Quadrant 1: Activities that are core (strategically important) and also competitive are retained in-house. This enables an organization to continue to have competitive advantage. These activities are further assessed for automation or to enable digital innovation.
Quadrant 2: Activities that are non-core but competitive will be outsourced though a JV or to a trusted partner along with technology transfer of how to execute these tasks.
Quadrant 3: These activities are prime candidates for outsourcing to a capable vendor.
Quadrant 4: These are core activities, but with low competiveness. The recommended approach is to outsource these activities to trusted service providers and form a strategic alliance. The best example of such an activity or subsystem is aircraft engines. Most aircraft manufacturers like Boeing or Airbus source engines from trusted partners like GE or Rolls-Royce, even though it is the most strategic system in an aircraft.
4-Step methodology to arrive at the decision matrix:
Step 1: Mapping of the business process identified for assessment and breakdown of the processes into unique activities for assessment. This is followed by capturing cost of execution or annual spend, skills required and associate tools and processes to execute these activities.
Step 2: Strategic importance and competitiveness assessment of each activity. Strategic importance assessment is normally performed by numerically assessing a series of customized questions like (i) Is the activity vital to your company’s competitive advantage? (ii) Is it part of what makes your business unique? The competitiveness is assessed against external service providers based on Quality, Cost and Delivery (QCD).
Step 3: Mapping of the activities onto a decision matrix, X axis being strategic importance and Y axis competitiveness.
Step 4. Grouping of tasks and strategy planning including road map and cost benefits estimates to eliminate or outsource non-core and non-competitive activities. Modernize and introduce digital innovation to automate and accelerate execution of core tasks.
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