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Business Week is running a big story about IBM's Sam Palmisano finding a new vision for IBM. The idea is that you won't just use IBM to get your I.T. project done. No, a company will be able to outsource everything but its "core business" to some kind of company makeover. You see, apparently some pretty big firms believe they can get by with as few as one quarter of their employees. These represent the select few who have value. Everyone else can and should (in the mindset of some -- like P&G's CEO) be outsourced to specialty services firms. HR -- outsourced. AP -- outsourced. AR -- Outsourced. Purchasing -- outsourced. I.T. -- Outsourced.
Since P&G is a firm I know a little bit about -- lets use them as an example to ask some questions...
What is P&G's current core business, and where does it spring from? P&G makes household products. Originally soap, In fact, chances are they made the laundry soap you use. They make several of the top "competing" brands.
Is the soap business pushed by scientific innovation? Are they a research company then? Is their core business based on creating the best soaps? Why not sponsor some research grad students at a university and have done with it.
Well, P&G is also a brilliant marketer of soaps. They own more shelfspace in their part of the grocery store than anyone. Most of the competing products on that shelf come from them. Perhaps their core business is marketing. Maybe soap is just soap and what P&G is really good at is marketing. Should they turn over all marketing to a marketing firm?
What about manufacturing? These guys create, package, label, and transport quantities of product that stagger the mind. They profit in a world where 1% can mean the difference in success and failure. They deliver near perfect quality control on time without over production costs. Maybe their a great manufacturing company. Should that be outsourced?
Now, I happen to know that P&G has (or at least had) a world class I.T. organization of their own. I spent a week there about 12 years ago learning about their I.T. setup as part of a job I had providing support to some of them. It was impressive, but more than that it was a jewel in the company crown and that was clear. P&G was very proud to tell you that they'd hired Thomas Edison early in his career, and in fact had some of the very first telegraphs linking the company headquarters with their soap factories outside Cinci. This company believed that I.T. was a big part of their success. I think they were right. I won't go into the details of what I learned there, though I doubt any of it has much value today -- but it was amazing. I can honestly say that seeing what they'd done taught me to think about scale. That week may be a large part of why I am good at what I do. CAN that be outsourced?
What about HR? Someone must of done well if all these groups are operating well. How does P&G find and keep the people that are able to design, market, manufacture, and deliver all those products. Should that be outsourced?
How about finance? At that level of play, the difference of a couple of points on capitol is life and death. Its acquire or be acquired. Should that be outsourced?
So, what is the core business at P&G -- and which others are simply overhead, to be outsourced to the lowest competent bidder. Is there no innovation that comes in these other areas other areas of the business that contributes to overall success?
Does your CEO tell you how important every member of the company is, from the mail clerk to the IT department to the finance guy? Do you believe it, or are you ultimately just overhead? If your company sold you -- your position -- to another firm, and your job and desk stayed the same but your paycheck came from somewhere else, where do your loyalties go?
Are you valuable, or overhead?
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economically it might make sense when you outsource to bundle operations.
Outsourcing HR makes sense once your HR department has sufficiently degenerated
to be merly an admin function rather a people developer.
Once you start toying with outsourcing you for sure destroy staff morale and
loyalty (there goes your productivity). Also the interesting catch: The total
is more than the parts. Every external unit adds a communication layer (of
values and trust) which eats a lot of resources. The good side: all this leaves
breathing space for smaller players.