This post talks about how supplier firms are growing up the food chain in the value chain of various industries, specially the ones where technology has infiltrated various process of the value chain.
Knowledge intensive tasks
– Task outstourcing (here’s where it begins)
– Business Process Outsourcing
– Knowledge Process Outsourcing – Most such tasks are not analyzable
– Innovation outsourcing (here is where it ends)
Knowledge sharing with the suppliers helps reducequality defects. As an example Toyota wiht their suppliers from 1990 to 1996.
Outsourcing not just the manufacture but also the design of the product – Exhibited by Quanta in Taiwan. Quanta manufactures computers for all major PC developers like Dell, IBM, etc.
Trade off of core operations and core strategy
Harvard Case Study by N. Nohria
Inova vs RLK – Practice Innovation versus Process Innovation, Inova was a lifeline for RLK in the given case
– RLK needs the structuring that Inova can bring to them
Royality a mechanism for risk sharing. Incentivizing gains in the market. Through this supplier starts sharing the risk. This is useful in the case of an uncertainity in the project.
Some of the measures that reduce short term operational risk may increase long term structural risk.
Based on everything we understand about outsourcing:
– What can you do to enhance the competitive advantage of the firm?
– What are the capabilities needed to manage the transitions?