4.3.2—Outsourcing

Outsourcing contracts an external provider to perform an activity previously done inside the business. It may reduce fixed cost or add specialist capability, but creates dependency and coordination risk.

Assess quality, confidentiality, service continuity, transaction costs and the strategic importance of the activity—not just the quoted price.

A small firm may outsource payroll to gain compliance expertise, while keeping product design in-house because it differentiates the business.

Outsourcing is not automatically cheaper or lower quality; the contract and supplier relationship determine outcomes.