Some years ago, we were engaged to help the managing partner of a well-known global consulting firm review the firm’s strategy and approach to staffing. As part of that work, we
became interested in how organizations determined the right resource arrangements.
Clearly, at that time, the bias was for full-time, permanent employees. But as outsourcing was just beginning to be taken seriously, we wondered how to bring a more strategic perspective to this approach.
Specifically, we asked, under what circumstances might it be more effective and cost-efficient to “rent” expertise rather than “own” resources?
Better to “rent” or to “own” expertise?
We noticed two fundamental factors at work. The first was the importance of the expertise to the organization ‘ the extent to which a specific expertise is truly strategic to the mission and goals of the organization. Defining what is strategic is a very useful exercise.
For example, Southnwest Airlines, the first airline to recognize the impact of fuel price volatility, established a hedging program. By 2008, Southwest had saved over $3.5 billion in hedge benefits.
What made hedging strategic was the significant cost advantage it gave Southwest over other airlines. The resultant profits could be used to expand routes, acquire other airlines, and invest in new, more efficient, planes. In fact, for a few years, Southwest’s market value was greater than the combined market value of all of its U.S. airline competitors combined.
The second driver we recognized was uniqueness or availability: Was the capability commonly available or rare?
For example, Uber’s ability to quickly move from selection to operation in new cities is a unique skill set that has given the ride-share company a significant first-mover advantage over Lyft or other mobile taxi-hailing services. Exxon Mobil’s approach to high-tech reservoir modeling in oilfield exploration, and its ongoing investment in high-impact downstream refining technology, is unique to that company and allowed the company to increase production levels and efficiency beyond most competitors.
By contrast, California wineries will certainly agree that bottling is an important activity, but a capability that is widely available. It must be done to specification, but beyond meeting standard at a competitive cost, there is not much advantage to owning bottling. So, bottling is typically a service provided to wineries by third parties.
When these factors of importance and availability are combined, a clear way to determine when to rent versus own emerges. We call this the strategic resourcing matrix.
If you “own,” own the best
Expertise that is both crucial to the performance and growth of the organization and unique and therefore difficult or impossible to accessible externally should, obviously, be owned by the organization.
Ownership makes sense for a number of reasons, mainly, the importance of the expertise and limited competitive access to the skill or capability. But ownership isn’t enough. If the capability is truly strategic, that is, if the performance and very existence of the company depend on the expertise, the company must be more than merely very good or excellent at this capability.
Rolls-Royce airplane engines can’t just be good; they must be superior to what’s available in the market from competitors such as General Electric and United Technologies or Rolls-Royce will not achieve its goals and may not survive.
In short, if the capability is both strategic and rare, the company needs to ensure that the level of agile talent is consistent with the requirement ‘ that the talent is “best-in-world” to provide the competitive firepower that is required.
Reprinted by permission of Harvard Business Review Press. Excerpted from Agile Talent: How to Source and Manage Outside Talent, by Jon Younger and Norm Smallwood. Copyright 2016. Harvard Business Publishing Corporation. All rights reserved.