define outsourcing

Building a Strategic Outsourcing Decision Framework Caroline M. Boyd Bachelor’s/Master’s of Science in Accountancy program Wake Forest University Winston-Salem, North Carolina. Paul Juras Calloway School of Business and Accountancy Wake Forest University Winston-Salem, North Carolina Abstract Outsourcing receives an inordinate amount of media attention today. Potential cost savings, financial flexibility, technological improvement, and strategic enhancement are benefits often associated with outsourcing, but outsourcing is not without risks. One key risk is deciding to outsource without adequately analyzing and assessing the specific risks outsourcing may present to the organization. In an effort to aid managers, we offer a framework for making the outsourcing decision. The decision framework includes a series of questions related to the risk management, and provides a starting point for the major issues companies need to consider when deciding whether, or how, to outsource. Answering these questions Decision framework will enable the outsourcing company to maximize its outsourcing relationships both now and in the future. 2 Building a Strategic Outsourcing Decision Framework In 2004, Boeing launched a plan to develop the 787-Dreamliner, the world’s most efficient airplane. Boeing will rely heavily on its competencies in aerodynamics, highend fuselage design, logistics, and assembly to develop the aircraft. It will not, however, produce many of the aircraft’s sub-components. Boeing will, instead, work with hundreds of suppliers to get its newest product “off the ground.” The 787Dreamliner’s pattern of development is fairly standard for the company, whose President and CEO Harry Stonecipher (2004) stated “Just about 70% of the value added in most of the products that bear the Boeing name was put there by suppliers, not by our own employees.” Boeing is an example of a traditional outsourcing arrangement, but outsourcing is no longer limited to purchasing component parts from an outside manufacturer. As its potential applications have spread, firms may need a framework for deciding whether or not to enter into an outsourcing agreement. This paper provides a strategic outsourcing framework in which outsourcing decisions can be made. Before describing the framework, the paper provides a brief history of outsourcing and describes various forms of outsourcing arrangements in today’s marketplace. It also identifies the primary risks and rewards involved in outsourcing. Definition and History of Outsourcing Decision framework At its core, outsourcing involves transferring ownership of an organization’s business activities to a service provider. For a fee, the outside service provider carries out the activities and maintains responsibility for their outcomes (Chamberland, 2003). The outsourcing arrangement may be either tactical or strategic. Tactical outsourcing has a short-term focus on minimizing operational inefficiencies or maximizing daily operations (Murphy, 2004). Strategic outsourcing seeks overall business improvement rather than simple cost savings so that a company can achieve its long-term strategic goals by focusing on those activities central to organizational success. 3 Outsourcing has taken on three distinct characterizations since it first developed: manufacturing outsourcing, information technology (IT) outsourcing, and business process outsourcing. Manufacturing outsourcing, as in the Boeing example, is the production of a part, component part, or service for ultimate delivery to the end customer. IT outsourcing involves the outsourcing of various information processes such as network management, application development, and data center operations (Beasley, Bradford, and Pagach, 2004). This type of outsourcing helped popularize the concept of outsourcing beyond the industrial setting. The latest iteration of outsourcing is business process outsourcing (BPO), in which the service provider assumes responsibility for an entire business process, such as Finance or Human Resources (Amega Group, 2003). Although outsourcing receives an inordinate amount of media attention today, it is not a new phenomenon. It emerged in the early 1980s in response to economic pressures including a recession, high inflation, and sharp interest rate hikes (Schneider, Decision framework 2003). Outsourcing received an additional boost in 1994 with the signing of the North American Free Trade Agreement (NAFTA), which encouraged trade between the United States and its neighbors to the north and south. Throughout the 1990s, 4 outsourcing in many forms was embraced by companies in all industries. In a 1997-98 survey by the Amega Group, two-thirds of executives indicated that they had outsourced a business process, and outsourcing market penetration was expected to grow from 6% in 1995 to 10% in 2000 (Amega Group, 2003; “The Outsourcing Advantage”, 1996). That predicted growth has been surpassed, as demand for outsourcing has reached a overall global value of $100 billion in 2005 (Chamberland, 2003). Clearly, many companies are benefiting from the use of use of outsourcing agreements, but outsourcing is not without risks. Outsourcing Rewards and Risks Outsourcing decisions have historically been driven by potential cost savings, and this remains the motivating factor in the make-or-buy decision. Outsourcing operations, particularly to low-cost countries, provides cost savings from a variety of sources. Cost savings, however, also arise from cheap raw materials and reduction in overall overhead (Quint and Shorten, 2005). Additional cost savings can result from external providers’ economies