cope with change. In case of a website, if structure is not changed immediately than other webmaster will beat you in terms of search engine rankings that will result in loss of traffic (customers) to the website business.
Process/strategy matrix gives the suggestions what is suitable if different combinations of strategic importance and process complexity and dynamics arises. These are merely suggestions, not universal formula which will always give right guidance in the context of particular business. Every business is different from other and influenced by the emotions are those who work in, so it should be used with thorough consideration of the business context and judgment.
Quadrant 1 – Low Strategic Importance with High Process Complexity and Dynamics.
- These activities should be outsourced, although it does not support business objective primarily but they are demanding activities require manual intervention and judgment.
- If automation is used high cost will be incurred to pay engineers each time change is required due to frequent and immediate change.
- If in-house manual operation is desired than resources and competencies needs to be present. It is time consuming and costly (training) to develop competencies in-house.
- These activities are supporting in nature i.e. usually all businesses have such activities. Examples include internal audit, sales ledger administration, financial services and tax preparation.
- Close control may not give any competitive advantage or resources and competencies may not be present in-house or independent supplier may provide cost-effectives and independence which may be acceptable to everyone.
Quadrant 2 – Low Strategic Importance with Low Process Complexity and Dynamics.
- These types of activities can be outsourced because neither it will impact the business objectives materially nor they are require expertise and frequent and immediately change. Or
- These activities can be automated as mistakes and errors are not very costly and machines will not need to be adjusted frequently and immediately, so that costs not arise repeatedly.
- In-house manual operation can distract business from its core activities. Time and resources should be direct toward quadrant (4).
- These are activities repetitive in nature example Security, cleaning and maintenance, canteen etc
- Outsourcing will required if investment or space is not present.
- This can be automated to gain efficiency in case of high volume activity and maintain control.
- Automation may introduce fixed costs to the business, resulting increase in business risk.
Quadrant 3 – High Strategic Importance with Low Process Complexity and Dynamics.
- These activities are necessary if business has to be successful and they are rarely changing in nature.
- These activities can be automated particular if high in volume. So that economies of scale can be achieved.
- Examples include production of low price high volumes products, like chocolates, toys and sugar.
- In-house manual operations are also acceptable if volume is not enough to use the machine to its full capacity. Ex, high priced low volume goods like essential oils used in perfumes, Jewelries.
- Activities like packaging and branding of goods may be of such nature to most businesses.
- These activities can be automated provided resources are available.
- These are usually one-off cost at initial installation and subsequently minor changing costs are incurred.
- Operating efficiency, close control and consistency is necessary if business objectives are to be achieved.
Quadrant 4 – High Strategic Importance with High Process Complexity and Dynamics.
- These are activities at the core of the business and the activities are changing in nature.
- These activities are performed in-house by workers as they can be trained according to changing business needs.
- Example include, manufacturing of innovative goods or services where changes are required to products over their life cycle, sales and services where diplomacy, problem-solving and flexibility (ability to change) is key to success and quality control where judgment is required.
- Training and motivation is needed for workers to successfully handle these processes.