Executive briefing: Shareholder value and outsourcing

Contents

Understanding outsourcing

Connecting shareholder value and outsourcing

About the author

About Trestle Group Research

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This Executive Briefing from Trestle Group Research focuses on illustrating the link between shareholder value and outsourcing. Many companies are outsourcing today to achieve various goals -- examples include reduction of costs, increased efficiencies and increased flexibility. As companies outsource, executives should continuously evaluate the link between shareholder value and the outsourcing initiative using measurable indicators -- will today's outsourcing initiative increase or erode shareholder value?

Understanding outsourcing

Outsourcing is often defined as the transfer of activities or processes to a third party for some type of benefit including cost reductions, increased efficiencies, access to flexible labor pools and ability to focus on core competencies.

Offshore outsourcing is the transfer of activities or processes to a lower cost country - further increasing cost savings as well as flexibility.

If outsourcing engagements are conducted properly, shareholder value will increase. If done improperly, adverse effects to shareholder value are likely to incur. As executives evaluate outsourcing initiatives, the following questions should be addressed:

• Throughout my organization, have I properly identified core versus non-activities?
  
• Can I realize the cost savings projected in the business plan and are these savings sustainable?
  
• How does this outsourcing initiative affect my core employees?
  
• Will my customers be affected by this initiative thus affecting sales?
  
• Will the quality of my product or service be compromised?
  
• How do I measure the impact on shareholder value created through an outsourcing initiative?

Outsourcing has existed for thousands of years in one form or another. For example, people have outsourced their money management to banks for centuries, companies have relied on governments to manage city infrastructures for thousands of years and very few people today supply their own energy.

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