Product outsourcing is a form of division of labor and involves to getting done any of the stages of product development from organization which specializes in that task making it possible to concentrate on the core activities.
It differs from the traditional Division of Labor in that the division of activities is not among departments of a single organization, rather among organizations. The process of product development outsourcing is affected by a no. of factors; major ones include Costs involved, resource planning flexibility, IP rights, transfer and acquisition of knowledge and Time-to-market conditions. Need for such a concept has been stemmed by the ever-increasing complexities in networks which makes it necessary for businesses to search for new ways of streamlining their operations. Many FMCG companies are using outsourcing as an option for minimizing risk in new product categories. In addition, they are able to protect their local brand interests and ensure that consumers are able to buy the latest products. However, the challenges of adaptability and flexibility faced in the process have to be addressed. This can be done by framing and utilizing KPIs to have a way for assessing the performance.
KPIs can be arranged under 4 perspectives. Financial perspective includes percentage increase in labor costs, percentage increase in revenues and operating costs. Customer perspective can be had from percentage defective products and timely delivery of products. Internal process perspective consists of KPIs like success rate of new product, and percentage time allocated for Q.A. Continuous learning and training perspective comprises of number of technical training sessions, number of product design sessions and number of focus group sessions.
Product outsourcing has been realized as a solution to be updated about international trends, deliver innovative solutions that cause consumers coming back and protect their brands without experiencing significant financial risk. These benefits however do not come without a cost. Various challenges are encountered in the process of outsourcing. Finding a right partner with the appropriate and adequate knowledge to do the task which matches the set standards can be a Herculean task. Products which require constant upgradation in the form of innovation to remain competitive are an even tougher task to be handled. Software Products are one such class. Organizations have to channel a major chunk of their time in continuous planning, building and architecting the application enhancements for the products. The schedules for delivery have to be followed at any cost to stay ahead of the competitors. In addition to these, outsourcing succeeds only in case of transferable tasks. Add to this the difficulty faced whil e q
uantifying the degree of innovation of the job, as KPIs. Selecting KPIs in itself requires a lot of analysis as wrong parameters can mislead the organization. So, only those indicators which help in retaining the focus should be incorporated in the BSC. Once this is done the performance evaluation of product outsourcing companies can be established and improved further.
KPIs are parameters used for performance evaluation of a task or an organization. These help in quantifying the progress, as it is made, in terms of values. This gives a more scientific and logical basis to the decisions undertaken. In the context of product outsourcing companies, these can be used by the client companies in assessing the performance of the outsourcing Organizations, thereby assisting them in judging the task performance and settling for the right partner.
To sum up, the KPIs when structured along four directions, Financial Perspective, Customer Perspective, Internal Operations and Learning and Growth Perspective in the form of Balanced Scorecard help in the act of performance evaluation of product outsourcing companies.