Consider your core. It is the one skill, process or advantage you have over your competition. Then think of all the things you do to surround that core with people and assets that complete your company and allow you to release your product or perform your service.
Which of your IP assets is your core?
Now consider how many of those surrounding assets and services are really necessary for you to perform in order to protect and grow your core. For most small and medium-sized businesses, there are lots of wheels spinning around the core that take up the attention and resources of management but add little or no value to the core of the business.
Why this is a tricky question
These are new times, enhanced by our global ability to find resources anywhere on earth to complement the core of our business. And most often, the companies supplying those services are much more efficient at doing so than we could be because of their experience and advantages of scale, and the cost to us of such services is lower than performing them ourselves.
So – what is your core offering? Are you building it more slowly because your resources and attention are focused around many processes not critical to that core?
How about non-core resources?
[Email readers continue here…] It is a rule that early stage managers should find, protect and grow the core business, finding resources wherever possible to service that core in the form of variable expense, to be added to or shed at will as the company finds its niche and establishes a pattern of growth.
What kind of resources are not in your core business?
From administrative services supplied by personal assistants located in India, to designers and producers of prototypes in China, to call centers managed and located in the Philippines, there are efficient, well organized solutions for virtually every process needed by a company to surround its core.
The core we abandoned in this new generation
In earlier college business administration courses, professors often touted the advantages of “vertical integration,” the process of bringing all production from raw materials through the finished product under one roof. With the advent of worldwide seamless communication and cheaper skilled labor available through virtual relationships, that old school thinking no longer holds, even for the largest corporations capable of performing all operations in house.
Henry Ford located his auto plant near the river so that his steel mill could cool the raw product and feed the plant across the property.
The disadvantage of doing it all – a personal story
And in the 1960’s, I created a vertically integrated record manufacturing plant where raw materials came in one door and finished record albums out the door of the same building. It was considered the most efficient possible organization at that time. But it proved impossible to shed overhead during downturns. Labor and downturn cash flow issues and management distractions contributed to offsetting the positive effects of such a practice. I doubt Ford would organize his plant that way today, and neither would I. There are far too many alternatives that serve to protect the business during downturns, give management alternatives and provide superior results when not at the core of the company’s offering.