How far can you outsource something that should be core competence?Posted: August 19, 2007
I have battling with this issue for some time and I will now take a moment to collect and clarify my thoughts.
What is core competence? Should product innovation be a core competence? Is sales and marketing a core competence? I would say that in an ideal situation both are core competencies, but often its only the other. What if neither is a core competency and you just have a lot of money?
I wrote an article some time ago about "problem phases". First you have the innovation problem, then development problem, the sales problem, delivery problem and finally support problem. I consult my clients not to bother with the upstream problems before the prior problems have been solved. If you have over sold your resource pool that is a happy problem. If you have over committed to your clients, then is bad problem.
Can you outsource the innovation problem and just focus on the sales problem? Why not… but it is crucial that whatever your approach to the problem you have solved before you tackle the upstream problems. Remember its not the speed that kills… its the sudden stop.
What if you have outsourced all competencies? When is the right time to real them back in house? Do they need to be reeled in? Yes… you cannot build a future on money alone. Sales and marketing are the key components in my experience that need to be core competencies. Also innovation, which to me relates to domain expertise and vision need to be core competencies. Development and even post sales support can be outsourced. I am not a big fan of off-shoring… near shoring is closer to my heart.
I talked to colleague about off-shoring and he said that the major Fortune 500 company that he worked for had calculated that the cost for them to off shore is 1.5 times that of near shoring. I asked why would you do it then and he responded that making a 500k loss on an IT project is acceptable if it buys 500b in new market access. Aaaah… so why do small companies off shore critical components? Because they don’t know better. I am not saying that all off shoring is bad, but I am saying that its not an automatic cost saving.
Development work should be done close you your primary market. Why? To be more attuned to the market needs and to be more responsive. The same applies for marketing and sales leadership. Even a few hours time difference to your core development team will lead to no good!!!
To summarize, I am a pretty fluid type of adaptive person, but I do believe also in phasing and building a house from the foundations up… whether through outsourcing or in house skills.