Wednesday, December 7, 2011

Capability Scrutiny (A.K.A In-House or Out-Source?)

Introduction:

In the twenty-first century, it is evident that organizations are dynamic in nature. Managers need to ensure not only that employees are driven to productive work, but that they also understand and epitomize the organization’s goals. Organizations usually are forced to run an audit when they are in trouble, and I intend to briefly explain one such audit method in this blog post. I will also try to enlighten you on the transformation of definitions of sourcing over the last few decades.

Capability Audit

A capability audit is the right way to go in an organization, regardless of whether it is in trouble or not. In my opinion, organizations that are far superior to others are the ones who strive for excellence even when they are the world leaders. A capability audit requires the analysis of the following 11 capabilities: talent, speed, coherence, accountability, collaboration, learning, leadership, customer connectivity, strategic unity, innovation, and efficiency.

It is important to note that every organization needs to carefully define, analyze and monitor its business processes before deciding on focusing on a few of these capabilities. No organization should focus on all 11 of these capabilities because it is impossible to formulate and execute a business plan that is perfect. In my opinion, it is far better to do a great job of achieving a small goal than a lousy job of achieving a large goal. If an organization clearly defines two or three of these capabilities as the prime targets, the employees have a clearer sense of the following important points:

· Who to hire

· What to expect

· Where to aim

· How to work

· When to change

Capability Sourcing

In this day and age, the critical decision to be made for most American companies is whether to outsource its orders or to make everything from scratch. In my opinion, it is safe to assume that one are the days of vertical integration when Ford could own rubber plantations to oil rigs to machinery to ensure a complete integration of processes and functions. Cross-functional processes are easily made viable by outsourcing functions that are not economically profitable. However, it is to be noted that while outsourcing creates a positive Net Present Value for projects, the increase in worth of the organization is much larger for in-house than for out-source operations in a vast majority of the cases.

The example of 7-eleven that is provided in the research paper cited has extensive coverage on techniques, advantages and execution of various measures and I strongly recommend it. However, the important point to be noted is that there needs to be a framework for every organization to decide between what/who/when to out-source and in-house.

Conclusion

If nothing, I want to leave you with the point that a better understanding of two things are essential for success in today’s world.

· Inner business capabilities

· Outer sourcing capabilities

Any organization that can analyze and manage these two is destined for success.

Citations

1. “Capitalizing On Capabilities” – Dave Ulrich, Norm Smallwood

2. “Strategic Sourcing” – Mark Gottfredson, Rudy Puryear, Stephen Philips

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