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the key to strategic outsourcing – pt 1

outsourcing

by Kenneth Rudich

With outsourcing as a viable alternative to doing everything in-house, it makes little sense for a business to carry a bigger burden than necessary.

In fact, when done well, outsourcing allows a business to optimize its effort in two significant ways.

First, it permits the ability to concentrate on those activities that matter most to the bottom line.

And second, it provides relief from activities that are necessary for survival but fall into the category of busy work, by turning them over to someone who specializes in performing those services.

As a result, the outsourcing gets translated into a doubly good deal because every aspect of the business is now receiving expert attention, which is probably something the business couldn’t have done on its own without the risk of becoming overextended or at a considerably higher cost.

the key to successful outsourcing

The key to getting the full benefit of outsourcing is to build it on the back of a sound strategy.  Technology strategist and business re-engineering consultant Geoffrey Moore encourages outsourcing as a means for keeping a business lean.  He characterizes lean as trimming the fat, and he says that trimming the fat is a matter of focusing on the core.

Along those lines Moore has developed what he calls a “core and context analysis” for maintaining a lean organization.  As the title suggests, it separates an organization’s activities into two categories: core and context.

core activities

Core activities are those that can set an organization apart from its primary competition.  Leadership in core activities often produces strategically meaningful outcomes like quality improvement, innovative customer service, successfully adopting new customer markets, or other value-added benefits.  Concentrating on continuous improvement in core activities will yield the greatest rewards at the enterprise level, says Moore.

context activities

Context activities, while critical to enterprise success, are those that do not by themselves provide a means for success.  They may be vital to the everyday life of an organization, but they don’t hold much promise for producing the type of advantage that will help it excel.  Pouring more energy into them than necessary is undesirable, because it won’t assist with establishing or enhancing competitive advantage.  They become good candidates for outsourcing.

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The appeal of being liberated from activities that soften business focus is undeniably strong. 

The core and context analysis is about achieving the right mix of on-premise and off, with core activities on-premise or mostly on-premise, and context activities off-premise or mostly off-premise.

In Part 2, we’ll look at an example of how to apply the core and context analysis in a real world business situation.  Come back for that post, won’t you?  

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