Strategic Outsourcing

Concentrate the firms own resources on a set of core competencies where it can achieve definable preeminence and provide unique value for customers. Strategically outsource other activities including many traditionally considered integral to any company for which the firm has neither a critical strategic need nor special capabilities.

Essence of Core Competencies

1. Skill or Knowledge sets, not products or functions. 2. Flexible, long-term platforms-capable of adaptation or evolution. 3. Limited in number. 4. Unique sources of leverage in the value chain. 5. Areas where the company can dominate. 6. Elements important to customers in the long run. 7. Embedded in the organizations systems.

Competitive Advantage vs. Strategic Vulnerability

High
Potential for Competitive Edge
Strategic Control (Produce Internally) Moderate Control needed (Special Venture or Contract Arrangements) Low Control needed (Buy off the Shelf)

Low High

Low
Degree of Strategic Vulnerability

Strategic Outsourcing
Competitive Edge

Transaction Costs Vulnerability Degree of Sourcing Control Flexibility vs. Control

Range of Outsourcing Options

Make vs. Buy

Self

Partnership

Long Term

Short Term

Controlled

Not Controlled

Potential Contract Relationships

High
Short-Term Contract Call Option Long-Term Contract

Flexibility Need

Retainer

Joint Development
Partial Ownership

Full Ownership

Low
High

Control Need

Low

 Strategic Benefits Vs. Risks Important Strategic Benefits Strategic Risks Loss of critical skills or developing
the wrong skills.

Loss of cross-functional skills. Loss of control over a supplier. New Management Approaches