In a previous blog entitled "Evolution and Innovation" http://pxltd.typepad.com/project_x_discussions/2008/01/evolution-and-i.html I talked about a book we recently discussed at our Senge Circle called Dealing with Darwin. A very interesting distinction was made by Moore in the book between Core and Context. Moore defines Core as things which differentiate your company from it’s competitors and Context is all the important processes which are essential for staying in business but do not differentiate. In introducing innovation the key to evolution is to innovate in the Core areas. Context innovation will only make the more profit but will not help the company evolve.
However innovation in Context can free up resources needed to innovate in the core. For example, increased productivity will not cause the company to evolve but we free up people to work on a innovation in Core, like introducing a new product. However the problem will arise that the people made available not be capable of working on an innovative product. His solution is interesting. He suggests that some Context people are also good change agents and others are more suited to processes in Context. He suggests you move the people who like change and are capable of Core work into the new area and give the process people more responsibility in the Context work.
I think this is a neat idea and I would like to give a concrete example. A company needs more capital and some strong people to introduce a new product or service. Lets take an insurance company for example wants to move into a new line of insurance. They need capital and people to move into this new area. They decide they will outsource some of their existing information technology which are very capital intensive. They will use the capital freed up in the outsourcing process to introduce this new product thru acquisition. They need new people to manage the acquisition and run the new processes. Some of the people form the information technology organization are transferred to the new product and others are retained to manage the outsourcing project. Some people will also be taken by the outsourcer as well. The people the insurance company move to the new product will people capable of innovation and the process people will be retained to work with the outsourcer.
Now on the other side of the activity is the outsourcer. If the acquisition of this business is Core for them and represents some innovation, we clearly have a win-win.
I recall many years ago CGI took over the IT processes for Cooperators Insurance. It was a big deal and cooperators was paid in CGI treasury shares. The stock market liked the deal and Cooperators Insurance ended up with a great capital influx. CGI at the same time acquired a major piece of outsourcing work which was core to CGI’s growth in the oursourcing business. Clearly the deal was a real win for both parties.
I found this view of outsourcing quite informative for me. From an IT perspectives, outsourcing often looks like a failure. I always thought of the reason for outsourcing was to improve the service and observed that often there was little or no improvement. I never appreciated that the principal motivation for outsourcing might be the freeing of capital which is desperately needed for the company’s survival through innovation in the core.
How neat is it to learn something that allows you to see something quite a different perspective! I found it a profound reframing of outsourcing.