Director of Enterprise Operations, Eastern Region
Core vs. non-core
A dizzyingly wide array of expertise is needed to run a business. Though all may turn out to be necessary to serve the customer, not all are “core” when the customer is in the grips of a buying decision. For example: pharmaceutical companies are valued for discovery of blockbuster prescription drugs – but not in the slightest for how they book corporate travel. And retailers are valued for offering the goods its audience wants, for location, price and (more recently) a heightened, multi-sensory shopping experience – but not in the slightest for how they handle payroll or the employee cafeteria. Without thinking about it, customers implicitly trust that what they consider to be core competencies stay inside the organizations they buy from – at the heart of why the organization exists. In what is increasingly a resource-scarce environment, how non-core tasks are supported has therefore become an increasingly more significant opportunity.
Prevailing wisdom says that organizations invariably invest most in the future of what is core. If resources are left unallocated after the core has been sufficiently funded, they can then be sprinkled across the remaining tasks, which—though important to operations—are inessential to brand perceptions. It would seem to make pragmatic good sense to allocate this way – until, that is, the organization gets sideswiped by a non-core failure. Then, what is non-core does hurt the brand, occasionally catastrophically. Recall the tale (which I suspect is apocryphal) of the renowned advertising agency that, in the crunch of a major business pitch for the US Postal Service account, sent off its initial package of brilliant marketing ideas by FedEx.
A false choice
It is said that digitization takes the fluff out of pricing. With time, money and staff stretched closer than ever to the snapping point, the more practical strategy becomes triage: core competencies receive healthy investment (after all, they’re important), with little to nothing left unspent and available to support the necessary but understandably subordinate non-core tasks. The result: they are at best under-managed, and at worst ignored. If only managers did not have to choose!
Increasingly, however, they don’t! We are witnessing a shift away from the idea of “everything inside,” even the non-core. Brands in categories including entertainment, travel, media, publishing, retail and pharmaceuticals, to name a handful, are being transformed by radical specialization. This fact is not news – only the degree to which it’s occurring. In the July 2011 Harvard Business Review, Thomas W. Malone, Robert J. Laubacher, and Tammy Johns identified today’s businesses as functioning in an “Age of Hyperspecialization.” Just as the Industrial Revolution turned the solitary pin-maker’s job into an 18-step process each handled by a pin-labor sub-specialist, we’re seeing new-sounding information-age jobs become more specialized than any single knowledge worker can handle with the necessary expertise. The authors cite the example of “software developer,” the job of one person twenty years ago, now divided into the designing, coding, and testing functions – three areas of expertise requiring at least three high-wage staff to output software development.
How do organizations cope with the pressure to add to payroll to work on tasks that were recently just one job? For core tasks the answers are difficult, given that what is truly core to the brand must stay inside, else the organization risks exposure as adding no deep value.
A new class of service providers
With respect to non-core competencies, though, a path to success has become clearer: a winning strategy is to hand-off non-core functions to specialist service providers who have invested multiples of Malcolm Gladwell’s now-famous metric of “10,000 hours’ practice” to build a) deep, focused expertise (which would be folly to try to duplicate inside), b) world-class, standardized, dependable, efficient workflow processes, c) information technology-based intellectual property, all contributing when they meet to d) consistently and transparently lower costs. The significant investment needed to gain mastery is more than paid back over time through the virtuous circle of expanding clients.
Examples abound: such non-core nuts-and-bolts functions as payroll, corporate travel, human resources, cafeteria/food service, printing, and IT are now better managed by professional-services providers who are “close to inside” as a function of working on the customer’s premises (but not on the customer’s payroll!), and who have the knowledge, technology, clout and experience to deliver demonstrably superior cost- and process improvements consistently, while reducing risk to near-zero and freeing up the organization to focus and improve on the core, which is all that matters to the client’s customer. So by managing the core with expertise cultivated inside and by managing the non-core with near-inside expertise that is core to someone else, the organization’s skill base widens at the same time that expenses are reduced through the aggregate clout of the expert. With this model, the reluctant decision to underfund important but secondary support tasks evaporates.
A new class of professional-services firm managing non-core functions that are necessary to do business, but that are not the reason the customer buys, are prospering by creating previously unavailable efficiencies that—rather than add cost—essentially pay the client for the opportunity to run the function. Now there’s a Godfather Deal that’s hard to refuse. With expertise available and more than affordable for virtually any function related to running a business, the unhappy resource-allocation tradeoffs around managing the non-core disappear.
Mitch Orfuss (email@example.com) works at InnerWorkings, where he is Director of Enterprise Operations, Eastern Region. InnerWorkings a leading global supply chain company servicing corporate clients across a wide range of industries. With proprietary technology, an extensive supplier network and deep domain expertise, the Company procures, manages and delivers printed materials and promotional products as part of a comprehensive outsourced enterprise solution.