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[Discuss] core competency

A while back Dan Ritter wrote:
>Dave Berry wrote:
>> Does anyone know of companies that offer linux server and website
>> support? ... Our servers are remotely hosted by a colo company...
> There are companies which do that, but let me caution you: do
> not outsource your core competency. This may be a sign that you
> need a third person.

What exactly is a "core competency" for a modern tech company?

We went through a period where it was fashionable to recharacterize IT
from a cost center to being a core competency, but was that based on
anything rational, or just self-preservation for the IT guys?

Today we outsource big swaths of IT, and it has sort of happened under
the radar, as you don't seek out and hire an IT consulting firm that
shows up at the office. Instead, when you need to launch your next
in-house app., you just rent a cloud server. Eventually, you find that
most of your IT infrastructure is in the cloud.

Is this a bad thing? Are you at a competitive disadvantage?

In the situation above, we don't know what Dave Berry's employer does,
but it is fairly unlikely given the request posted that it is in the
business of managing servers, therefore outsourcing that aspect of IT
isn't part of its core competency.

Where things start to get more controversial is when you start talking
about a software company. There are some companies for whom software
development is clearly a core competency. They build software products
for other companies. (Disclosure: my company falls into this category.)

But what about all the companies that make software products. Is
software engineering a core competency of Rovio, maker of Angry Birds? I
would argue that for most software companies, understanding their
customers needs and knowing how to design a product that meets them is
the real core competency.

Of course part of the problem here is treating "core" as if it is a
binary attribute, or that there is some small number of them, as the
name would imply. In reality, software engineering won't be the number
one competency of most software product companies (in fact, many are
pretty bad at it), but a secondary competency that may or may not be
fully within the core, depending on the company.

This line of discussion interests me because there is a conventional
wisdom offered up to startups that it is a mistake for them to outsource
their engineering. I think lots of good cases can be made for that
opinion, and probably many examples found where things went wrong as a
result of such outsourcing. But that may just mean they didn't do it
well. Or didn't choose a good outsourcing partner (i.e. one that
understands how to do knowledge transfer and can help build a permanent
in-house team when the time is right).

This advice directly contradicts another common startup axiom: don't buy
anything that you can control for less. The expression generally is
applied to the idea of leasing equipment rather than tying up precious
capital to buy it. But it applies equally well to human capital.

So is a startup really best served by permanently hiring and building
its product in-house, which has the very real challenges of finding good
people, assembling a team that works well together, and then honing a
development process, all while operating under great resource
constraints? Most founders underestimate the difficulty of putting
together a high-performance engineering team. (And a startup usually
can't afford the mistakes and delays caused by a low-performance team.)

Wouldn't the startup be better served by outsourcing engineering to an
experienced manager with a tuned team and process, and instead spending
its resources on a product manager - or, seeing as that's a role the
founders will likely handle themselves, more generally product design


Tom Metro
Venture Logic, Newton, MA, USA
"Enterprise solutions through open source."
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