There is a real good reason for Toyota establishing long-term, strategic relationships with key suppliers; often owning a big part of them and inserting Toyota managers on the boards of their partnered suppliers. It’s the same reason why Henry Ford vertically integrated to extreme levels, owning his own ore boats and building a steel mill at the front end of the big River Rouge plant; and owning rubber plantations in South America. The reason is their keen understanding of the need to optimize the core value streams through their businesses.
A guy named Mitchell Osak wrote a piece for The Economist called “Lesson from Kodak’s demise: Beware of outsourcing too much of your secret sauce” that almost gets it – walks right up to the edge and tap dances all around that basic point. He quotes a Harvard guy by the name of Willy Shih who, along with Gary Pisano (another Harvard guy) wrote about the “Industrial Commons” which tap danced all around the same point.
These guys see it, but at the last second back off perhaps for fear of pointing out that the emperors who conjured up the silly idea of “Core Competency”, in fact, conjured up a silly idea. Core Competency, it seems, is still a revered theory among the intelligentsia and no one wants to be the Harvard person who points out the fact that all of their brethren bought into a bill of goods.
Without coming right out and saying it Michael Porter and the rest of the Core Competency boys were deep silo thinkers – the opposite of lean thinkers, the ultimate in Management by Objective guys and the polar opposite of Management by Means thinkers. As Wikipedia describes Core Competency, “To succeed in an emerging global market, it is more important and required to build core competencies rather than vertical integration.” Put another way, go ahead and whack the value stream with a giant meat axe and send all of it other than what you think is critical off to whatever jerkwater place can do it cheap. Pretty much the opposite of the Toyota/Henry Ford approach.
The inevitable result of defining one silo along the value stream as important and relegating the rest to whoever can do it cheap is trashing the cycle time of the overall process, which only leads to lousy quality and mountains of non-value adding waste. This, then, leads to guys like the boys from Harvard writing articles about the ‘Industrial Commons’ – a euphemism or academicspeak for the chunks of the value stream that got lost when the non-Core Competency stuff was treated as insignificant and only a source of cost.
God only knows what the folks at GM think their Core Competency is. Publicly they would probably say design and innovation (mostly because that’s what Wall Street wants them to say). In their heart of hearts I suspect they really believe that finance and marketing is what really matters and what they are really good at, and that design and manufacturing is work for people not smart enough to get into finance and marketing. Regardless, they roared headlong down the Core Competency alley when they took a chain saw to their processes and spun all of their component operations off into Delphi – the same Delphi that had to hock all of their Shingo Prizes in bankruptcy court after they so ably demonstrated the difference between looking lean and actually being lean by deploying a lot of lean tools on the factory floor but having no clue what lean really means in their corporate offices. The same Delphi that made the switches that killed thirteen good people and earned an all-expense paid trip to Washington for GM’s CEO to explain herself to Congress.
The Core Competency that really matters is your execution of the core value streams – the end to end processes – that deliver to your customers. Oh, there may well be points along the way where you have some “secret sauce” as the guy who wrote for the Economist called it, but how the work flows to, through and beyond the secret sauce on its way to the customer is what really matters.