Outsourcing
Outsourcing occurs when organisations use external providers to perform essential functions that would otherwise be handled internally.
These functions can include business processes, infrastructure, services and support. They can also extend to areas of governance such as decision-making and the associated responsibility and accountability that comes along with any form of governance.
Outsourcing is often justified as an efficiency measure that reduces costs and resources. In the short term, these benefits can often be seen on the balance sheet but not the total cost of ownership, which includes the direct and indirect costs associated over the long term.
Outsourcing involves transferring valuable assets from one organisation to another. These assets are often intangible but include organisational knowledge, history, control, independence, adaptability, responsibility, sustainability, morality, and partnership. What is often glossed over is that this transfer creates a dependency for the organisation. They are now held at the whim and behest of their outsourcing provider – their choices, priorities, longevity and ability.
The short-term focus on costs is often associated with labour, which is simple to show on a spreadsheet. However, this equation is too simplistic and fails to connect with other essential aspects of the operation and its broader context. As organisations continue to operate in more dynamic and complex spaces, a simple view of the world is ineffective as it fails to capture the volatile environment of change in which they operate. The other aspect of this simplistic numerical view is that it fails to acknowledge that intangible assets can grow, develop and increase their value, often at faster rates than wage growth. This means that outsourcing organisation knowledge areas results in a loss to the organisation over the long term.