Traditionally, enterprises have seen ownership or outsourcing as mutually exclusive binary models to build capabilities and run their businesses. The typical framework to decide when to do what generally pivoted on issues such as strategic nature, internal capabilities, time to market, cost to do in-house, risk to outsource.
However, as technology disrupts businesses, enterprises are realizing that building capabilities is not a binary option. Innovation can come from any part of the ecosystem, some of which the enterprise may not even be aware of. This is where the concept of orchestration comes into the picture.
Own, Outsource, Orchestrate
For definition’s sake, ownership is about building most of the capabilities on your own, rather than relying on other partners. Outsourcing implies letting partners supply the capabilities as discreet service, and you program manage the transactions. Orchestration is bringing on board capabilities from different partners external to your organization and having them work in unison with your internal enterprise capabilities for collective benefits.
Apologists of ownership cite organizations such as Apple, which now wants to sell devices with its own processors. However, supporters of outsourcing cite examples of “next generation” companies such as Tesla, which is now manufacturing in China. Most enterprises realize they aren’t Apple or Tesla, so they need multiple levers to work to build their capabilities. The COVID-19 pandemic has stressed their thinking on overreliance on outsourcing, but their investment-constrained environment won’t allow them to own everything.
Many critics argue that orchestration harkens back to Service Integration and Management (SIAM), where enterprises used to orchestrate multiple IT vendors to drive outcomes in an outsourced environment. However, orchestration isn’t just about outsourcing. In addition to internal capabilities, it encompasses the broader ecosystem, including start-ups, academia, in-house incubation centers, technology vendors, crowd-sourced talent, and even peers within and outside the industry. Moreover, in this model, enterprises get strategically involved instead of only governing third-party providers. Whereas SIAM focused on making existing outsourcing work in a multi-vendor environment, orchestration drives business transformation where each entity plays its role to drive gains such as IP, access to newer markets, and different business models.
The need for orchestration
With the rapid pace of technological disruption, enterprises are realizing they can neither build everything in-house nor leave everything to their service providers. As different ecosystem entities deliver specific capabilities, enterprises want to plug-and-play them to drive business outcomes. Unlike other capabilities models, which either become black boxes or too difficult to navigate, orchestration allows flexibility on multiple dimensions. Enterprises aren’t wed to a specific idea or partner, but rather become open and fungible to adopt options based on business requirements.
What should enterprises do?
It’s quite clear that, despite the urge, a single capability model isn’t going to work for enterprises. They’ll have to mix and match these three models to varying degrees to drive business transformation. Even if they own the building of capabilities, they’ll have to rely on the broader ecosystem. Even if they outsource, their service provider has to rely on other partners to orchestrate the outcome. Therefore, orchestration will become increasingly important in different shapes and forms based on the intended objectives. And word to the wise: enterprises shouldn’t get fixated on one model of capability building by getting irrationally inspired by deep pocketed technology vendors, as that will be counterproductive.
Finally, although Enterprise Resource Planning (ERP) used to suffice, enterprises will increasingly need to rely on Network Resource Planning (NRP), wherein orchestrated networks of resources enter the picture.
Our Digital Services research team recently released a report on Network Resource Planning platforms. These platforms, which are needed to orchestrate capabilities across the value stream, are not limited to technology, but span every aspect of an enterprise.
Please reach out to me to share how are you building capabilities in your organization at [email protected].
