Harvard to enhance the core of the core capabilities

Harvard Business Review published an article that shed a
different perspective in regard to the affects that strategic sourcing cause firms
to think about their organizations, value chains, and competitive positions. If,
there were a better way to summarize the articles opening statement it would be
considered, 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 of
rapid technological innovation, changes the entirety of the basis of the
competition. “It’s no longer a company’s ownership of
capabilities that matters but rather its ability to control and make
the most of critical capabilities, whether or not they reside on the
company’s balance sheet” (Gottfredson, et.al, 2005). Outsourcing is becoming so
sophisticated 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 their
value chains and their organizations to be more flexible on the account of
strategic sourcing evolving into a process that is organizing and fine-tuning
the value chain; all on account of a decline of the traditional vertically
integrated business model. The question is no longer whether to outsource a
capability or activity but rather how to source every single
activity in the value chain. This is the new discipline of “capability sourcing”
(Gottfredson, et.al, 2005). The authors discovered that by reformulating the
strategy to redefine strategic sourcing the effort would place a greater focus
on capability sourcing. The strategy developed behind capability sourcing
proved 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 critical
functions that allow companies to enhance the core of the core capabilities
that drive competitive advantages in their industries. The core of the core, for
purposes of the article, defines activities in which a company does better and
cheaper than its rivals. The research within the article acknowledged that the reason
sourcing efforts often fail is on grounds to which companies are pressured to
make choices that are to measure up to expectations purely in cost
savings.  Although, substantial research
was provided that the majority of the time companies continued to make sourcing
decisions on a piecemeal basis.

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“To realize the full potential of sourcing, companies must
forget the old peripheral and tactical view and make it a core strategic
function” (Gottfredson, et.al, 2005).

Many companies doubted the new perspective, so the authors
provided evidence with hard numbers against the potential value of capability
sourcing to stay competitive in a global economy. The article provided examples
of several well-known companies such as AT&T, Bethlehem Steel, Exxon,
Microsoft, Wal-Mart, and 7-Eleven. Detailed examples provided explanations on how
and why the role of sourcing is changing in the twenty-first-century economy.  Extensive research from working through the
new process with past clients provided the practical strategic framework for
capability sourcing. The framework is a practical guide for forward-thinking companies
who desire to push through the transition, which dramatically improved each
company’s competitive position. Research within the article; also, identified the
components of a business that will represent the core of the core certainty ensuring
decisions because they are made objectively and are based on facts. The
framework of certainty was based on evaluating these three questions; how you
make something that’s always been tactical more strategic, what you should
outsource, and how strong your capabilities are (Gottfredson, et.al, 2005).
Overall, the article provided ample evidence to support a major need for
companies to stop focusing on incremental cost improvement targets and to reevaluate
the strategy and company capabilities.