CM: The primary move back to the U.S. is about economics. We see a major shift in production coming back to the U.S. from places like China. With the instability of the labor market, fluctuations in currency and increase in local consumption, the outsourcing dynamic is changing in China. Moving forward, companies are going to need to rethink and potentially rebuild some of their capabilities that they might have outsourced. The fit for purpose model always applies in relation to the capabilities that matter. If manufacturing highest-quality products is a desired differentiated capability, then the company should optimize all of its aspects on achieving this, and de-emphasize all other aspects that don’t contribute to it.
NK: In discussing basic business capabilities, what if a company who does not yet outsource its basic business functions—such as payroll, HR or employee benefits—(but is looking to) does not know where to start and which functions to outsource? What is the first step to apply the “fit for purpose” model?
CM: In the context of capabilities-driven strategy, the company would first segment its activities to figure out which ones support the strategy and which ones don’t. Next, for those that don’t or don’t matter, the company would assess based on market-based prices whether a make or buy path is the most optimal. A company must take a critical view of this. Our research shows that companies can only be differentiated in a few capabilities. Identifying those is often easier than having the conviction to not invest in those capabilities that are not differentiated.
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