Agile Directing - Johda ketterästi

Are you about to outsource one of your core activities?

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Saturday 10/11/14 time 10:00 AM


One trend which bothers me every now and then is the outsourcing of almost everything. I understand very well that by outsourcing the company is striving to achieve economic, operative, technological and/or political benefits as the cost reduction being the most important of these objectives.

How about the activities which are strategically critical? What if the co-operation is not working with your partner? Ultimately, it is a question of power.

The rise of the network society

The phenomenon or the long-wave which encourages for outsourcing is the concept of network society which is a close term for information society. Information society is characterized by network-like approach, dynamics and conceptuality. Network society highlights networked production and a way of acting which is typical for information society.

Sociologist Manuel Castells is associated with research on the information society, communication and globalization and has written the book The rise of the network society. 

Castells describes how the fundamental aspects of networks allow for changes that are leading to a variety of transformations, such as decentralization within firms, telecommuting of workers, interactions in the virtual community and economic globalization.

Networks can expand without limits by simply integrating new nodes that share the same means of communication with other nodes. Networks are much more flexible, because there is no overarching organizational or institutional shape. Things are following a certain kind of "networking logic”. Information technologies are facilitating more complex interactions that are organized by networks.

Strategically critical activities

The company needs to think carefully in terms of its future competitiveness if it is worthwhile to outsource a certain activity even though it seems at first glance that some supplier could produce it with lower costs.

The most obvious potential of outsourcing is in activities which are not so essential that they have to be under the company’s own supervision. The more critical and closer to core business the activity is the more important it is for the company to carry out it internally.

One of the greatest risks of outsourcing strategically important operations is the fact that the implementation is much more challenging than in less strategic operations.

And in effect, would you like to leave your core business upon contract mechanics? In the worst case only top management and corporate lawyers are fine tuning the contracts, not the experts who are truly familiar with the activity and could specify accurately the various stages of the activity.

According to Williamson (ref. transaction cost theory) the transaction costs of outsourcing are actually very difficult to be identified and calculated. In order to find out the expenses Williamson detected three critical dimensions of the transactions which contribute to emergence of the costs: transaction types, opportunism and uncertainty (see e.g. Lacity & Hirschheim 1996).

“In managing and developing the business you need only two things; time and common sense. I think it is unreasonable that majority of people complain only about the lack of time – especially, when time has been shared equally for everyone”

Tauno Matomäki

PhD, former CEO of Repola Ltd andformer chairman of the board of UPM-Kymmene Ltd

The Finnish gold crown – ARTEK

Sometimes the concept of networking still appears to me all too ideological. And as being ideological, it is a very fragile base.

Happily, it seems that I am not the only one. The Finnish Strategic Management Association arranged a strategy evening in September, where Artek’s chairman of the board, magnificent Mirkku Kullberg, presented the past and the future objectives for Artek. 

Today Artek is renowned as being one of the most innovative contributors to modern design, building on the heritage of Alvar Aalto. Artek’s furniture can be found in various types of spaces; from public spaces to homes, museums to schools and hotels to offices. Artek's reputation is founded on a commitment to quality and continuity by modern techniques combined with traditional craftsmanship.

Kullberg told us several interesting incidents in the company’s near history. However, for me the “insourcing” of the manufacturing of the furnitures was above them all. Artek have acquired recently the manufacturing company, at last. Hence, this is totally an opposite action in relation to the general trend in global business. Fascinating in deed!

By the way, this is the outmost favourite furniture for me; the carousel chair by Kukkapuro.  

 

I have actively been using it since I could walk - in many different ways. It is really sustainable and versatile. One play was to spin around the number of turns and then – jump into "an imaginary land". Later on, I even placed my loving poodle on it and rolled the chair. He jumped away quite fast, however.  But honestly, dogs really love it; we have had guest stars such as Golden retrievers, Irish setters… (well, a Hovawart thought she is too large). Nowadays kids love to play for example Voice of Finland with the chair :-D.


    
    
    
    
    
    
    

Keywords: strategy, outsourcing, ulkoistaminen, network society, verkostoyhteiskunta, Castells, Artek


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