News from the attic: Strategic sourcing
Although outsourcing is a relatively new phenomenon in services, it has been around a long time in manufacturing. There are lessons to be drawn therefore from manufacturing and in Harvard Business Review in November-December 1992, Ravi Venkatesan sets out a basis for the strategic make or buy decision based on his experience in manufacturing with Cummins Engine. He noticed that easy-to-make, commodity parts were being manufactured in-house, while those that were more complicated were being bought in. The logic for this was that commodity parts were easy to make – representing a quick win – and that they preserved jobs.
Venkatesan’s view was that as a consequence there was overinvestment in improving the production of commodity products, while there was underinvestment in proprietary ones.
The decision to make or buy was therefore on a basis that could be detrimental in the long term; for example, if the manufacturer outsources components that provide USPs in their products, valuable knowhow could be lost (or failed to be gained) and the business could lose competitive advantage. Venkatesan then goes on in the article to propose a method for identifying items that are of strategic importance and should not be outsourced.
The same question needs to be addressed right now of course when making the make or buy decision in respect of using consultants. Over the years that I have been a consultant, their role has developed from navigational – providing guidance to an organisation but most of the work being carried out by client staff - to substitutional, where the work is also done by consultants.
All consultants know that you learn as you work on a client project; by implication therefore, that learning opportunity is denied to members of client staff. So the questions all organisations need to ask before using consultants is: what vital learning opportunities are we losing? Would these be of strategic value to us. And of course, as a client always make sure that even if you are using consultants, your own people benefit from the learning available on the project.
Calvert Markham
