Many organizations consider outsourcing as a tactic that can reduce operating costs and increase overall operational efficiencies. When you increase your operational efficiencies, you can use the savings and invest them into other efficiencies, customer service, or product innovations. Outsourcing involves procuring products and services from organizations outside of your own company and quite often from third party organizations in other countries. In many large organizations, outsourcing can include core business processes such as payroll, information technology, financial services, copying, trash removal, cleaning services, marketing, advertising, training, and even complete sales teams. The total amount of global outsourcing in 2017 was 88.9 billion of which $64.3 billion was from IT outsourcing and $24.6 billion was from standard business process outsourcing.
This data illustrates that business process outsourcing is a successful model and provides strong return on investment to organizations that utilize the tactics to drive success. The most successful BPO company in the world – ADP – dominates the market with an 8% global market share. Customers that use organizations like ADP for BPO are extremely satisfied and ADP’s Net Promoter Score is consistently one of the highest of all organizations in the BPO space. In other words, it’s a win-win for everyone.
So, if business process outsourcing is such a great idea and customers are very happy, then why not look for ways of outsourcing every possible function to optimize profits and shareholder value?
The answer is more complex than it might seem and unfortunately I have realized that too many companies don’t actually know what their core competency is!
A few years ago, the founder of Zappos, Tony Hsieh, wrote a book called “Delivering Happiness” which was one of my favorite business books of all time. It detailed his ability to set and execute a business strategy of intense operational excellence that was driven through strong – yet operationally efficient – customer service. Zappos, like many eCommerce companies outsourced most of its key business processes and established strong revenues and even stronger profitability as a result. In 2009, Hsieh sold Zappos to Amazon for $1.2 billion. But the thing that I remember to this day about the book was his famous quote that you can outsource many things, but you can’t outsource your core competency.
For Zappos, their true core competency wasn’t the variety of shoes and the ease to order them online; it was (and is) their customer service call center which was trained and managed by the best and most qualified people inside of the Zappos organization. That level of service – even in an operationally efficient eCommerce business – is a key differentiator and essentially has become the brand. And the best part for Zappos / Amazon is that they still use lean thinking to deliver world class customer service.
But Zappos is an exception, not a rule. Too many organizations see outsourcing as a means to financial success and not a tool of long term sustainability by satisfying the needs of customers. They also don’t understand what their true core competency is because they only see their business through the lenses of spreadsheets and internal, siloed focuses that don’t listen to the real voice of the customer.
One of the most important things I’ve done with this concept is build it into every enterprise business simulation we utilize for teaching business acumen skills. If you don’t see your strategy and core competency through the eyes of your customers and then deliver the right value to the right customer, you are destined to fail.
Here are three quick take-aways that we use to summarize these concepts:
Understand your value proposition through the eyes of your customers
Don’t make the mistake of thinking you know your value proposition without listening to what your customers think of it. You may say you are Operationally Excellent or Product Leaders, but customers may see you as a true customer intimate organization.
Identify your true core competency
Once you have identified how your customers see and experience your value proposition, you must then identify and protect the core competency that supports their perception. In the example above, if you think your value proposition is Product Leadership but your customers see you as Customer Intimate, then you need to do everything possible to protect that perception and this is where you avoid outsourcing your true core competency.
Invest as much as you can in it
Being just good enough in your core competency has a short shelf life. In a perfect system of business, you must make sure you are investing in and nurturing that core competency to the fullest. That means investing in it and using savings from other outsourcing opportunities to fuel your core competency.