Should You Outsource Instead?

Before acquiring a company, you should consider whether it makes more sense to outsource instead. There are 2 considerations that help firms determine whether it should perform the activity in house, or outsource it.

1. Strategic value of activity. How important is this activity to your firm?

2. Relative competence of your firm compared with the best supplier. How good is your firm at performing this activity compared with others?

If this activity is very important to your firm, and your firm is very good at it, you should perform this activity in house.

If this activity is not important to your firm, but your firm is very good at it, you can do it in house or outsource it.

If this activity is not important to your firm, and your firm is not good at it, you should outsource the activity.

If this activity is very important to your firm, but your firm not very good at it, you should consider partnering with another firm, and perhaps an acquisition.