of scale. These sources of cost savings collectively allow the outsourcing firm to maximize its profit potential. In addition to helping a firm to reduce its costs, outsourcing can also improve the firm’s financial flexibility and transforms fixed costs into variable costs, allowing companies to pay for only what they need (Teems, 2003). Additionally, firms that Decision framework 5 outsource are not limited by past investments (Drtina, 1994), and are able to utilize cash that would have been tied up in fixed assets. Moving assets off the balance sheet also quells concerns about any unused capacity. The benefit of this financial flexibility lies in the fact that organizations can make resource allocation and investment decisions based on developing their competencies rather than the general need to get the product or service out the door. Beyond the potential financial rewards of outsourcing are benefits from improvements in technology and innovation. By contracting with external providers, companies are able to gain access to new technology which might otherwise not be available. Outsourcing arrangements may also create opportunities for innovation and new product development (Welch and Nayak, 1992). Introducing an external supplier into a firm’s value chain places a company on the fast track to innovation as it can develop synergies and learn how its processes interact with those of its outsourcing providers. The final main category of outsourcing benefits can broadly be defined as “strategic enhancement.” Companies that focus on those activities that drive their organization’s success, and outsource the rest, can further refine their skills and competencies and strengthen their competitive advantage by allowing them to focus more intensely on what your company is really all about (“The Outsourcing Advantage”). The rewards of outsourcing do not come without significant risks, and underlying all outsourcing decisions is the reality that more than half of all recent Decision framework outsourcing arrangements are likely to fail (Simhan, 2002). In their article “The seven deadly sins of outsourcing,” Barthelemy and Adsit (2003) hypothesize that the reasons most outsourcing ventures fail are because companies: Outsource activities that should not be outsourced Select the wrong vendor Write a poor contract Overlook personnel issues Lose control over the outsourced activity Overlook the hidden costs of outsourcing Fail to plan an exit strategy. 6 Although this list includes the reasons why outsourcing may fail, it also captures the most significant risks involved in outsourcing: strategy, selection process, contract negotiation, implementation, post-implementation, and overall relationship management. The supplier selection process involves a significant number of risks. The primary risk involves planning and failure to conduct the necessary due diligence to lay the foundation for the future outsourcing setup and relationship (Barretto, 2004). The next step in the outsourcing process is contract negotiation, and, particularly due to legal implications, it presents a number of risks. Outsourcing companies must be explicit about what they intend to gain from the outsourcing relationship and what they will contribute in terms of time, inventory, and resources (Hogan, 2004). Companies that are not up-front during the negotiation process run the risk that the outsourcing contract will not appropriately capture their needs from and contributions to the outsourcing arrangement. The negotiation phase is also the time to establish and Decision framework agree upon an exit strategy. An effective exit strategy helps to ensure the relationship will end with minimal damage to the company if things go wrong (Hogan, 2004). 7 While outsourcing arrangements present significant risks before the arrangement is even executed, risks escalate when the arrangement is implemented. A primary risk involves flexibility, particularly the risk that the outsourcing arrangement does not allow for fluctuations in business needs (“40 Risks”, 2005). Additionally, outsourcing risks can arise when arrangements do not fully address operational issues, agreed-upon service levels, and technology expectations, as well as when they establish unreasonable timelines for implementation of the outsourcing arrangement. Following implementation, outsourcing introduces an entirely different set of risks into the enterprise because, by its very nature, a good is produced or a service delivered outside the walls of a firm. The risks presented by outsourcing include market risk, operational risk, financial risk, human capital risk, IT risk, legal risk, regulatory risk, and reputation risk (Beasley, Bradford, and Pagach, 2004). The final category of outsourcing risks is relationship management. An effective outsourcing relationship requires strong communication both within the outsourcing company and between it and its supplier. A precise understanding of internal costs on both ends, strong change management efforts, and emphasis on a long-term collaboration between the parties are essential elements of the relationship (Hodges and Block, 2005). Without them, a carefully crafted and developed outsourcing relationships may not survive over time. Decision framework One of the primary risks of outsourcing not included in the list is making the decision to outsource without considering the impact of outsourcing on other functions and areas of risk, and failing to adequately analyze and assess the specific risks outsourcing may present to the company (“40 Risks” 2004). It is clear that outsourcing is a strategic decision that requires forethought