ACE - Outsource or Develop Inhouse Competency - the question of core competency

ACE - Outsource or Develop Inhouse Competency - the question of core competency
(CopyRight 2009; Benjamin Goh, www.bensglobal.com)

When a new sale with requirements of a new competency comes knocking at our doors, the question that we should ask is whether we were equipped or worst case, prepared to deliver what the customer wants. Naturally, most companies can choose to employ and develop the new competency or it could choose to outsource. The decision to outsource would be very much dependent on the decision to acquire new competency and in so doing, will it jeopardize current core competency or strengthen the competitive advantage.
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To make the choice, let's try to define core competencies. Core competencies are the capabilities that the company possesses that are critical to achieving competitive advantage. To analyze the company's core competencies is to recognize that competition between businesses is as much a race for competence mastery as it is for market position and market power. It is impossible to focus on all activities of a business and the competencies required to undertake them. As such, most companies will focus attention on competencies that really affect competitive advantage.
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So, whether to outsource or build in-house capabilities boils down to an "ACE" analysis:
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A for Advantage over the competition. The decision must bring higher value to the customers and company and thus, achieving greater competitive advantage. There is no point to develop new competencies if it does not help in differentiating the company above the competition. It is highly recommended for a company to be organized into a portfolio of core competencies rather than independent business units. In this way, the business units will be inclined to invest in the building of the company's core competencies.
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C for Change. Core Competencies are not seen as being fixed. Core Competencies should change in response to changes in the company's environment. They are flexible and evolve over time. As a business evolves and adapts to new circumstances and opportunities, so its Core Competencies will have to adapt and change. So, the question of whether to adopt a new competency or not is rather a question of whether the new competency is part and parcel of the company's short or long term strategy and vision.
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E for Enhancement of existing core competency. The new competence should provide access to a wider variety of markets as well as make it more difficult for competitors to imitate. It should be able to be integrated and coordinated into the various functions of the company. Hiring a new team of developers does not automatically gain core competence. It is only when there is effective coordination among all the functions of the company in bringing the product or service to the market that will result in core competence. Strategic alliance is another alternative to outsourcing where the alliance party has the other technology or know-how that the company does not have. And thus, working together will facilitate sharing of competencies for minimal or no cost. This will also allow the company not to compromise on its core competency.