Chapter 3: The Internal Organization: Resources, Capabilities, Core Competencies, and Competitive Advantages 97
“We’re Outsourcing that Activity but Not That One? I’m Surprised!”Clearly, firms do not want to outsource activities through
which they are able to create value. Moreover, they want to
concentrate on those activities in the value chain functions
and the support functions where they are able to create the
greatest amount of value. Recognizing the activities in these
two categories is a critical responsibility of those studying a
firm’s internal organization.
As we discussed in the Opening Case, big pharma compa-
nies are considering the possibility that they may use some
of their resources and capabilities to try to develop “big data
analytics” as a core competence given the increasing value that
is thought to accrue to companies in this industry that are able
to do so. In contrast, these same firms are outsourcing drug
safety processes and procedures to firms, many of which are
located in India or have offices located there. In fact, monitor-
ing drug safety is “one of outsourcing’s newest frontiers and the
now $2 billion business is booming as regulators require closer
tracking of rare side effects and interactions between med-
icines.” Accenture, Cognizant, and Tata Consultancy Services
Ltd. are some of the firms to which big pharma companies
AstraZeneca PLC, Novartis AG, and Bristol-Myers Squibb Co.
are outsourcing the monitoring of drug safety. Thus, the big
pharma firms have decided that data analytics processes are
an activity in which they can capture value while monitoring
drug safety is not.
Similar examples exist within firms competing in other
industries. As mentioned above, Deutsche Bank has out-
sourced some data center services to Hewlett-Packard; how-
ever, it is retaining control over certain technology application
areas it believes are proprietary and, as such, are core compe-
tencies through which the firm creates value. United Airlines
is outsourcing U.S. airport jobs that employ “workers in areas
including check-in, baggage-handling, and customer service.”
This outsourcing decision suggests that United believes that it
cannot create value by completing these tasks in house or that
it is too expensive to attempt to do so.
Based in India, Wipro and Infosys are two companies that
have historically been successful as firms to whom others
outsource activities. However, this success has been largely a
product of being able to employ relatively inexpensive pro-
grammers to complete tasks lacking significant amounts of
complexity. This is no longer the case today as customers are
asking outsourcing firms to help them analyze large amounts
of data and engage the cloud for computing purposes. Statedmore directly, some believe that “Bangalore’s outsourcing
industry—which grew at breakneck speeds for years and
changed the way the world of IT works—has matured. While
it will continue to find ways to peddle the talents of India’s
inexpensive programmers and engineers, it needs to find new
businesses if it wants to thrive.”Strategic Focus
Stuart Forster/Alamy
These individuals are working in a firm to which other
companies have outsourced certain activities for completion.This reality means that these outsourcing firms must
find ways to produce their own software that can be used
to create different types of value for customers rather than
remaining focused on their initial core competencies in terms
of integrating and maintaining their customers’ software. It
seems that firms such as Wipro and Infosys are challenged to
develop competencies in terms of their own software niches
and to learn how to competitively price their new products to
compete against the likes of SAP. To do this, these outsourcing
firms are hiring specialized code writers, data scientists, and
statisticians for the purpose of creating their own proprietary
software through which they can generate value by how they
uniquely scrub and crunch customers’ data.
Sources: Deutsche Bank, H-P divide IT responsibility in cloud deal, Wall Street
Journal Online, http://www.wsj.com, February 25; D. A. Thoppil, 2015, Indian outsourcers
struggle to evolve as growth slows, Wall Street Journal Online, http://www.wsj.com,
February 22; S McLain, 2015, Big Pharma farms out drug safety to India,
Wall Street Journal Online, http://www.wsj.com, February 2; S. McLain, 2015, New
outsourcing frontier in India: Monitoring drug safety, Wall Street Journal Online,
http://www.wsj.com, February 1; D. A. Thoppil, 2015, Wipro profit rises 8.8%, Wall Street
Journal Online, http://www.wsj.com, January 16; S. Carey, 2015, United studies
outsourcing up to 2,000 airport jobs, Wall Street Journal Online, http://www.wsj.com,
January 13; D. A. Thoppil, 2015, Infosys profit rises 13%, Wall Street Journal Online,
http://www.wsj.com, January 9.