Efficiency relates to effectiveness like cooks to porridge – the more attention you pay to the former, the more likely you are to get the desired result from the latter. To maximize the productivity of the process down the line, it is advisable to use the available resources wisely. A very central decision here is the selection of production resources, also called „sourcing“ in English.
Everything is sourcing
Sourcing in the corporate environment, in its broadest interpretation, would encompass all that is used in terms of resources to deliver the corporate service. In the indirect environment, this can start with the pencils used, can extend to company premises, buildings, maintenance and catering, and can even extend to direct sourcing of core processes – the delivery of what your company sells in the marketplace as a product or service.
In the IT-related environment, sourcing is normally considered across the respective layers for which the resources are to be provided. Cloud computing represents a cross-sectional function here, as it has already been offering its services on several layers for some time. On the extreme left we find standardized services which can be documented and packaged in a meaningful way and which can be described precisely via a corresponding SLA. The further to the right we get, the more detailed the requirements become, and the less suitable are standard contracts with defined outcome specifications.
For the internal task areas mentioned in the upper section, it can now be decided whether they should be outsourced or not. Of course, this can be done in different ways, in different sized bites and in different supplier markets. In the heyday of off-shore outsourcing between 1995 and 2010, for example, entire areas of activity were outsourced to off-shore regions. Internal specialists were reassigned or even made redundant in order to save costs. As a result, management competence was lost and process costs increased enormously due to differences in time zone, language, culture and working methods. Thus, despite a lower financial burden after the change, the total cost of ownership was negative and the business case was gone.
Make OR Buy OR Let It Be?
Based on these experiences, many larger companies today rely on providing non-critical commodity services with a high degree of standardization off-shore at low cost, while providing more critical (but standardized) processes in-house in a near-shore shared service center. If necessary, project business is mapped in a mixture of internal and external resources.
The question of whether a requirement is generally worth fulfilling within the scope of the company’s activities should not be forgotten here. This applies to supporting process areas such as IT, finance and human resources, as well as to the core business and the associated product and service portfolio. In all areas, it is advisable to check at regular intervals whether the processes and their requirements still correspond to the current conditions. Large companies in particular are continually growing in complexity and, after many years, find it difficult to react flexibly to new requirements. Here, in addition to the already well-documented „technical debt“, the „organizational debt“ also grows in the course of the entrepreneurial activity, which the operative management should keep an eye on.
Project services are a special case here. It is advisable to consider exactly to what degree and with what tasks the company entrusts external partners with the support of projects. Of course, this depends on both internal staffing levels and the skills of the external partners. Here, too, the situation has changed. For a long time, it was common practice to outsource complete projects, including project management, technical consulting, design, implementation, training, testing and cutover, as far as possible due to tight headcounts. This is convenient for the project duration, but difficult for the time after cutover. Once the outsiders have left, the customer is left with a solution that he did not design himself, for which he only provided selective support during implementation, and for which the experts are no longer readily available.
If a company has therefore reached a critical size in order to have to perform a certain amount of project work on a permanent basis, it is advisable to staff at least the methodological specialist know-how internally, and ideally also to build up specialist process experts. If the appropriate resources are not available to a sufficient extent, it makes sense to pursue a coaching approach in order to create these resources internally. This initially costs internal effort in the project, but then pays off in operation. In the process, an external partner accompanies an internal manager and supports the project with tools, expertise and methodology. With this approach, the company benefits from external specialist know-how, keeps project costs in check due to lower external budgets, and is still „steering competent“ after the project. Then, at the end of the project, the external consultants can move on to the next customer without the company losing critical knowledge.
However, this is a generic recommendation assuming a medium to large company with typical project work and classic internal organization. Of course, some companies do very well by sourcing significantly more project services externally in a well-defined partner ecosystem. Others handle projects only internally for certain reasons (criticality, protection of secrets). The devil here – as so often in life – is in the details.
The bread and butter
Not to be forgotten in the topic of sourcing is, of course, procurement management, which deals with the procurement, management and monitoring of purchased goods and services. The level of organization and control required depends heavily on your specific situation in the company. However, the areas below should be considered, at least roughly, if you want to operate an efficient procurement management system.
Of course, the less external services that need to be coordinated, the less time and effort is required. This also helps to maintain a healthy balance sheet in a company in which decision-makers are not only oriented to their own cost center. Finally, it is really a question of the overall view – those who only look (or are allowed to look) at one project or one division run the risk of making decisions that are detrimental to the company as a whole.
If the divisions become entrenched, the line and the project will quickly bounce off the silo walls and effectiveness will drop significantly. Open communication with shared decision making should therefore be one of the key organizational goals of any company.
Wishing you a successful staffing of your functions,