and planning, as opposed to using adhoc approaches to outsourcing that are both shortsighted and ineffective. This assessment is the motivation for offering a framework for evaluating an outsourcing arrangement. The framework will address the risks articulated within the Enterprise Risk Management (ERM) Integrated Framework proposed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its Internal Control Internal Framework. Strategic Outsourcing Framework The ERM process is intended to identify potential events that may adversely 8 impact the organization. Risks are identified in relationship to strategy and alternatives are evaluated to determine the effect on the organization’s overall risk profile. Essentially, the ERM Integrated Framework encourages companies to take a holistic look at risk management by identifying all possible risk events, assessing the likelihood and impact of those risks, and responding to them through a combination of avoidance, acceptance, reduction, or sharing. The ERM Integrated Framework proposes four “distinct but overlapping” categories of risk: strategic, which concerns the entity’s achievement of its overall mission and goals; operational, which addresses the entity’s use of people, processes, Decision framework assets, and technology to achieve its objectives; financial/reporting, which emphasizes the reliability of the entity’s financial statements and reports; and compliance, which focuses on the laws and regulations that affect the entity (Bit Economics, 2005; PricewaterhouseCoopers, 2004). 9 The framework presented in this paper articulates considerations within the four risk categories through a series of questions. In addition to categorization by type of risk, the questions presented in the framework are organized within six groups: who, what, when, where, why, and how [much]. A brief description of the significance of each of these groupings, in addition to an explanation of their relative order, follows. Questions within the “why” category are presented first because they seek to answer the basic questions about outsourcing. No company should enter into an outsourcing agreement before addressing the fundamental issue of clearly identifying the objective of outsourcing a particular process. The “what” category of questions is presented next because, after a company determines the objective of outsourcing, it needs to determine how to best realize the potential benefits by identifying what process or product to outsource. “Who” related questions includes the critical considerations and risks surrounding the people aspects of the outsourcing process, such as who is making the decision, who is the outsourcing vendor, and who will remain after the transition is complete. The next category is “how [much]”, and it addresses diverse issues like how the outsourcing arrangement will be implemented and measured as well as specific concerns such as technology migration. The final two categories, “where” and “when”, are no less important than the others, but they afford Decision framework 10 relatively less risk. Where questions focus on where the outsourcing vendor will be located, and any associated risks, and the when category addresses the general timeframe and related issues. The results of this categorization, in combination with the ERM risk categories, are presented and discussed below. As previously stated, the first question to ask in making an outsourcing decision is why. Analysis of the why is critical because the resulting discussion attempts to identify the main reasons the company is considering outsourcing. Failing to define whether its outsourcing strategy is core strategic or operational will only result in hazy objectives and ineffective measurement systems as outsourcing becomes a more critical part of the company’s operations. With these thoughts in mind, there are three main questions every company should ask to explicitly identify its preference and then move forward accordingly. The questions appear in Table 1. If outsourcing makes sense, the next question in the outsourcing decision framework is what to outsource. The what issue comes with its own risks. For instance, companies hyped up about the benefits of outsourcing often fall into a copycat trap of outsourcing simply because a a competitor does. With such an approach the potential outsourcer has failed to consider how customer service is integrated within the organization. When determining what to outsource, it is important that a company think about whether the outsourced product or process is tactical or strategic. A tactical process is likely to be uniform among competitors while a strategic process creates competitive advantage and distinguishing the company from others in the marketplace. Decision framework 11 Outsourcing a strategic process can create a competitor out of a vendor, undermining the value of an outsourcing arrangement. For this reason, outsourcing companies need to carefully consider the source of their competitive advantage before determining what exactly they are willing to transfer outside their own walls. Table 2 provides some questions to help management decide what to outsource. Consideration of the who of the outsourcing decision is critical because it deals with the people involved in the outsourcing decision and cannot be controlled as carefully as some of the other aspects of the process. Appropriate questions, and their related risks, can be discussed within four subcategories: the in-house outsourcing team, the potential vendor, surviving employees, and new employees. The in-house outsourcing team has a crucial role to play within a