CORPORATE STRATEGY, OPERATIONS MANAGEMENT AND RESEARCH

 

Strategic Outsourcing

By James Brian Quinn and Frederick G. Hilmer

July 15, 1994

BY STRATEGICALLY OUTSOURCING AND EMPHASIZING ACOMPANY’S CORE COMPETENCIES, MANAGERS CAN LEVERAGE THEIR FIRM’S SKILLS AND resources for increased competitiveness. The authors suggest ways to determine what those core competencies are and which activities are better performed externally. They assess the relative costs and risks of “making” or “buying” and present methods for containing risks while enjoying the benefits from their dual approach.

Two new strategic approaches, when properly combined, allow managers to leverage their companies’ skills and resources well beyond levels available with other strategies:

• Concentrate the firm’s own resources on a set of “core competencies” where it can achieve definable preeminence and provide unique value for customers.1
• 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.2

The benefits of successfully combining the two approaches are significant. Managers leverage their company’s resources in four ways. First, they maximize returns on internal resources by concentrating investments and energies on what the enterprise does best. Second, well-developed core competencies provide formidable barriers against present and future competitors that seek to expand into the company’s areas of interest, thus facilitating and protecting the strategic advantages of market share. Third, perhaps the greatest leverage of all is the full utilization of external suppliers’ investments, innovations, and specialized professional capabilities that would be prohibitively expensive or even impossible to duplicate internally. Fourth, in rapidly changing marketplaces and technological situations, this joint strategy decreases risks, shortens cycle times, lowers investments, and creates better responsiveness to customer needs.

http://sloanreview.mit.edu/the-magazine/articles/1994/summer/3544/strategic-outsourcing/