Action: Focus on your organizations' values, mission, and vision, and consider outsourcing everything else. Peter F. Drucker
Action: Consider moving your headquarters to another city/country and do less there. Bruce Klassen
Action: Consider which delivery functions can be digitized. Bruce Klassen
This was exactly the topic of my speech to Microsoft's CEO clients which I referred to in yesterday's blog. I want to make two additional points to Dr. Drucker's dramatic call to action.
1) Digitizing the function you are considering for "outsourcing" or abandonment is, in my view a critical step in order to protect your competitive interests. The digitized API, Gadget, Widget you create can then not only be outsourced (at least the workflow), it can also be switched between "suppliers" much more easily. This gives you some power in the negotiating game in our co-opetitive world. Remember that the ATM is nothing other than the digitized Teller App., and it is no longer "owned" by the bank (I think EDS is still the largest single owner of ATMs).
2) In opposition to Dr. Drucker, I still believe that there are core capabilities that should NOT and NEVER be outsourced. Without protecting and improving that core capability, whatever it may be, you will no longer be differentiated in the market as your competency is learned by others. I my view, the "persona" of a successful company includes more than Values, Mission and Vision. It also includes the core competency which makes it unbeatable in the competitive market. This must also be protected. It is essentially what drives P/E. For more on this read the classic: The Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus, Dominate Your Market by Michael Treacy and Fred Wiersema
Example 1 - Apple's system integration capability to combine software and hardware/services along with it's sense of style is its core competency. If it could actually be outsourced, then Apple wouldn't actually exist.
Example 2 - Honda's ability to design engines.
Example 3 - Broadcom's ability to work collaboratively with customers' Engineers on new technology solutions in communications chip technology.
Example 4 - Cisco's ability to acquire companies who's technologies dovetail with Cisco's market roadmap, seamlessly.
Example 5 - Cirque du Soleil's ability to integrate live Music, Acrobatic Performance, and Theatrical Performance into its show design.
That said, the corporation as we once knew it IS DEAD. If you are no longer the "natural owner" of a corporate asset/capability and the "ruthless" competitor, then get rid of it to someone who is. It is no longer effective to vertically integrate (or even come close) unless you are best in class in every function, and need to be so in order to return superior returns to shareholders. It is okay to be an also ran in some functions, and still be the leader in your market.
By "outsourcing" the ownership of inventory (in process and finished) DELL was able to achieve the enviable negative working capital position it held for a long time... thereby making shareholders rich.
It is quite exciting for me to watch this trend continue and morph. We originally saw this, and worked with many of our clients to proceed down this path (authors Aurick, Jonk and Willen of "Corporate Genome"). It actually amazes me to see how much design, development and research work is already outsourced today... Why not, if your core competency is sales?
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