Smart-sourcing - What to Outsource

What Should be Outsourced?

When considering Smart-sourcing alternatives, as with any strategic initiative, you must first assess your internal organization for overall strengths and weaknesses.  A few guides to assist you with this process are as follows:

·    What are your “Core” competencies?

According to “The McKinsey Quarterly 1995 Number 1” in “Make versus Buy” the authors state “Two new strategic approaches, when properly combined, allow managers to leverage their companies’ skills and resources will beyond levels available with other strategies: Concentrate the firm’s own resources on a set of ‘core competencies’ where it can achieve definable preeminence and provide unique value for customers.”

·    Transforming the “Good to Great”

In the book entitled “Good to Great: Why some companies make the leap … and others don’t” by Jim Collins, he conveys the fundamental message of core competencies around three basic things, identify:

1.        What you are good at

2.        What you are passionate about

3.        Where you make money

·    Knowing the Integrated Supply Chain

But it is not just that simple; you must first really know what the entire supply chain of your organization looks like, how it operates, and how functions interact with other functions.  For example what is the flow across your departmental functions from sales, to customer support, to development, to finance, etc?

·    Deciding the fundamental processes

Then within that integrated supply chain, you will need to decompose the functions down into the fundamental processes performed within each of the departments.  That is, you will need to understand what each function’s input requirements are, what process this function performs, and then what are the output requirements provided by this function.  By understanding this flow and process, you will be able to begin identifying those areas that are really your “core competencies.”

·    Seeking alternative solutions

The other strategic approach referenced in the McKinsey Quarterly article “Make versus Buy” allowing managers to best leverage their companies’ skills and resources is to “strategically outsource other activities – including many traditionally considered integral to any company – for which the firm has neither a critical strategic need nor special capabilities.”

This means, find other companies (this could be sister companies within the organization or external 3rd parties) where the function requiring outsourcing is their “core competency”.

Start with Lowering Costs

Once you’ve determined your core competencies and are ready to outsource the non-competency functions, you might want to first take an internal look at your existing operations and functions with a view of which areas might produce the most effective cost savings.  The strategic initiative of lowering costs can be obtained by one or more of the following:

·    Internal functions

You may be able to lower internal costs to acceptable levels without outsourcing considerations, by overall efficiencies with increased productivity, streamlined processes, more automation and less manual intervention, and such.  You should always seek efficiencies and cost reductions from within before looking outside the organization.

·    Shared functions

Next, you should look at those areas where you may be sharing functions across departments or business units to seek improved levels of service at lower costs.  Examples that might be shared include:  telecommunications functions, facilities, purchasing, HR administration, and the like.  Many times when functions are shared, both parties are focused on the output and now always the efficiencies.  Go to your partner and seek ways to lower costs without sacrificing service levels.

·    Outsourced functions

Then, there are the existing outsourced functions across your organization.  You should re-look at your existing contracts, agreements, and the overall relationship for areas of improvement.  Many times these functions are negotiated well in the up-front, but once the process and work begin to flow, we forget about the original objectives and get on with “business as usual”.  Go back and revisit the relationship and look for those unnecessary costs that may have crept into the process over time.

·    Increased productivity

Lastly, no matter which of the above (or combinations of several) you consider, it is all about increased productivity not just lowering costs.  Productivity increases are obtained in one of two ways, either you reduce the input and maintain the same level of output (cut staff to perform same level of revenue) or you increase output using the same level of input (increased revenues from same level of staffing).

Productivity gains come from innovation in the fundamental way a company delivers products or services.  Companies generate innovation by deploying new technology along with improved processes and capabilities.  By more effectively managing the Input/output control levers of your organization you can obtain dramatic results in your overall strategic objectives of lowering costs.

Move on to Raising Quality

The next key strategic objective for the organization is about raising quality, some might say it’s about “raising the bar”.  It is this initiative that can provide leverage across the organization in order to have significant impact on your results and not just minor improvements along the way.

·    Excelling in your core competencies

Once you’ve determined your “core competencies” you must now exploit them.  You must excel in these factors as if there is no stopping you from achieving market dominance (if you already have market share, this is what will keep you there).

The passion about doing what you do better than anyone else, being able to do that function at higher levels of quality than the competition, and demonstrating that value-add to your customer in the measured results that they gain by benefit of doing business with you; must permeate your entire organization.

·    Leveraging the competencies of your supplier and distribution partners

Then, by leveraging the core competencies of your suppler and distribution partners and allowing them to excel at what they do best, while you are doing what you do best; all creates the compelling proposition that extends beyond anything that your customer could do for themselves in-house or with any other competitor.

Next Add Improving Services

In today’s business pressures of finding 20+% gains in revenues or profit margins or market share, etc.; this last key strategic reason for Smart-sourcing your operations is about ways to get the jump on the competition and keep your organization out in front.

·    Faster time-to-market

By leveraging the combined core competencies of a Smart-sourced proposition, you should find new and innovative solutions coming to market availability in unprecedented time frames.  This faster time-to-market factor can propel your organization to be “top of mind” with your existing customers and also with your prospects.

·    Enhanced offerings

Your value proposition is not just about getting base functional services to the market in an expeditious manner, but rather, when you leverage your core competencies it is about bringing better, more enhanced offerings to the market with you.  The two things you have that are part of your core competencies and are the most difficult to Smart-source are your business domain knowledge and business process expertise (pattern development).  You need to leverage this to enhance your offering beyond just the normal and routine product development cycles.

·    Expanded value proposition

When your value proposition includes the core competencies of partnered solutions, you should be looking for additional ways to expand that solution to your customers and your market.  By adding additional products or services from Smart-sourced providers, you can push more revenue through your brand and distribution channel without having to add the direct costs of the solution.  Not only does this provide you with more to sell, but it can also add to the reasons why you are “top of mind” with your customers.

·    “Doing more with less”

All of the above is about “doing more with less” and this is the magic formula that all firms aspire to achieve.  By blending the right components of your market solution that exploits your core competencies and those of your Smart-sourcing partners you can truly make an impact on this old adage.








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