Connect With Your Service Provider to Develop and Create Value

How does a company maintain and expand its core competence in the face of rapidly changing technologies, increasing competition and shrinking R&D budgets?

The short answer is to forge a Vested Outsourcing relationship with a service provider that will add innovation and value over the long haul.

That thought came to mind as I read an article in last month’s Harvard Business Review by Ndubuisi Ekekwe titled, “Beyond Core Competence.”

In the article, Ekekwe—who is the founder of the African Institution of Technology—writes about how some companies can get “stuck” in their core competence with no easy way to advance if conditions get, well, sticky. For example, for decades Eastman Kodak Company was synonymous with photography – “but it got stuck in its core competence of traditional film products and missed the rise of digital photography and printing.” It was late to the digital party and to survive it had to stop selling film cameras.

Another iconic company, IBM, sold its PC division to a competitor, Lenovo in 2005 after losing almost $1 billion on the PC business in less than four years. That move put IBM back in the game as a technology competitor.

“With crowdsourcing services, lower wages, and improving designers in most emerging nations, multinational corporations must evaluate how to retool products to make them relevant to new markets,” Ekekwe writes.

Sometimes help is needed to reinvent a company or reposition itself in a dynamic, changing global market. This is especially true in the electronics market where competition is intense and product designs and advances change constantly. “The ways companies make products, especially electronics, have been disrupted and redesigned,” Ekekwe says.

That’s why looking outside to a service provider for new insights and innovation through a flexible, collaborative and innovative Vested framework is a great way to deal with marketplace disruptions and surprises, while also creating value.

Even Procter & Gamble, which operates one of the greatest research and development operations around, has had to adapt. After its stock collapsed in 2000, the company decided it needed to look at external sources for innovation. P&G’s “connect and develop” strategy uses technology and networks to seek out new ideas for future products.

According to P&G executives, the invent-it-ourselves model is simply a path to diminishing returns.

“The [connect and develop] model works,” P&G says. “Today, more than 35 percent of our new products in market have elements that originated from outside P&G, up from about 15 percent in 2000. And 45 percent of the initiatives in our product development portfolio have key elements that were discovered externally.”

Similar value creation occurred when P&G outsourced its global real estate facilities management services to Jones Lang Lasalle in 2004. Under the agreement, P&G transitioned about 600 people to Jones Lang Lasalle, avoiding layoffs and keeping an experienced and talented pool of people working within the service provider family.

William Reeves, one of the P&G executives behind the deal noted, “From a real estate standpoint, this is clearly the largest relationship that we have ever established with a single supplier in our history as a company. They [Jones Lang Lasalle] have met or exceeded our expectations and the objectives we had in place.” Jones Lang Lasalle has since gone on to win P&G’s supplier of the year award for two straight years.

“While core competence remains vital — differentiation offers a competitive advantage — firms must examine their organizational ambidexterity,” Ekekwe says. “They must be ready to let go … they must be ready to go beyond their core competence and its associated core products and markets of today, which may be irrelevant tomorrow, to evolve and prosper. And the ability to do that may become a new core competence.”

You just might find a new and lasting core competence, and a valuable, lasting partner.

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