Outsource this!

In theory, organizations should focus on their core competencies and outsource everything else. The problem with that theory is the difficulty in deciding what is a core competency and what isn't. If I run a business making concrete, I want to focus on making concrete and selling concrete. Those are my core competencies and everything else should be outsourced. Typically accounting and IT can be done by specialty organizations. Let a company whose core competency is accounting or IT do my it for me.

Generally speaking, concrete is a classic commodity business. Nothing fancy or complicated. Like any commodity business, the product and its manufacturing process have not changed in decades. Unlike the music industry where iTunes revolutionized the distribution channel, concrete is not likely to see technology radically change its physical shipping methods.

In this type of business (and arguably any type of business) accounting techniques are legally required to be identical in every organization.  There is no point in making it a core competency. In the concrete business the final product is so similar among manufacturers that there is no competitive advantage in accounting. Accounting is the classic outsourcing target.

But is accounting just like IT? They both may not look like core competencies, but IT warrants further scrutiny. First of all, it is not legally required to operate the same way across every organization. That gives IT some room for creativity and innovation. Second, IT can have a multiplier effect in global economies and within corporate cultures. The multiplier effect of technology means the right IT investments can have disproportionately large impact on profits.

How does innovation occur in your organization? In a culture that respects new ideas, innovation can take hold. Even in the example of a commodity business like concrete, there is always room for new process ideas and creativity. Maybe the final product is boring and simple concrete. But there is an unlimited amount of room for improving internal methods.

Any organization can create sustainable competitive advantage by continuously, rigorously, and ruthlessly examining their internal processes. All process improvements are driven by information changes and new knowledge. Inevitably, new information systems technologies are demanded to support and often drive these changes. An internal IT organization that understands the intimate details of the business model is infinitely better suited to drive such innovation than any outsourced IT organization. That makes IT a core competency.

What you outsource should never be cast in stone ... or concrete.

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