company, to effectively define and carry out the company’s outsourcing strategy. For this reason, it is essential that the outsourcing team be composed of individuals representing all stakeholder groups. On another note, outsourcing usually results in one of two outcomes for employees: they are transferred to another role within the company or they are let go. Whether employees are moved into new jobs or are terminated, plans for their transition should be carefully laid out to make sure the process is as smooth as possible. Additionally, outsourcing survivors are often left feeling guilty and demoralized, which can lead to the risk of employee turnover, operational slowdowns, and strikes (Beasley, Bradford, & Pagach, 2004). As a result, this risk should be thoughtfully considered and an appropriate response should be formulated. Decision framework 12 Finally, the outsourcing arrangement will involve employees at the outsourcing vendor , which has its own set of issues and risks. Table 3 contains the who related questions that can help management think through these issues. An outsourcing strategy cannot be effectively implemented until it has been articulated. The outsourcing agreement should provide for all the logistics contained in the arrangement, including who will do what, how will payment be exchanged, and when the transition will take place. How [much] type questions concern how the outsourcing strategy will be determined and the outsourcing arrangement implemented, as well as how costs will be appropriately captured and measured. Any statements the outsourcing company has made about its anticipated contributions should be incorporated into the outsourcing agreement. Likewise, the outsourcing company should carefully review the agreement to ensure that it is not agreeing to provide services it has not planned to provide. The risk in taking short-cuts, such as not defining detailed language and waiting to set baseline service levels, is that both outsourcing parties get so wrapped up in their everyday operations that they never go back and fill in the blanks (Hodges & Block, 2005). What they do not consider, though, is that the time it takes to do this up-front will be significantly less than the time it takes to untangle a misunderstanding down the road. Therefore, any company considering outsourcing should first formulate an outsourcing strategy and then test the comprehensiveness of that strategy. The cost dimension of outsourcing does not deserved to be buried deep within this discussion, because it is often the impetus for making the decision to outsource. Decision framework 13 For the sake of organization, however, it is appropriate to classify it with the other how [much] considerations. The cost dimension and other how [much] related questions appear in Table 4. Some of the most significant risks associated with outsourcing involve the where dimension. Much of the outsourcing coverage in recent years has focused on moving operations to low-labor cost countries like China and India. There are a plethora of other options, however, which vary based on a company’s outsourcing needs. Diversifying into several countries, on the other hand, can minimize political risks and ensure security of labor supply and stable costs over the long-term (Vestring, Varma, & Reinert, 2005). For these reasons, a company’s decision whether to outsource to one or more countries should be an important consideration in developing its outsourcing strategy. Another important consideration, which sheds light on an important operational risk, is whether the process is heavily automated or labor-intensive. Companies have outsourced all kinds of processes and products, from plastic toy assembly to telemarketing to payroll processing, each of which requires different skills and manual processing. Integral in the “where” decision, therefore, is identification of the relative requirements for manual versus automatic processing. The risks associated with any option are as diverse as the countries themselves, but there are a few common threads which can be addressed through the questions presented in Table 5. The final dimension of the outsourcing decision is captured in the when category of considerations, which covers a variety of issues relevant to the timing of the Decision framework 14 outsourcing process. Outsourcing involves a significant amount of risk for all parties involved, and thus warrants adequate consideration. The crucial element in this risk assessment, however, is not the fact that it is undertaken, but that it takes place before any exchange of money, processes, or other resources. Otherwise, the outsourcing company has the additional risk of not fully understanding the operations of its outsourcing partner, which can lead to much larger problems upon discovery of unfavorable policies or procedures. Another time-related relates to whether the entire process be outsourced at once or will be outsourced in stages. This will ensure that the outsourcing company’s operations will not be negatively affected by a business interruption. The when related questions appear in Table 6. Conclusion Outsourcing offers the potential for rewards, which can be classified within four main categories: cost savings, financial flexibility, technological improvement, and strategic enhancement. These benefits can accrue as companies shift their approach to outsourcing from that of a “quick fix” to more of a long-term strategic solution. A strategic approach to outsourcing is characterized by a long-term partnership between an outsourcing company and its third-party vendor. In order to increase the chances of developing