I'm a Carly Simon fan. I'm also a Geoffrey Moore fan. What do they have in common? They both talk about being the best at what you do. In 1977, Carly Simon recorded a song called "Nobody Does It Better." (Remember, "Makes me feel sad for the rest"?) Geoffrey Moore, whose first major impact on the business world was the technology adoption life cycle explained in his book Crossing the Chasm (HarperBusiness, 1991), recently authored another book that will undoubtedly have a powerful effect on business. Living on the Fault Line (HarperBusiness, 2000). gives organizations a formula for "doing it better" and has several significant messages. One is that stock price, or rather market capitalization, has become the new (and most important) measure for business success in a highly competitive environment. Certainly, recent events in the stock markets would underscore this message. Another theme is that in the new economy, businesses with a distinct competitive advantage will heavily leverage strategies for outsourcing.
Outsourcing replaces what Moore calls a scarce resource, management attention, with a plentiful one service providers. He postulates that every conceivable process that is not determined to be a company's core capability (that which differentiates the company's offerings in the market) is an excellent candidate for outsourcing. Businesses should insource core competencies and outsource noncore ones. It may be difficult for a company to identify which processes are core and which are not. However, those companies who do and who can let service providers do what they do best enabling the company to do what it does best will win by having stock price growth and market capitalization that attracts investors, which is what a company needs to survive and thrive.
Outsourcing has the potential to be a tremendously significant strategy, especially now in the difficult market in which companies find themselves following the dot-com fiasco of 2000 and early 2001. Some of the first processes that have been the target for outsourcing relate to administrative services such as payroll processing, benefits administration, accounting and purchasing. Administrative processes such as these certainly don't define most companies; they are processes that every company has to perform. Whether a company does its payroll better than anyone else does not (except for a payroll service provider, of course!) result in stock price differentials. Management time spent on attending to payroll is time not spent on attending to what that company does do better than anyone else.
It's important to consider other potential outsourcing candidates as well. According to a May 2001 report from Forrester Research (Turning Data Into Dollars), the outsourcing phenomenon is even extending into business intelligence and analytics. Forrester reports that despite gathering more information than ever in data marts and data warehouses, business executives are still dissatisfied with business analytic solutions. Forrester reports that nearly half of the companies they interviewed for the report consider outsourcing analytics a viable option. Initially, that came as a surprise to me. In one way, analytics could be considered something that creates competitive advantage. In reality, however, the results of analytic activities and the actions businesses take based on those results create competitive advantage, not the process of performing the analytics. Forrester is saying that businesses should let companies whose core competency is analytics do the analytic activity letting the business focus on what it does best.
In Forrester's study, data mining was the analytical function with the most potential to be outsourced. Companies that don't have the infrastructure to conduct data mining themselves don't want to invest to be able to perform it. Companies that do have the infrastructure may want to outsource data mining so that they can focus management attention on action and results, rather than the process itself. What about analytical activities you want to take advantage of in the future such as the trend toward real-time analytics? How much management time and attention will it take to create the infrastructure necessary to support new functions? Are these functions better performed by specialists? Of course, other advantages (in addition to the issue of management attention) are the flexibility and cost efficiencies that can be achieved.
Think about data mining and other analytic processes your company either does today or wants to do in the future. Think about the cost to develop and maintain the infrastructure to support it. Are these processes core to your business? If not, consider doing your business' core competency better than anyone else and letting an analytic service provider do analytics better than anyone else. The result may be what Geoffrey Moore forecasts a positive impact on your company's stock price along with Carly Simon's lyric applying to you: "Baby, you're the best!"
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