It sounds obvious to say “focus on core competencies” but it’s really surprising the kinds of things companies will do in-house.  They do it in the name of saving money, but in the long run it’s a distraction at best and a disaster at worst.  What is a core competency?  It’s anything that distinguishes your company from the competition.  Google, for instance, has written custom operating system and web server software.  Blazing fast searches are a core competency for Google, but even for us at ThotSpots, a software development company focused on web development, it makes no sense at all to write or modify the server software.

Two years ago, LA Unified School District made the national news when their custom $95 million payroll system failed to properly process paychecks. I’m not going out on a limb by asserting that payroll processing is not LAUSD’s core competence.  If your company is not in the business of providing payroll services, why do you have a full-time payroll staff? Does that distinguish you from the competition? Or if you’re not a software company, why do you employ a team of developers? Hire us, or another software consulting company with expertise in software engineering, an environment and structure centered around developing excellent software, and let your management team focus on your core business.

If you think your ancillary service teams are critical to your success, could you spin them off as a separate company? Are they so good that they could compete with other companies and win?  If they are that good, why haven’t you spun them off yet!?  If they’re not, why do you hold on to them?

Instead of struggling to cover your company’s low value, high cost operations, why not outsource? Case-in-point: Hansen’s Natural Soda. You’d think they focus on beverages, right? But Hansen’s is really in the business of marketing. They have two main products – a line of natural sodas aimed at the health-conscious and a line of high-sugar energy drinks aimed at young adults looking for a jolt, two pretty distinct demographics. Rather than deal with costly operations and distribution (and labor associated with them), Hansen’s purchases its ingredients and bottling supplies and lets other beverage plants make its product while it focuses on their image. As a result, Hansen’s was able to reach sales of $988 million and a profit of $170 million in 2008 with less than 1,000 people on its payroll.