Business strategy: Strengthening a company’s market position via its scope of operations
The heart and soul of any business strategy are the actions in the marketplace that any company carries out to outperform rivals in order to achieve a competitive advantage. The competitive advantage becomes sustainable when it persists despite rivals best attempts to copy or beat the advantage. A way of strengthening a company´s market position in order to create and sustain a competitive advantage is through narrowing its scope of operations. This involves deciding which operations to perform internally and which that can be performed better externally.
A value chain activity that can be executed more efficiently or effectively by outside experts should generally not be carried out internally. The key exception is when the certain activity is of utter strategic importance and strict control over the activity is crucial. Outsourcing an activity permits a company to leverage its resources and concentrate on performing its core business activities exceptionally well, hence strengthening its competitive advantage. A well-performed outsourcing strategy allows a company to become more flexible and speeds its time to market. It also provides the flexibility to switch supplier if the current supplier does not succeed in achieving its expectations. Furthermore, finding new potential suppliers with the wanted capabilities already installed is usually quicker and cheaper than trying to build internal operations from scratch. This is particularly important when operating within an industry where technology and buyer preferences change fast, as using outside suppliers reduces the company´s risk. The challenge of keeping up with a highly volatile market then becomes the supplier’s responsibility.
Moreover, an important aspect when outsourcing value chain activities is how to handle the lack of direct control. Monitoring, controlling and coordinating activities with external suppliers can be challenging especially if unexpected problems should occur. Contract based outsourcing can also be problematic if the outside party lack incentives to make investments that matches the needs in the internal value chain of the outsourcing company. A key when looking for a strategic outsourcing partner is therefore not to look for low-cost providers but rather find the best-cost provider. Making the collaboration and communication in an outsourcing partnership work is vital when applying outsourcing as a strategy. If such a relationship is established the fruits of a better service/product and lower internal costs can be harvested for years – creating a sustainable competitive advantage.