and maintaining a successful relationship, management will need to consider all aspects and potential risks of the outsourcing arrangement. In an effort to aid managers, we offer a framework for making the outsourcing decision. The decision framework presented in this paper attempts to guide companies in their outsourcing decisions. It presents a series of questions by the thrust of the Decision framework 15 information they seek to gather – why, what, who, how [much], where, and when – and their accompanying ERM risk category. Although this framework is not comprehensive, it does provide a reasonable starting point for the major issues companies need to consider when deciding whether, or how, to outsource. Answering these questions will enable the outsourcing company to maximize its outsourcing relationships both now and in the future. References 40 Risks Purchasing Pros Must Address for Outsourcing Success. (2005). Supplier Selection & Management Report.Vol.5 No.3, pp. 4-6. Amega Group. (2003). Strategic outsourcing: Analyzing the cost benefits. Retrieved September 16, 2003, from http://www.amegagroup.com/reference/strategicoutsourcing.html. Barretto, Charito B. (2004, July 2). Weekender: Labor & management. BusinessWorld. p. 1. Barthelemy, Jerome and Dennis Adsit. (2003). The seven deadly sins of outsourcing; Executive commentary. The Academy of Management Executive. Vol. 17, No. 2, pp. 87-100. Beasley, Mark, Marianne Bradford, and Don Pagach. (2004). Outsourcing? At your own risk. Strategic Finance. Vol. 86, No. 1, pp. 22-29. Bit Economics, LLC. (2006). Delivery and value assurance: A framework for successful enterprise risk management. Retrieved February 8, 2006, from http://www.biteconomics.com/files/downloads/BitEconSPI(ERM).pdf#search='Enterprise%20risk%20management%20risk%20categories '. Chamberland, Denis. (2003). Is it core strategic? Outsourcing as a strategic management tool. Ivey Business Journal Online. July/Aug. Retrieved October 23, 2005, from http://www.iveybusinessjournal.com/article.asp?intArticle_ID=431. Drtina, Ralph E. (1994). The outsourcing decision. Management Accounting. Vol.75, No. 9, pp. 56-62. Decision framework 16 Hodges, Mark and Duie Block. (2005). Business process outsourcing: Current trends and best practices. Contract Management Magazine. Vol. 45, No. 1, pp. 8-17. Hogan, Jane. (2004). Managing strategic outsourcing. Medical Device Technology. Vol. 15, No. 10, pp. 12-13. Murphy, Ray. (2004). Outsourcing the Program. Supply Management. Vol. 9, No. 6, pp. 32-33. The Outsourcing Advantage.(1996). Logistics Management. Vol. 35, No. 10, p. W4. PricewaterhouseCoopers LLP. (2004). Enterprise risk management – integrated framework (Executive Summary). September. Quint, Mitchell and Dermot Shorten. (2005). The china syndrome. Strategy + Business. Retrieved August 24, 2005 from http://www.strategybusiness.com/press/article/05102?pg=all&tid=230. Schneider, Jasper. (2003, April 27). A brief history of outsourcing. Retrieved October 22, 2005, from http://www.sudhian.com/showdocs.cfm?aid=373. Simhan, Raja. (2002, October 30). An inside view of outsourcing. Business Line online edition. Retrieved October 22, 2005, from http://www.thehindubusinessline.com/ew/2002/10/30/stories/2002103000020 100.htm. Stonecipher, Harry C. (2004, June 2). Outsourcing: The real issue. Orange County Business Council AnnualMeeting and Dinner. Crystal Cove, Hyatt Regency, Irvine, CA. Retrieved October 22, 2005, from http://www.boeing.com/news/speeches/2004/stonecipher_040603.html. Teems, Yvonne. (2003). Outsourcing offers some pros, along with a few cons. Business Insurance. Vol. 37, No. 30, p. T13. Vestring, Till, Suvir Varma and Uew Reinert. (2005). Three keys to successful cost migration. Supply Chain Management Review. Vol. 9, No. 6, p. 11. Welch, James A. and P. Ranganath Nayak. (1992). Strategic sourcing: A progressive approach to the make-or-buy decision. Academy of Management Executive. Vol. 6, No. 1, pp. 23-31. Decision framework 17 Table 1 – Questions Relates to Why Outsource? Framework Question What does the company seek to achieve through the outsourcing arrangement? Has a convincing business reason for outsourcing been developed? Are the goals of the outsourcing arrangement strategic or operational in nature? ERM Risk Assessment Strategic Strategic Strategic Operational Decision framework 18 Table 2 – Questions Related to What to Outsource Framework Question Can the process or activity to be outsourced be discretely identified? Are the product specifications/process descriptions available and easy to follow? Has the provider been trained on the unique issues associated with the outsourced product or process? Has the potentially outsourced process been benchmarked against “best in class”? If so, have any potential improvements been made before handing the process off to an outsourcing provider? Is the outsourced process one that provides a competitive advantage, or one that can be easily duplicated by competitors? ERM Risk Assessment Strategic Operational Operational Operational Operational Strategic Decision framework 19 Decision framework 20 Table 3 – Questions related to Who is Involved in the Outsourcing Agreement Framework Question Have all relevant parties been consulted in arriving at the decision to outsource? Does the potential outsourcing initiative have the full support of senior management? Has someone been elected to play “devil’s advocate” in order to ensure that all sides of the issue are considered? Has the outsourcing team been allocated adequate resources, in terms of both dollars and skills, in the process of selecting a vendor? Has a dedicated outsourcing