Differentiator, differentiator and differentiator are the keys to succeed in any industry and competitive strategy is all around the differentiator. Over the time, the corporations were trying to do everything by themselves and lost focus on their differentiating factors. How many times have you seen a corporation reversing their sourcing strategy because the sourcing strategy had a negative impact to their bottom line? The decision to out source was made without a long term vision. Cost is a factor to the sourcing strategy. But, it should not be the driver to the sourcing strategy. Few companies took cost as the driver for their sourcing strategy and had negative impact to their bottom line.
Few first hand information, I used to have MCI World Com as my long distance carrier. They were charging lot less than AT & T at that time. I hated MCI customer service (appeared to be out sourced customer service) and always had bad experience. I switched to AT & T even though they charged me more. Phone companies did not realize their customer service is part of their differentiators. AT & T was also not so great at that time in their customer service but better. AT & T was also out sourced their customer service at that time. Similar experience with American Express credit card. Service companies like AT & T, Amex realized that customer service is a differentiator along with core service they provide like phone,internet, credit card service etc. Some good strategy consultant must have had helped them. Now I always have a good customer service experience with AT&T and AMEX and it appears to me that both companies have a best people to talk to their customer to resolve customer issues.
Corporation should be clear on their differentiator and must not lose focus on that. It is good in theory but it is very difficult to implement particularly when corporations are grown significantly big. One way to keep the entire corporation focused on the strategy (differentiator) is to, only do the work related to the differentiators. If a corporation goal is to generate profit by providing air service to the travelers they need to prepare the list of what are the must have processes to run the business (core business processes), how to differentiate them with their competitors (competitive strategy) and align the entire organization to core business process and strategy. Rest of the functions like HR, Audit, non core IT, Accounting, Finance and etc all required but do not require focus as corporation in those functions. There are companies who make those functions as their core business processes and perform for other companies and do it for living. Get those service from them as SaaS (Software as a Service model), ASP model,etc.
Out sourcing is a component of sourcing strategy. Sourcing strategy encompass how to the align the employees, partners, suppliers, consultants, temp contractor workers and etc to support the over all strategy and out sourcing is to how to effectively and efficiently get the service from the providers on the non core (not a differentiator) functions. There are different types of out sourcing.
- Finance and Accounting out sourcing (FAO)
- Procurement & supply out sourcing (PPO)
- Business Process out sourcing (BPO)
- HR out sourcing (HRO)
- IT out sourcing (ITO)
- Legal Process out sourcing (LPO)
- Knowledge process out sourcing (KPO)
- Engineering service out sourcing (ESO)
- Sales & Marking out sourcing (SMO)
- CRM outsourcing
The moment people hear about out sourcing generally it is interpreted as the jobs are going to India. It could be part of SaaS model (CRMO) using salesforce.com, HRO using ADP, FAO using vendor x and etc.