Deciding to OutsourceWork

The underlying principle of business strategy is that organizations cannot excel at everything—they must make strategic choices. Key among these choices is the critical decision of, simply, which elements of work must be done by the company itself, and which elements should be outsourced. To make a sound decision of this sort, begin by identifying the work of the organization that is "mission critical," and cannot be trusted in the hands of another company.

Generally, all work can be classified as either Core Work, such as creating strategy, developing new products, managing supply chain activities, and revenue generation, or as Enabling Work such as human resource development, accounting, and information technology.

Within the two types of (core and enabling) processes there are four categories of work. Once work is categorized, the organization can be aligned to properly support the requirements of each type of work. These four categories are noted below:

Competitive or Strategic Work.This is the core competence of the organization. Strategic work is that which creates sustainable competitive advantage and distinctiveness. For example, Nike differentiates itself through its strategic marketing work (sending non-core work such as manufacturing overseas), while Apple excels at product design. Competitive Work is always performed and managed in-house.

Competitive Enabling Work.This work “leverages” the competitive work, or enables the competitive work. For example, while Wal-Mart's strategic differential and competitive work is considered operational excellence -- managing information and keeping stock ever present on its shelves -- the competitive enabling work is both the development and maintenance of their state of the art information systems.

If competitive enabling work is done better, the competitive work becomes more distinct in the eyes of stakeholders.

Business Essential Work.This work must be done to stay in business, but is work that customers don't really value. Even if done at a world-class level, business essential work does not create sustainable competitive advantage. Nonetheless, if done below industry standards, the outputs of business essential work can cause disadvantage and/or poor performance. Business essential work includes “compliance” work which is performed to comply with governmental regulations or to mitigate legal risk to the organization. Continuing with the NASA example, managing program expenditures in a particular space program would likely be business essential work. It is important to note that this work, if left unabated, will consume the organization’s competitive work.

It’s critical for leaders to understand that by categorizing work as Business Essential, it doesn’t mean that this work is not important to the organization. On the contrary, it is essential to the organization to stay in business. In fact, if Business Essential work is done below the industry standard, it can lead to disadvantage. At the same time, if leaders invest a lot to get this work above a level at parity with competitors, it will never lead to distinctiveness in the eyes of the customers.

Outsourcing selected business processes has become an important strategic option for companies wanting to maintain a focus on their strategically important or competitive work. Resourcing decisions should be dictated by the type of work and the nature of the individual skills and knowledge required to perform the work.

Non Essential Work.This is work that that has lost its usefulness or value but continues to be done because of tradition. It is hard to give examples of this kind of work because each organization is so different. But a simple question to ask to determine if the work still adds value is “if we were to start our business today, would we need this type of work?” If the answer is “No”, then it’s likely non essential work.

Work that is not categorized as competitive work is subject to consideration for outsourcing of one sort or another. To determine the best possible distribution of work, we use the following model.