That is the question!

Merry Christmas everybody! I would like to start off my blogging life with the spirit of the Christmas season, and I sincerely hope to share and learn from this new world of networks without barriers that we live in today!

With globalization and rationalizing of resources, companies around the world are in a frantic race to out beat their competitors on gaining an edge in cost and in value. Questions are getting more difficult and answers are getting more complicated! Running an enterprise today is NOT easier, it is getting complicated. First, managing TQM and lean manufacturing is critical to deliver quality products, then branding becomes important to differentiate from competitors, then the right talent with the right process design are critical in delivering that promise, then innovation must continue to keep the competitive advantage abreast, then companies need to outsource to leverage on global resources and the list goes on and on. To make business life more “interesting”, each must??and should comes with it a “dark side” after companies adopted the new “business to-do-list”!

However, it is a very different here in Asia and especially here in China. It is unthinkable to outsource. Instead, entrepreneurs rushed to in-source and vertically integrate whenever possible. Why let someone else make the money when we can make the money? Why should we pay so much to our suppliers? Can we do what our suppliers do?

Companies should major in the major. Business must learn the art of paradoxical balance. Be focus and specialized in what one is good at and expand in that area! The start of the journey should come from knowing and growing the companies core competence against competitions addressing key success factors of the industry. Every industry requires a different set of critical capabilities to win the game and enterprises should match its core competence to that before considering outsourcing. As a start, many companies are ignorant or the industry’s critical capabilities and “blind” to its core competence. Simply, core competences are well-performed activities that are central to a company’s competitiveness and profitability.

It is quite common that companies struggle with the right core competence required to win in the industry and matching the company’s unique capability to deliver that better than its competitors. As I read into a very good article, “Strategic sourcing from periphery to the core by Mark Gottfredson, Rudy Puryear and Steven Phillips Harvard Business Review February 2005″, I realize that my own company and my clients should strategically and systematically map out the proprietary nature of the process or function against the uniqueness of business process or function and the company’s ability to perform function against cost per transaction. Only when an enterprise is clear about the consequences of the company’s decision to capture a critical competence that would give the company the competitive advantage when delivering value to their customer through in-source or outsource should a company consider the knowledge lost in outsourcing. On top of that, it is not necessary true that by outsourcing a function, a company would loose control, knowledge or capability of that function. On the contrary, I have experienced otherwise. By being the marketing department of clients where sales and production or supply chain and merchandizing are at the core of the company, their organization learned to carry out marketing activities never been done before.

Outsourcing usually failed because it was done purely for cost savings and when it is done piece meal. Besides cost savings, companies should also look at the value of it. Sometimes, it could be to transform the organization or even the industry. Outsourcing itself is nothing wrong, it is just how a company chose to outsource or in-source.

Winston Nyo

General Manager, Village Earth Pte Ltd