Key Success Driver – Focusing on Core Competencies

In our post, You Can Realize a Competitive Advantage Through Outsourcing, we discussed how product development can and does provide a competitive advantage.

The main point said competitive advantage is derived when a firm’s proficiencies are organized into a well-defined set of core competencies. This allows businesses to adapt to marketplace opportunities.

Core competencies are the collective acumen in the organization; they are skill and knowledge sets, not products or functions. They must be flexible, long-term platforms for success. They are usually small in number—three to five—and exist at unique sources of leverage in the value chain. They are positioned where the company can dominate competition and they are carved in the organization’s structure.

In the future, managers will be judged on their ability to identify, cultivate, and exploit the core competencies that make growth possible, forcing them to rethink the concept of the corporation itself.

Product Development Outsourcing

Product development outsourcing is a valuable a tool that allows organizations to focus on their core competencies. The relationship between developing core competencies and outsourcing is critical.

As organizations outsource product development activities that are non-core, it frees management time and resources to focus on the activities that are core. With the benefit of additional management time and resources the core competencies are reinforced and improved, keeping the organization focused on where it adds the most value to the customer.

It’s a simple and compelling argument: product development outsourcing not only facilitates the development of core competencies, it enables it.

Proving the Detractors Wrong and Going the Extra Mile

Opponents often argued product development outsourcing would gut the business, cause positions to be removed, or create an uncontrollable environment.

None of these fears have come to fruition.

Instead, outsourcing continues to effect great innovation because highly qualified outside providers can execute non-core product development efforts. The strategic benefits to outsourcing are extensive. Greater value, higher service levels, lower costs, innovation, and business partnerships that encouraged new thinking and introduced new ideas all are a result of the new, tight business relationships that product development outsourcing fosters.

Further, the advances that product development providers introduce continue to swell.

Armed with a core competency of innovation and motivated by a desire to expand their relationships, product development providers continue to conceive new opportunities to deliver greater value. Through well-conceived outsourcing relationships, providers are increasingly recommending changes and accomplishing improvements internal managers had not envisioned nor thought to recommend. Developers offer a fresh perspective, contributing improvements gathered from a wealth of clients and applying wisdom from the wide-ranging experience.

Conclusion

Core competencies are a vital way to think about a corporation’s path to success. A simple test for identifying whether an activity is or is not a core competency is to ask the following questions.
1. Does the activity create or defend a unique competitive advantage for your firm?
2. Is doing this activity internally the most cost-effective means?
3. If starting your company today, would you build this capability internally?
4. Would other companies hire you to do this activity for them?
5. Will the company’s future leaders come from the area of this capability?
6. Does the activity DIRECTLY contribute to business growth or expansion?

The answer to each of these questions should be “YES” if the activity is to be considered a core competency. If the answer to any of the questions is “NO,” a re-examination of corporate philosophies and outsourcing possibilities may be in order.

How Outsourcing Can Become a Competitive Advantage for You

When a company contemplates improving their competitive position in the marketplace, they typically think about doing something internal to transform their posture—like mastering a new technology, developing an innovative process, or even adapt a fresh business model.

These traditional approaches to improving competitiveness are reasonable but not the only option. Organizations increasingly use outsourcing to change the competitive landscape, reposition their firms, and/or renovate how they do business.

Outsourcing works to reduce costs, grow revenue, and be first-movers to market.

Why the Market is Moving Toward Outsourcing

We can cite a number of ways outsourcing improves competitive advantage and, consequently, why more companies are taking advantage of the proposition.

  1. First, there has been an increase in the number and types of capabilities that external product development contractors possess. Suppliers concentrate on mastering and building upon a core set of competencies, so they built to handle the toughest challenges within their domain and continue to offer a broader scope of services.
  2. Second, advances in technology and other innovations make it more advantageous for firms to outsource because of the difficulty in simply keeping up with the latest advances.
  3. Third, even if companies could keep up with changes, it is not cost-effective to make the investments necessary to be on the cutting edge of countless technologies. With ever-shorter times to market and product life cycles measured in months, not years, speed has become a defining competitive advantage for many businesses.

Competitive Advantages Realized Through Outsourcing

Specific advantages, or reasons for product development outsourcing, vary from business to business. Whatever the reasons, the advantages are compelling.

