1. Gizmo, Inc. is a diversified multinational manufacturer. The CEO is considering outsourcing the marketing research function to a global consulting firm. The consulting firm would charge a fixed annual fee of $1,300,000. At present, the costs of operating the marketing research department are $1,508,000 per year, as follows:

Director salary $146,000

Staff salaries 890,000

Travel 137,000

Occupancy 84,000

Consultants 90,000

Executive VP 75,000

Overhead 40,000

Miscellaneous 46,000

The outsourcing firm would perform all duties currently performed by Gizmo personnel, as well as those of the external consultants. Miscellaneous expenses (supplies, etc.) would be eliminated. Travel costs would decline 90%. Occupancy costs reflect internal charge for office space in corporate headquarters. Cost for Executive VP reflect a charge for 15% of her salary; the market research director reported to her. Overhead is an allocation of general corporate overhead.

Required: Discuss the factors that the CEO should consider in deciding whether to outsource the marketing research function.

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