Who Remembers Peter Drucker; And Where Outsourcing Falls Apart

For those that received their MBA in the hay-day of MBA programs, Peter Drucker was the thought leader driving new managerial innovations. His central tenet of modern management was the belief every company should focus on core competencies and outsource everything else. No company should retain employees for cleaning offices for example. I can’t help but wonder if we have taken this successful efficiency strategy to the extreme and in the process allow finance to trump all other operational decisions. Incremental outsourcing eventually leads to the erosion of the core competency you are trying to maximize. Let say you build golf tees. You have a factory and spit them out like rain. And let’s say you decide to outsource the procurement of wood chips since your core competency is defined as having the machine knowhow to carve the best tee shapes. Disrupt the availability of raw material for your product and you are in trouble. Competitive strategy would require that disruption of raw material acquisition be a primary initiative.

Management Incrementalism is the process of stacking decisions over time that lead to an end result that would have rendered all the previous decisions as absurd. It is the cousin to Group Think.  The decision to outsource a function is made with the current information. Managers in the future will make more outsourcing decisions where, if known, previous decisions would be made differently.

Suggestions:

1. Differentiate and innovate at multiple locations in the value chain. Create barriers in distribution or packaging or brand position and not just in the core competency.

2. Partner with another company that creates a barrier through an exclusice leverage arrangement. I was always a fan of Keiretsu as a means to create a strong value chain of specialized companies.

3. Diversify your product offerings and then link them. What works for Microsoft and Google will work for you.