Quelle: CIO Asia
It's an old puzzle: How much of your company's work could be done bysomebody else? The fashionable answer is, plenty - so we're going tooutsource. And that, too often, is the wrong answer.
The question no one seems to be asking is whether an outsourcingpartnership always makes sense. Sure, the Internet has helped toreduce inter-company transaction costs dramatically. But few wouldadmit that they outsource just to save a buck. Typically a deeperrationale is at work - it goes by the term "specialisation".
According to this theory, if a company can concentrate all of itsinvestment and energy on the one thing it does best and hand offeverything else to partners, it can achieve unprecedented levels ofefficiency, speed and quality. That one thing - the corecompetence - can be almost anything, from brand management to productdesign.
Given how the concept of core competence dovetails with Internettechnology, it's no surprise that so many tech gurus fervently promoteradical visions of corporate specialisation. Soon, we're told,individual companies will cease to exist - replaced by vaunted"business webs," or "econets," or "e-cologies."
Peter Karlsson, general manager at EastGate Technology Ltd, believedin these visions, and outsourced his entire ERP system. "And I havenever regretted it since," he says.
Specialisation that works
EastGate is a contract manufacturer for optical storage media, whichincludes mastering, replicating, printing, packaging and distributingCD-ROMs, audio and video CDs, DVDs, and CD cards. It is a fast-movingand fluid business , where deals are made and broken almostinstantaneously, assets and capabilities are ruthlessly scrutinised,and lead-times for fulfilling orders can be as short as 12 hours. "Infact, it is not unusual for us to receive an order and be expected tofulfil it in less than a day," says Karlsson, who is the generalmanager at EastGate.
To survive and appease its highly demanding customers, which includethe likes of Microsoft, Adobe, IBM, Compaq, Iomega andHewlett-Packard, the US$45 million company decided to implement anOracle-based ERP system that gives them an accurate bird's eye viewabout the health of their disparate operations in Singapore, Hong Kongand Taiwan.
Tall order for a company with a staff-strength of 400, and which hasno inclination to become an IT shop. "The ERP system, running on SunMicrosystems servers, eliminates duplication of informationprocessing, maximises the use of manufacturing capacity, improvescustomer service and supports expansion plans," says Karlsson. "Butmaintaining it can be a challenge - that's not our corecompetency."
So he partnered with FailSafe Corp. Pte Ltd - a joint venture betweenSingapore Telecommunications Ltd and FailSafe Holdings - and parked hisentire ERP infrastructure at their premises. The calculated gambleworked. "FailSafe gave us an infrastructure that is 24x7 and is assecure as a bank vault - a key requirement since we house theintellectual property for all the major software houses on ourpremises," says Karlsson.
It has also allowed EastGate to offer a level of service that wouldhave taken millions of dollars of investment to offer. "Ours initiallywas only around US$450,000, in comparison. Yet we improved our on-timedelivery performance by 20 percent, and cut our inventory holding downby 30 percent to a mere six days of stock holding, instead of theusual 11 days," says Karlsson.
"By outsourcing the ERP system, we were able to significantly reduceour upfront investments, operational and manpower costs," saysKarlsson. "We now have peace of mind."
Flawed thinking
But that peace of mind can be flawed, at least in one important way.Although EastGate's foray into outsourcing was an obvious success, itdoesn't mean specialisation works for all. In fact, a true corecompetence is no more a single, narrowly defined activity orcapability; it's a unique system that in total is more valuable thanthe sum of its parts. And quite often it defies any realistic orlogical fragmentation.
No one knows this better than CargoSmart Ltd, a portal company thatspecialises on delivering round-the-clock Internet access to a widevariety of services for the shipping industry, including interactivesailing schedules and cargo tracking.
Although CargoSmart began its life under the wings of its parentcompany, Orient Overseas Container Line (OOCL) Ltd, the companyquickly realised that gaining confidence (and money) from competingshipping line operators was next to impossible. "We needed a moreneutral infrastructure, and we needed to ensure that our applicationwas secure," says Steven Siu, CEO of CargoSmart. So he decided tooutsource.
Siu chose HP's Internet Data Centre facility in Hong Kong to managehis entire core competence. "HP's flexibility in service andrelationship with existing technical vendors were some of the decidingfactors," adds Siu.
To make such a decision work, CargoSmart needed to "fully understandtheir own needs fast," says Kim Le, CargoSmart's Customer CareManager. "And you have to make sure that your vendor's objectives arein line with yours."
The outsourcing strategy was successful. And soon the other shippinglines joined CargoSmart, including China Ocean Shipping (Group) Co.,Malaysia International Shipping Corp. and Nippon Yusen Kaisha Line.
Where is the core?
But how many companies actually know where their core competencieslie? In Asia Pacific, large chunks of commerce are done amongconglomerates. Each conglomerate has several revenue streams that areall important to its bottomline.
Dissecting each business into what's core and what is not iscumbersome, and at times costly. Besides, a fast-moving businessclimate brought about by globalisation augments spreading a company'srisks across different industries and businesses. Putting all yourbets on one core can be risky.
Instead, companies want outsourcing partners who will provide ITinfrastructure and services, and appreciate that business is gettingmore and more fluid.
The good news is that service providers are listening - finally. Afterseveral failed attempts, service providers are ganging up. "They arebecoming service aggregators which provide a multitude of services fora multitude of needs," says Leong Han Kong, chairman of ASP AllianceChapter (AAC), which is part of the Singapore Information TechnologyFoundation - an industry watchdog for the local infocomm industry.
Vendors or Service Providers?
Vendors are also listening. If you scrutinise the latest .Net and WebServices announcements, you will realise that vendors are nowpromoting the outsourcing concept themselves - not merely enabling it.In fact, companies like IBM are pouring millions of dollars inbuilding facilities that allow them to provide outsourcing services,calling it eBusiness on Demand.
"We define it as services that empower our customers to do more withe-business, improve implementation times and reduce capitalexpenditures to advance a business faster and easier," says Lee HanKiat, general manager for e-business hosting, at IBM Global ServicesAsia Pacific.
IBM's motivation is simple: the walls between companies may becomeincreasingly permeable to the flow of information, but they will notfall. Businesses are not suddenly going to shed their corporateclothes and run off to join outsourcing communes.
IBM's goal is to free companies from the costly shackles that tiecompanies to IT, for a fee. "Their dedicated infrastructure andbusiness processes, shared by several departments or locations, can bemanaged by IBM out of their premises or at IBM e-Business HostingCentres," says Lee.
IBM is under no delusion that it can do all these alone. "We recognisethat IDCs and ISPs have value in offering space and bandwidth, andwherever possible we will partner IDCs for space and ISPs forbandwidth because these are not IBM's core business," says Lee. Tyingall these resources with its Universal Servers Farm architecture, IBMis confident that customers will come in droves.
There is a much subtler reason why vendors are listening. "They arebeing pressured by their own customers," says AAC's Leong. "Manycompanies are looking at less expensive alternatives offshore, andthey are asking vendors to provide such facilities to enable that.Else, they are moving out." Eventually, as companies demand more andmore attention for services and not products, vendors will soon morphinto service providers.
IT would then achieve its true goal: to become a business utility. Itwill then make that old puzzle and that wrong answer, irrelevant.