Outsourcing away your core competence
In an attempt to manage costs and create more agile enterprises, outsourcing stands out as one means by which firms have turned in enormous returns on investment. Outsourcing has been able to reduce fixed costs, convert them to variable costs and reduce an organization's inertia in a dynamic marketplace. However, success can be a poor teacher. There is a case to be made wherein too much of something that has worked can be bad for an organization.Lack of a strategic perspective to outsourcing can result in firms losing their core competitive advantages. Take for example a major brand that sought to outsource its apparel manufacturing business. While moving those operations offshore resulted in markedly lower costs, it was met with rapidly deteriorating marketshare. The reduction in costs was accompanied with an increased lead time and more importantly a loss of knowledge about the processes involved in creating high end innovative wear. What got lost in the effort to reduce costs was the fact that the tension that existed between the designers and manufacturing personnel actually resulted in a better product. That creative tension could only exist in an environment in which both sides of the unit of the value chain had enough knowledge, skill and expertise as well as relationships to be able to meaningfully contribute and express dissenting ideas.
Another major corporation outsourced a large part of its information technology workforce. This resulted in projected savings of over a billion dollars over five years. However, six months after the transition of operations were complete a key fact became apparently clear - the business did not have a complete knowledge of the processes supporting the organization. While the business side of the organization has traditionally wielded a greater influence on the processes and policies that drive the organization, a lot has changed over the last decade. In an effort to get a technical solution to support a business, the business process has been modified to conform to what a technical solution can support. Furthermore, often the code within an implementation is the only form of easily accessible documentation of what the process is. These two factors combine to ensure that the an organizations process knowledge is diffused beyond just the business team. Consequently loss of key players results in a loss of process knowledge. The impact of this loss is compounded by the fact that finding replacements that have the business context as well as the technical skills to discover what that process was can be difficult and involve lead times anywhere from a month to half a year.
It is imperative, therefore, for an organization to take a close look at what it does, define what it does best and clearly demarcate the same. Any outsourcing effort then needs to be vetted against this list to ensure that no activity dilutes what is vital to the firm's core capabilities.
(c) 2005 Vivek Pinto For more details please visit us at Wonomi Technologies
posted by vivek pinto @ 12:41 PM
1 Comments:
I disagree on a couple of points
1) Most firms continuously improve upon their core competence in an attempt to deliver increased returns on their investments. Thus their core competence does not remain static. It therefore makes sense to outsource processes that are no longe at the core of a firms core competence
2) Short term loss of knowledge or skills is sometimes an acceptable solution when a firm is driven by more exigent needs such as meeting budgetary goals (in the public sector) or redirecting the firm towards newer markets in the private sector.
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