Outsourcing involves the decision of whether to perform an activity in house or purchase it from an outside vendor. A company can increase its sustainable growth rate by outsourcing more and doing less in-house When a company outsources, it releases assets that would otherwise be tied up in performing the activity, and it increases its asset turnover. Both results diminish growth problems. An extreme example of this strategy is a franchisor that sources out virtually all of the company's capital-intensive activities to franchisees and, as a result, has very little Investment.
The key to effective outsourcing is to it, "core competencies" lie. unique abilities or, as consultants would put If certain activities can be performed by others without jeopardizing the firm's core competencies, these activities are candidates for outsourcing.