Practice :: General Management

Making outsourcing decisions data-driven

Despite the prevalence of outsourcing in business today, the decision to outsource itself is often opaque. How should a business choose between outsourcing an activity or performing the same in-house? Intuitive arguments of core and non-core activities have dominated outsourcing decision making.

Professor Sourav Mukherji and Professor J Ramachandran of IIM Bangalore argue that analytical evaluation that considers risks such as knowledge spillover or poor performance by suppliers and transaction costs like searching, drawing and enforcing contracts is important for successful outsourcing. They present transaction cost economics as a method to generate data-driven decision rules for outsourcing.

Specialization and focus on a few activities is imperative for innovation in any organisation. How do managers decide which of the organisation’s activities should be conducted in-house and which should be purchased from the market?

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