Why firms should retain core capabilities internally

¶ … firm never outsource its core capabilities? What happens if a supplier who is willing to supply goods and services based on these core capabilities at a significantly lower price approaches the firm? What should the firm do?"

The core capabilities of any firm are what differentiates it form the many other competitors it faces in the market daily. Outsourcing the core competency or capability of any business is like giving away what makes it unique and valuable. In the quest for lower operating costs however, companies routinely look to trim costs from their most strategically important processes (Byrne, 1996). This can result is a diffusion of focus and a difficulty in attaining long-term growth in key markets that may be buying precisely because the core comptency is so unique.

It is the uniqueness of a business that bring prospects in the door or motivates them to get in touch with a business, and it is the sustainable value of delivering excellent products that grows revenue over time (Esperne, 2009a). Only by focusing on these aspects of quality and differentiation can a firm stand against the many challenges and threats in the global economies of today. The focus on outsourcing should be to never degrade of lessen the competitive strength of a business (Esperne, 2009a). It should instead focus on how best to create value over time. Staying away from outsourcing any aspect of their business that would lessen or cheapen the value of the products or services delivered is the best possible approach to preserving long-term competitive value (Computer Dealer News, 2004). The strategies many companies rely on as part of their outsourcing initiatives concentrate on outsourcing the most manual and repetitive processes vs. The most strategic ones (Esperne, 2009a). This drastically reduces the amount of potential risk from outsourcing and removes manual, often cumbersome tasks from workflows within companies, freeing employees up to concentrate on more critically important tasks.

Due to all of these factors it is best for any business to continually manage their core competencies, at both the process and product level, internally first. Instead of concentrating on trimming back even their most critical core competencies from a process standpoint to save on cost, the focus needs to be on optimizing value (Esperne, 2009). Only by taking this approach will a company be able to retain its core strengths and also be able to sustain its most critical reputational element, which is its quality. Defining quality and making sure it is very central to all processes, especially those that are core competencies, are critical if a business is going to grow and sustain itself over the long-term.

Student #2:

"Why should a firm never outsource its core capabilities? What happens if a supplier who is willing to supply goods and services based on these core capabilities at a significantly lower price approaches the firm? What should the firm do?"

Price is a terrible way to make a decision about what your company is going to produce. In fact price can drive a company to ruin if a price ware is initiated with a much stronger rival. Quality and value needs to be at the center of any company's outsourcing and long-term cost strategy. Instead of just driving down costs of everything, including what makes a business unique, companies have got to focus on what makes them unique instead. The ideas behind purpose-driven outsourcing are completely focused on this idea of only outsourcing what a business can afford to from a quality standpoint (Esperne, 2009a).