Platt Perspective on Business and Technology

Outsourcing as a business paradigm – 5

Posted in outsourcing and globalization by Timothy Platt on August 2, 2011

This is my 5th installment in a series on outsourcing, with the first four parts focusing on what I refer to as the traditional model, and with an emphasis on outsourcing core competency processes or production (see Outsourcing and Globalization, postings 4-7 for Parts 1-4). Towards the end of Part 4 in this, I posed a question that I want to repeat here and follow through upon in at least partial answer:

• “What should you do when even with the most vigorous, proactively considered strategic and operational policies and plans, you still need to rebalance or reallocate, or relocate some part of your core competency, and outsource from it?”

Setting a framework to my response to this question, and at the risk of at least near-repetition, I note the following points:

• Only outsource to third party providers for your non-core, more peripheral functions and services if at all possible.
• If you do need to outsource a portion of your core capabilities and functional services and/or production – areas that directly go into creating or supporting the products or services that you bring to the marketplace, do whatever you can to preserve in-house control and ownership of the unique value proposition of your market offerings that you hold.
• If even this is not possible and you need to outsource direct hands-on production and control over a unique value proposition feature of your products or services select any third party partners that you do outsource to with care and with carefully drafted contracts that will help you preserve control over your proprietary technology and knowledge. Watch out for technology transfer and related barriers to your retaining control long-term of what you bring to the table in these business agreements. And keep essential parts of the puzzle proprietary and in-house if at all possible, even then.

This triage and multiple-step decision making approach applies where you are in fact offering something unique to the marketplace but what if you are simply making tee shirts of unremarkable pattern designs, or some other mature market generic product? That brings me back to Part 1 and Part 2 of this series and the dead end nature of traditional outsourcing that some and in fact many businesses that find themselves trapped in, in settled and even shrinking markets. So setting that set of business circumstances aside, I focus in this posting, and through the remainder of this series on businesses that in fact have something unique to offer.

• Only outsource from your core competency if you face severe and immediate short term liquidity shortfalls – and consider that proof that your business is in need of significant change management and rebuilding.
• Develop your outsourcing strategy as a fully considered band aide step, or tourniquet step if you will in staunching the flow of red ink as you seek to regain stability.
• Time limit this step and with a goal of retaking hands-on control of your core capabilities production and supporting services, and as rapidly and fully as possible.

Or take a very different approach to outsourcing than I have been discussing so far. Take the leap into an open and even wall-less business model where your business becomes in effect a separately owned and controlled node in a larger, tightly integrated system of on-the-fly developed supply chains and larger value chains. And that is what this entire series has been leading up to as an alternative to anything like traditional outsourcing. And that is going to be the topic area of part six of this series, and with a specific case study example of what this can and does entail.

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