  1. First, a major advantage referred to earlier is that it offers firms a way beat the competition to the market by engaging a partner with the expertise and capacity to rapidly bring new innovations to market.
  2. Second, experienced development partners can also provide the catalyst for firms to swiftly enter and execute within new markets.
  3. Third, reducing investments in non-critical functions gives firms the flexibility to act with reduced financial burdens and, as a result, the ability to respond opportunistically in new markets.
  4. Fourth, outsourcing enables businesses to focus on core competencies and build those skills that directly add value to customers.

Conclusion

Direct and indirect advantages from outsourcing are endless. If an organization did not have the option to outsource, it would be saddled with doing everything itself, leaving little time to create the skills that are the foundation of competitive advantage.

As the benefits of outsourcing amass, firms frequently extend those relationships and look for more powerful ways to leverage the contracted company. They realize that these relationships can help them innovate and fundamentally change the business status quo; because the contractor and recipient are both focused on exactly what they do best.

Given the overwhelming advantages, product development outsourcing is becoming increasingly strategic and even transformational.

Outsourcing is changing how business is done. It is a powerful way to improve business focus, realize better asset utilization and generate ever-greater corporate value.

The RoHS Recast Directive

The RoHS Recast Directive for manufacturers and importers became law on January 3rd, 2013 and medical devices will also need to be compliant with the regulatory requirements starting in July 2014. This will require all medical device manufacturers to remove a number of hazardous substances from the electronic components they currently use and make adjustments to their ongoing development and quality assurance processes.

This broadens the scope of the original RoHS Directive 2002/95/EC to include medical devices, in-vitro diagnostic medical devices, and industrial monitoring and control equipment. Both the manufacturer and the importer are legally responsible for compliance and the staggered compliance deadlines for the newly included equipment types are:
July 22, 2014 | Medical Devices
July 22, 2016 | In-Vitro Diagnostic Medical Devices
July 22, 2017 | Industrial Monitoring & Control Equipment
July 22, 2019 | Electrical & Electronic Equipment (formerly outside of directive scope)
If you currently ship medical devices to Europe, or ever foresee this as a possibility, It is highly recommended you immediately begin the process of:
Scrubbing your Bill of Materials
Performing XRF Chemical Testing and Analysis
Compiling a Technical Construction File
Conducting Risk Assessment of Materials and/or Manufacturing Processes
RBC Medical Innovations is an ISO 13485 | ISO 9001 certified and FDA registered contract medical device manufacturer with the available resources and capabilities to provide commercial production solutions for your FDA PMA / 510(k) or CE marking medical devices. To support the legislative requirements of the recast directive, we are offering a RoHS 2 Compliance Review Service to ensure your device is delivered to market on target, on time, and on budget.

When Should Your Company Outsource Product Development?

Most manufacturers outsource some or all of their product development projects because they limit their internal capabilities to focus on success or because they’re following age-old notions.

This only makes sense when the company first builds the systems needed to manage the outsourcing tool. Unfortunately, many companies outsource before they have these systems, and leave the experience with a negative opinion of the firm doing the project or of outsourcing in general. A better solution is to outsource product development to gain expertise, add resources, lower development costs, or freshen internal teams.

But does this really make sense?
If the company outsourcing the project builds the systems necessary to manage the outsourcing tool, the answer is a resounding “Yes!” Such systems include:
• The capabilities to find, evaluate, and hire the outsourcing firm
• Methods, protocols, and resources for communicating and managing the outsourcing firm
• Tools, resources, and plans for gaining, storing, and using knowledge transfer

Unfortunately, many companies outsource before they plan the systems they need to effectively do so. They generally leave the relationship with a negative opinion of the firm doing the project and of outsourcing in general.

Of course, in the near term, most companies that sell a product will maintain some level of product development expertise. This expertise will be used to help evaluate new product ideas, to manage product development, and/or to maintain and support existing product offerings.

Then, when does it make sense to outsource product development?

Outsourcing makes the most sense when:
1. There is a need for expertise the company doesn’t have or need full time.
2. There is need for resources the company currently does not have—there are simply not enough people on staff to complete all of the required work.
3. It costs too much money to maintain internal teams to do some or all of the development projects that must be completed.
4. There is a desire for improvements in the product development processes through best practices or a “fresh” approach to the development project.