The idea of retaining core competency activities inhouse and outsourcing the rest is a perfect example of Industrial Age thinking. It belies a conviction that the core of your business today will be the core tomorrow, that today’s skills and resources will be enough to take you through the foreseeable future.
What’s different today is that tomorrow is guaranteed to be different from today. The real core competency is the ability to reinvent, to remake the core. The statement doesn’t imply that you may never outsource anything, only that you must limit yourself to those outsourcing efforts in which your organization is still perfectly competent and is fully prepared to do inhouse.
It also suggests to me that you can no longer afford to outsource via competitive bidding just to achieve a slight reduction in price. The outsourcing choice needs to be part of a long-term commitment to a vendor. This has long been Motorola’s approach to use of outside contractors: the enlightened company lets work out to selected contractors in a continuing arrangement; it even goes so far as to make available its own training sequences to contractor personnel.
Your approach to outsourcing needs to ensure — as Motorola’s does — that though the skills may technically reside outside your company, they will continue to be exclusively available to you. This arrangement costs money, and cutting this cost makes you look trivially better today but makes you noncompetitive in the medium to long term.
You may still decide on a certain amount of external specialization, but it should never be done without a careful consideration of the impact on your organization’s ability to reshape and reinvent itself. And the penny-ante savings from external specification probably aren’t worth much to any but the smallest company anyway.
Decades ago, Sweden decided to outsource nothing; it reasoned that its much-vaunted political neutrality would be a sad joke if it depended on France for beef, on Saudi Arabia for oil, and on the US for its defense apparatus. So the nation provides all such matters for itself. The last I heard, nobody was complaining about Sweden’s lack of efficiency.
— Tom DeMarco, Fellow, Cutter Consortium Technology Council