Commentary: June 2006

By Bryan D. Stolle, Agile Software

Outsourcing is a key business strategy. The challenge is determining what tasks you should be outsourcing, and how to control those processes once they have gone outside the four walls of your company.

Geoffrey Moore, author of Crossing the Chasm, addresses the first challenge with the “Core vs. Context” concept—a company should focus on its core competencies, and outsource context when possible. This approach frees up capital and resources to concentrate on your core value-add around your offerings, and allows you to invest more in the pursuit of innovation.

Context does not refer to unimportant tasks, but rather those tasks that are not directly derived from the value you offer your customers. Context is still part of your business, however. You cannot just hand it to someone else and never have anything else to do with it. Outsourcing means context is out of sight, but not out of mind. If your partners don’t do the job right, your business won’t work. You must pay serious attention to the business processes and systems in place that support your outsourcing partners and allow you to continue to manage the outsourced functions.

The more you can figure out how to integrate your outsourcing partners into your business, the more success they and you will have. Systems such as PLM (product lifecycle management) that provide your partners with visibility of your product record are essential, so they have access to the information and people they need to get the job done. With access and collaboration, they go beyond the vendor relationship and become part of your team.

Conversely, you also need visibility into the tasks the partners are handling for you. Even though someone else is building your product, for example—and should be able to deliver higher quality and lower cost because this is their specialty—you are still responsible for the customer experience, whether it be delivery time, quality, or follow-up service. Your logo is on the product. Whether you designed in a quality problem or the manufacturer built in a quality problem, it is still ultimately your problem. So you need visibility of the processes the manufacturer is performing, to make sure they are meeting your requirements, and ultimately your customer’s expectations.

PLM is a foundation that provides this two-way visibility and integrates the context you have outsourced to partners back into your business processes. If you outsource context correctly and have a system in place to manage it correctly, you can be far more effective than a vertically integrated company, where inefficiency is inherently absorbed into the system and cost structure, and capital is wasted.

Outsourcing is an opportunity to examine your business processes, find inefficiencies and unnecessary activities, and instill more rigor,  discipline, and predictability in the business. Smart companies leverage PLM to take advantage of this opportunity to do more than just “get rid” of a business function or process.

Bryan D. Stolle is a co-founder and chairman of Agile Software. Stolle has served as CEO and as a member of the Agile Board of Directors since its inception in March 1995. Prior to founding Agile, Stolle served in various marketing roles at Sherpa Corporation, a developer of enterprise product data management software and Rexcom Systems, a software company co-founded by Stolle. He received a B.A. in business administration and an M.B.A. from the University of Texas at Austin. Send your thoughts about this commentary through e-mail by clicking here. Please reference “Commentary, June 2006” in your message.