Harvard Business Review published an article that shed adifferent perspective in regard to the affects that strategic sourcing cause firmsto think about their organizations, value chains, and competitive positions.
If,there were a better way to summarize the articles opening statement it would beconsidered, although the authors stated it best summarizing that “For years,”sourcing” has been just another word for procurement—a financially material,but strategically peripheral, corporate function” (Gottfredson, Puryear &Phillips, 2005). As well the future of globalization, compounded with the aid ofrapid technological innovation, changes the entirety of the basis of thecompetition. “It’s no longer a company’s ownership ofcapabilities that matters but rather its ability to control and makethe most of critical capabilities, whether or not they reside on thecompany’s balance sheet” (Gottfredson, et.al, 2005). Outsourcing is becoming sosophisticated that even core functions like engineering, R&D, manufacturing,and marketing can and often should be moved outside (Gottfredson, et.al 2005).Forward-thinking companies were found to be restructuring theirvalue chains and their organizations to be more flexible on the account ofstrategic sourcing evolving into a process that is organizing and fine-tuningthe value chain; all on account of a decline of the traditional verticallyintegrated business model. The question is no longer whether to outsource acapability or activity but rather how to source every singleactivity in the value chain.
This is the new discipline of “capability sourcing”(Gottfredson, et.al, 2005). The authors discovered that by reformulating thestrategy to redefine strategic sourcing the effort would place a greater focuson capability sourcing.
The strategy developed behind capability sourcingproved that it improves a company’s strategic position by reducing costs,streamlining the organization, and improving quality. Therefore, the research;also, provided that more qualified partners ultimately provide criticalfunctions that allow companies to enhance the core of the core capabilitiesthat drive competitive advantages in their industries. The core of the core, forpurposes of the article, defines activities in which a company does better andcheaper than its rivals. The research within the article acknowledged that the reasonsourcing efforts often fail is on grounds to which companies are pressured tomake choices that are to measure up to expectations purely in costsavings.
Although, substantial researchwas provided that the majority of the time companies continued to make sourcingdecisions on a piecemeal basis. “To realize the full potential of sourcing, companies mustforget the old peripheral and tactical view and make it a core strategicfunction” (Gottfredson, et.al, 2005).Many companies doubted the new perspective, so the authorsprovided evidence with hard numbers against the potential value of capabilitysourcing to stay competitive in a global economy. The article provided examplesof several well-known companies such as AT&T, Bethlehem Steel, Exxon,Microsoft, Wal-Mart, and 7-Eleven. Detailed examples provided explanations on howand why the role of sourcing is changing in the twenty-first-century economy.
Extensive research from working through thenew process with past clients provided the practical strategic framework forcapability sourcing. The framework is a practical guide for forward-thinking companieswho desire to push through the transition, which dramatically improved eachcompany’s competitive position. Research within the article; also, identified thecomponents of a business that will represent the core of the core certainty ensuringdecisions because they are made objectively and are based on facts. Theframework of certainty was based on evaluating these three questions; how youmake something that’s always been tactical more strategic, what you shouldoutsource, and how strong your capabilities are (Gottfredson, et.al, 2005).Overall, the article provided ample evidence to support a major need forcompanies to stop focusing on incremental cost improvement targets and to reevaluatethe strategy and company capabilities.