An Enterprise does not do everything alone. It is part of a
Value chain. It purchases Goods from other Enterprises to use
them in the Production.
It also acquires Information.
Finally, it purchases Services which can replace the Processes that it would have executed itself.
In all cases, we can use the terms supplier, partner or outsourcing.
The real challenge is knowing how to focus on one's strong points, even if we think we know how to carry out the other activities.
To manage to Offer a Product to one's Customers, a cascade of Processes is necessary.
An Enterprise can choose to carry out all these Processes itself; this is an integrated Enterprise.
It can also choose to concentrate on what it knows how to do best and outsource some Processes to partners: consulting assignment, cleaning buildings, transporting Goods...
The reason behind outsourcing is either a better value (e.g., turning to a consulting company) or a lower price (e.g., turning to a cleaning company).
In today's economic world, an Enterprise is never fully integrated: the Baker does not farm the fields to grow the wheat to get flour himself, he does not build the tractors needed for the fields and he does not produce the diesel needed to make the tractor run.
This means that the Enterprise has to purchase Products or Services from other Enterprises:
- Intermediary Goods which will serve to assemble the Goods Offered by the Enterprise: spare parts, tools, means of transport, supplies, premises...
- Information needed to carry out the Processes that it executes itself: Models (such as Software) or Facts (prospect files, market data)
- Services when the expected result is a change in
the state of the Goods (cleaning premises, machine
maintenance) or People from the Enterprise (training,
coaching, consulting). In this case, the Enterprise no longer wants to
control the Processes, it is happy to benefit from their
We can outsource Operational Processes.
- Outsourcing Production.
- e.g., outsourcing production to offshore regions (factory for Goods or BPO for Service)
- Outsourcing Distribution
- e.g., partnership with Distribution network
- Outsourcing Resources
- e.g., cleaning premises
- e.g., operating IT (Cloud or other)
We can outsource the Transformation Processes.
- Outsourcing Product Modeling
- e.g., we use Product Models that are already available, if our business is Distribution
- Outsourcing Operation
- e.g., we subcontract Distribution and Production to only keep the Product design, in this case we sell Product licenses
- e.g., we purchase an IT Operation Model (Software
The Enterprise can retain responsibility for executing the Process but involve external Resources that do not belong to it: renting premises, using temporary workers, get Components, purchases IT resources on the Cloud,...
As regards the Processes that the Enterprise would like to control, it needs Human-Actors. These Actors can be Enterprise employees or external Actors: but the responsibility falls to the Enterprise. It keeps the responsibility for its Process even if it outsources the Resource.
As an example, external Actors can be customers who carry out part of the Processes helped by an IT Solution (Operation Model) supplied by the Enterprise. In this case, the Enterprise does retain control of its Process, even if it outsources the Resources.
An enterprise cannot be the best in every domain.
Choices must be made.
The criteria are the following:
- Keep the Process that we know how to execute better than
the other Enterprises
- Either because we have more productive Resources: labor costs, motivation, know-how, work time
- Or because we have better Models. We can
compensate for lower Resource productivity by a more
efficient Model. This is one incentive to control
Product and Operation Modeling internally and know how
to protect them.
- Ensure that we can adapt the Process Resources kept in case of a turnaround in the market. It is obvious that involving external Actors (temporary workers, customers, partners...) provides more flexibility to Enterprises in countries where employment law is too restrictive.
In all cases, the enterprise must keep full RESPONSIBILITY for its Products and Services even when it subcontracts them. It has to be answerable for the quality and security of its Products and Services, even if all or part of them are subcontracted.
In the same way, the Enterprise is responsible for protecting its customer data, even if it is in third-party systems.
- Keep the Process that we know how to execute better than the other Enterprises
The story of George the Baker is made available under the terms of the
Creative Commons Attribution - NoDerivatives 4.0 International license.