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Outsourcing your core competencies
Or is it now just a case of trusting utility-like third parties?

By Tony Hallett

Published: Thursday 28 April 2005

Organisations are more interested than ever in outsourcing - though that doesn't mean they aren't still struggling with which core functions they should keep in-house.

Tapping into third-party providers that offer services just like utilities is now an option but there are questions users need to ask, reckons Phanish Puranam, assistant professor of strategy and international management at London Business School.

Speaking at a Wall Street Journal and Unisys Business Transformation Utilities panel event in London this morning, he asked whether the utility [provider] can do a better job because of their scale and whether what's being outsourced is an area of differentiation.

Indeed, the question of what is core to an organisation has come up throughout the history of outsourcing. Alwyn Welch, VP and GM UK at Unisys, said: "Twenty years ago the CxO was very worried about what was core."

However, nowadays more is being trusted to third parties. LBS' Puranam pointed out big pharmaceuticals companies - among the world's largest spenders on research and development, seen as core to what they do - now turn to third parties for about 40 to 60 per cent of their R&D.

BT group strategy director Clive Ansell said that telco is increasingly using offshore outsourcing for maintaining legacy systems - what he called "the fading fringe" - but others see outsourcing sitting much closer to core operations in certain verticals besides pharmaceuticals.

Speaking about financial services companies and using service oriented architectures (SOAs) to serve their outsourcing needs, Mike Eaton, CEO of Unisys Insurance Services Limited (UISL), said that last year his unit "flipped to the horizontal" using SOAs for flexibility.

"We tell our new clients they're coming in to a utility-based model," he said. That means competing firms are likely to be doing the same thing through the outsourcer.