Industry insight

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Low
Intensity of Process Connecvity
High
High
Low
Diff
ere
n
al
in
ca
pa
bi
lit
y
im
pr
ov
em
en
tr
ate
Absorpve Capacity (A)
Re
la
ons
hip
(R
)
X- Axis
Y -
A
x
is
Fle
xibil
it
y
(F
)
Monitoring (M)
Q1 – Uncertain Drizzle
Q2 – Bright Sunshine
Q3 – Thunderstorms
Q4 – Monsoons
Notes: The outsourcing arrangement is best managed by emphasizing differently on Flexibility
(F), Absorptive Capacity (A), Relationships (R) and Monitoring (M). The Outsourcing Matrix is
termed as FARM, based on an analogy with a typical farmland where the farmer deals with varied
conditions using various skills and techniques to optimise farmland output. Similarly, corporate
managers have to use varied strategies for different class of outsourced processes. The examples
of outsourced processes discussed to illustrate the outsourcing matrix are all drawn from the
Indian context. For illustration purpose, the four quadrants are named based on Indian weather
conditions. The weather conditions and the associated experience of the farmers have been chosen
to mirror the situation which the focal firm finds itself in with regards to organizational processes
in the respective quadrant of the matrix. Q1 – Uncertain drizzles: Similar to fickle drizzles confuse
the farmer, this quadrants situation of fringe process (Low on x-axis) not having attractive vendor
options (Low on y-axis) confuse the focal organization. For instance, cafeteria services would be a
decidedly peripheral process for a scientific research firm. If outsourced, it would be a constant
irritant for the focal firm to find that the cafeteria vendors service levels are lethargic and
uninspiring. Q2 – Bright sunshine: A the farmer vigorously approaches the farmland on a clear
day. Similarly, fringe processes (Low on x-axis) having attractive outsourcing options in the
market in form of dynamic vendors (High on y-axis) provide opportunities to the focal
organization. For instance, payroll services would be a peripheral process for a steel manufacturer.
Dynamic improvement with options in the external market for payroll services would excite the
steel maker. Q3 – Thunderstorms: A storms violent uncertainty threatens the farmers crops.
An organizations widely connected internal process (High on x-axis) having vendors managing the
process more dynamically than the organization itself (High on y-axis) can be unsettling for the
focal organization. For instance, a jewellery manufacturer outsourcing its design services to a
highly creative vendor, feels constantly edgy as it has to keep pace with an outside agency for
designs which are the jewellery makers USP in eyes of customers. Q4 – Monsoons: The yearly
monsoon sea breezes herald the arrival of rainy season. Monsoon accounts for ~80 per cent of the
annual rains in the country and is closely linked to the farmers fortunes. In Q4, deeply connected
organization processes (High on x-axis) where the firm finds itself in the enviable position of
improving and innovating at a rate comparable to vendors in the market (Low on y-axis). For
instance, an airline company outsources its customer information and feedback services. This
reduces the airlines burden, yet having retained the skeletal customer services department, it
remains comfortable in its understanding that it continues to read the consumers mind and a
specialized vendor