A “Capability First” Perspective for Sourcing Success

As organizations look for cost effective ways of working, outsourcing non-core functions appears as an alluring prospect. But before you hand over your operations to third parties, it is worth pausing to consider the risks associated with your sourcing approach. Starting with an overall capability perspective entails several benefits over service first approach, and it enables you to build a strategic approach to sourcing. 

Outsourcing is an effective way for companies to focus on their core competencies, reduce costs, and access specialised expertise. However, the success of outsourcing initiatives is not guaranteed, and it is essential to take a strategic approach where one of the most important elements is to start with an overall capability perspective rather than a service focus. 

When starting with a service focus, companies tend to focus solely on the services that will be provided by the service supplier. Such an approach does not take into account the company’s broader capability portfolio, which could lead to gaps in capabilities, ineffective management of supplier relationships, and suboptimal outcomes.

Figure 1. Potential value leakages in the sourcing process

In contrast, starting with an overall capability perspective allows companies to take a more holistic approach to sourcing. This perspective involves identifying and assessing the key capabilities necessary to ensure an optimally functioning and strategically aligned service delivery.  

An overall capability perspective also allows for companies to develop a more strategic sourcing plan. The initial capability assessment should serve as the foundation for the transformation roadmap. Any capability gaps identified should be visualized, for example in a heat map, prioritised and addressed as part of the overall service delivery transformation plan – outlining the steps required to enhance or build the necessary capabilities, such as governance, processes, and technology, to close the gaps. This transformation plan will thus to a greater deal focus on achieving the company’s strategic objectives, rather than just accomplishing specific service targets.

Figure 2. An example of the heatmap illustrating capabilities and their maturity levels

The capability assessment can also be a useful tool in the service provider selection, where selection criteria should include ability to proactively support in providing and building the key capabilities. The transformation plan will then enable a joint focus and common strategic priorities. 

In essence, starting with an overall capability perspective enables organizations to take a more strategic approach to sourcing and how to outsource. It involves considering the long-term implications of the sourcing approach, including the impact on the organization’s capabilities and the ability to meet future business needs. This approach also allows organizations to identify the right service providers who can help build capabilities while delivering the required services.

Maria Nelsson & Abhishek Kale

Maria Nelsson is a seasoned business leader with diverse experience spanning over three decades in the consulting domain.
Abhishek Kale, Senior Consultant with experience in Process Excellence, Digital Transformation, and ERP Consulting across multiple business sectors.

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