"Strategic Sourcing from Periphery to the Core"
Harvard Business Review
February 2005, pp. 132-139
The authors of this article argue that globalization has changed the basis of competition. Ownership of capabilities is no longer what matters, and the key factor is the company's ability to control and make the most of critical capabilities. The question companies must now ask themselves is how best to source each activity in the value chain. This new discipline is called "capability sourcing." Some of the premier practitioners of this approach are Microsoft, Wal-Mart, American Express, and Chrysler.
The authors advise that in order to make sourcing more strategic (as opposed to tactical), "You need to stop focusing on incremental cost improvement targets, step back, and reevaluate your strategy and your capabilities."
A three-step process is recommended as a framework for developing capability sourcing:
- Identify the components of the business that represent the core of the core for your enterprise. The "core of the core" is the activities that your company can do better and less expensively than your competitors. Consider whether a capability is proprietary and whether it is common enough to provide advantages for a supplier to provide it to multiple companies.
- Plot each of your required capabilities on a sourcing opportunities map. One axis of this type of map measures how proprietary a process or function is. The other axis assesses the degree of commonality within and outside your industry. The article provides an example and indicates how you determine which capabilities are candidates for outsourcing through this method.
- Use a capabilities assessment map to plot each capability according to its cost and quality, related to your top competitors or suppliers. This type of map helps determine both which key capability gaps your company needs to fill and current activities that could be performed otherwise with no strategic penalty.
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