About sourcing: core or not core
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The document discusses criteria for determining whether business functions are core or non-core, emphasizing the importance of strategic capabilities and competitive advantages. It outlines various questions to help businesses assess their activities regarding in-sourcing or outsourcing decisions while cautioning against the potential pitfalls of strictly categorizing functions as core or non-core. Additionally, it highlights the evolving nature of outsourcing, where some routine tasks may be critical for development despite traditional views.
About sourcing: core or not core
- 1. CORE OR NOT CORE?THAT’S THE QUESTION
- 2. When wondering to in- or outsource on seeks criteria for this consideration. A criterion often used is the distinction between something being “CORE” or “NON CORE” to the business. WHAT’S THE QUESTION?
- 4. The capability, relationship, asset or infrastructure: Delivers undeniable value to the business. Is considered of strategic importance and therewith crucial to the success of the business. Is critical and central to business operations and therewith considered a differentiator. Not in the least due to its proprietary nature. It’s loss is considered irrecoverable. Is dependent on key business judgement & knowledge CORE A DEFINITION
- 6. Id. Criteria Y N a If started from scratch today, would the business build the capability internally? b Is the business so good at the activity that others would hire it to do it for them? c Is this an activity of the business where its future leaders will come from? d Does the capability, process, function, task, etc. add value? e Is the process supported strategic to the company? f Is the result delivered (output) strategic to the company? g Does the capability, relationship, process, etc. provide a competitive advantage? h Is it considered a differentiator? i Does the capability require key business judgement? j Is the process aligned with the company vision? k Proximity: the capability, etc. is close to the business? l Is it defined by law or regulation as core to the business, in the sense that only the company may perform the task, e.g. regulating flight traffic? Sbt DETERMINATION METHOD Answer Yes or No
- 7. Id. Criteria Y N m Is the capability, etc. considered routine work (involving high skills)? n Can the capability, etc. be automated? o Can the cost per transaction be reduced when outsourced? p Is the ability to focus on activities that deliver value improved by removing this function? q Does outsourcing the task enable business staff to undertake more core and strategic functions? r Are cyclical (seasonal) peaks and valleys applicable to the function? Sbt DETERMINATION METHOD The first column represents CORE, the second column NON-CORE. Adding up the columns and comparing the scores provides the answer to the question whether and to what extent the subject at hand is to be considered CORE or NON-CORE.
- 8. WARNING The use of the core/non-core distinction is challenged / questioned in the sourcing community. This since it is considered hard to designate any business function as merely routine and less conducive to future business development (where would your business end up without systems maintenance?). Furthermore, the core/non-core distinction is argued to be outdated, since it is said to not take into account recent changes in outsourcing such as increase in Business Process Outsourcing or Knowledge Management. These tasks can be routine day-to-day activities that are actually vital to the company’s development, but here they are being outsourced.
- 9. JUSTIFICATION Finding Focus - How Non-Core Activities Are Blurring Your Strategic Vision. ~ Sutherland Global Services Strategic, Core and Non-Core Activities. What to outsource for best results. ~ Intetics 2014. IAOP OPBOK (outsourcing professional body of knowledge). ~ Van Haren 2010. Strategic Frameworks for Outsourcing Decisions Part Two. ~ Vivek Sood, 2014. Strategic Sourcing: From Periphery to the Core. ~ Gottfredson, et al, Harvard Business Review, 2015 issue. Vested Outsourcing: Game Changing Rules for Outsourcing. ~ Visatek & Ledyard, 2010. Images Courtesy of Flickr
- 10. THEORY ANNEX Importance as a differentiator differentiatorcommodity weak strong Performance relativetomarket outsource for scale advantage and increased focus on differentiators outsource for scale and capabilities keep in-house form more exclusive alliance to obtain capabilities OUTSOURCING DECISION MATRIX Source: IAOP OPBOK 2010 Loss in capabilities, relationships or infrastructures is irrecoverable YESNO YES Lossincapabilities,relationships orinfrastructureisbusinesscritical Outsource but manage very carefully (keep mngt Capability In tact) outsource keep in-house Outsource carefully (keep strategic options open) OUTSOURCING DECISION MATRIX Source: Vivek Sood 2014
- 11. THEORY ANNEX Source: Gottfredson, et al, Harvard Business Review, 2015 Uniqueness of business process or function Common across industries Not proprietary OUTSOURCING DECISION MATRIX Unique to self Proprietarynatureofprocessorfunction Data are proprietary Business process is proprietary Profit model is proprietary Organizational expertise highlow low high Potentialvalue totheorganization Vested outsourcing approach Conventional outsourcing keep in-house (core activity for company) Driven by financial consideration OUTSOURCING DECISION MATRIX Source: Visatek & Ledyard, 2010 Vested Outsourcing is typified by an outsourcing relationship in which both parties have a stake in maintaining the arrangement and work together to create a performance partnership that takes both the company outsourcing and the service provider to levels of cost, service and profitability not realized before. Elsewhere called: joint venture, strategic alliance, etc.
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- 15. YOU THANK For your attention See you soon!