Deciding what to source

A business ’s strategy formulation is the search for competitive differentiation through the redeployment of resource s and capabilities. When a business decides to source services it is in essence deciding to source resources and capabilities. If candidates are only peripherally related to the business’s strategic themes and are available in competitive markets then they should be considered. Once candidates for sourcing are identified, the following questions are intended to clarify matters:

• Do the candidate services improve the business’s resource s and capabilities?
• How closely are the candidate services connected to the business ’s competitive and strategic resource s and capabilities?
• Do the candidate services require extensive interactions between the service providers and the business’s competitive and strategic resources and capabilities?

Case example 13 (solution): The inability to capture value

Early adopters of a labour arbitrage strategy made great gains because, for a while, the costs of services they offered were lower than any competing alternatives. But as more and more service providers made use of off-shore resources, the cost of services was lowered for everyone. This was great for customers but bad for providers – this distinctiveness was eventually eliminated. Value was created for customers but service provider s were not able to keep any of it. This ability of a service provider to keep a portion of any value created is known as ‘value capture’.

The sourcing strategy was vitally important for fending off competing alternatives. However, service providers who focused solely on this strategy, at the expense of other distinctive capabilities, soon encountered strategic failure in the form ‘mediocre performance versus competing alternatives’.

If the responses uncover minimal dependencies and infrequent interactions between the sourced services and the business ’s competitive and strategic positioning, then the candidates are strong contenders.

If candidates for sourcing are closely related to the business’s competitive or strategic positioning, then care must be taken. Such sourcing structures are particularly vulnerable to:

• Substitution – ‘Why do I need the service provider when its supplier can offer the same services?’ The sourced vendor develops competing capabilities and replaces the sourcing organization.
• Disruption – The sourced vendor has a direct impact on quality or reputation of the sourcing organization.
• Distinctiveness – The sourced vendor is the source of distinctiveness for the sourcing organization. The sourcing organization then becomes particularly dependent on the continued development and success of the second organization.

Do not confuse distinctive activities with critical activities. Critical activities do not necessarily refer to activities that may be distinctive to the service provider. Take, for example, customer service. Customer s may believe it is critical, but if it does not differentiate the provider from competing alternatives then it is not distinctive, it is context.

This does not mean critical activities are not important. Contextual activities are not of secondary importance. It means they do not provide the differentiating benefit that generates value. One service provider’s context may be another’s distinctiveness. What is distinctive today may over time become context. Contextual processes may be recombined into distinctive processes. Here is a basic test:

• Does the customer or market space expect the service provider to do this activity? (context)
• Does the customer or market space give the service provider credit for performing this activity exceptionally well? (distinctiveness)

Early adopters of airline kiosks, for example, differentiated themselves through self-service technology (Mode-E). While kiosks were a distinctive activity central to the service strategy, it was hardly critical. Years later, customers expect kiosks at all locations for every airline. Every major airline considers it a critical activity but not distinctive – it no longer differentiates. Hence airlines consolidate or source this critical activity. They collaborate with partner airlines to provide kiosks any member airline may use. They source kiosks from Type III providers who place them in corporate locations, hotels and public places.

Дата добавления: 2015-11-14