governance organization/relationship management team been formed to monitor and facilitate all outsourcing arrangements? Have all potential outsourcing vendors been considered, or has the company limited itself to “sole-source” outsourcing? Have explicit criteria been defined for selecting the outsourcing vendor? Has a thorough and complete financial due diligence been completed on the potential outsourcing provider? Has an assessment of the potential vendor’s reputation taken place? Is the culture at the outsourcing provider supportive of qualityminded and ethical operations? Have all capacity issues (and limitations) been addressed with the outsourcing vendor prior to execution of the agreement? Does the outsource provider have the skills necessary to carry out the arrangement? If not, can those skills be easily trained? Is the potential outsourcing provider working with any other companies? If so, what other demands on their time exist? Has the full outsourcing arrangement been planned and articulated before an announcement is made to employees? Does the outsourcing arrangement provide for employee transition plans? How are the risks associated with in-house survivors of outsourcing being addressed? Have employee communication issues, such as how to schedule meetings, evaluate performance, and escalate critical issues, been addressed? What particular steps have been taken to improve communication within a cross-cultural environment? Have applicable employment laws been considered and addressed? ERM Risk Assessment Strategic Strategic Strategic Operational Strategic Strategic Strategic Financial/ reporting Compliance Strategic Strategic Operational Operational Operational Operational Operational Operational Operational Operational Compliance Decision framework 21 Table 4 – Questions Related to How [much] Framework Question Has a concise outsourcing strategy, including specific process requirements and service expectations, been developed? Are the goals and benefits expected to be realized from the outsourcing arrangement thoughtfully articulated? And is the potential vendor made aware of those goals and objectives? Has the company made express statements about what it expects to contribute in terms of time, equipment, inventory, etc.? How will the outsourcing arrangement be structured in order to get the greatest benefit without jeopardizing a company’s strategy? Does the outsourcing agreement provide for flexibility in terms of business requirements and needs? In particular, does it address change orders? Have any “short-cuts” been taken in drafting the outsourcing agreement? How have information technology needs been addressed within the outsourcing agreement? Will the outsourcing company and its providers’ systems be able to effectively interface? Will appropriate controls be put in place to safeguard the security and confidentiality of transmitted information? How will customer service and customer expectations be addressed within the outsourcing arrangement? What is the sourcing company’s intended exit strategy, and how will it minimize damage if the outsourcing arrangement sours? What is the estimated total cost of outsourcing? Does the outsourcing agreement truly capture all costs? How will the continuing costs of the arrangement be managed, and are they appropriately accounted for in arriving at the initial decision to outsource? If outsourcing to a faraway country, how will shortages and stockouts, as well as the inevitable obsolete inventory, be handled? Is there a clear basis for measurement? How will the company know if the outsourcing arrangement has achieved what it set out to achieve? How will the benefits of continuous improvement and productivity gains be shared between the outsourcing provider and the sourcing company? ERM Risk Assessment Strategic Strategic Operational Strategic Operational Strategic Operational Operational Operational Compliance Strategic Operational Strategic Operational Strategic or Operational Operational Operational Strategic Strategic Operational Decision framework 22 Table 4 – Questions Related to How [much] Framework Question How will “lessons learned” from mistakes in the past be translated into improvements for future outsourcing relationships? ERM Risk Assessment Strategic Operational Decision framework 23 Table 5 – Questions Related to Where to Outsource Question Framework Question Category Where Will all outsourcing activities be concentrated in one country, or will the risk be diversified across countries? Have the environmental factors specific to the outsourcing provider’s locale been considered? Is the process heavily automated or labor-intensive? ERM Risk Assessment Strategic Operational Compliance Operational Compliance Operational Decision framework 24 Table 6 – Questions Related to When to Outsource Framework Question Is the current business environment supportive of expanding operations? What is the future outlook for the outsourcing company’s industry? ERM Risk Assessment Strategic Has a thorough risk assessment taken place before making the decision Strategic to outsource? Will the entire process be outsourced at once? Or will it be implemented in stages, such as handing off sourcing, then assembly? How long will it take, from the initial stages of the outsourcing arrangement, to implementation and full production through the outsourcing provider? Is the timeline for implementation of the outsourcing arrangement reasonable in light of the needs and requirements of both parties? In the event of an emergency, what kind of contingency/disaster recovery plan is in place? Operational Operational Operational Strategic Operational