The “sourcing dilemma” is an age-old problem for merchants, investors and their advisors. It has evolved tremendously in the last three decades.
The Dark Ages.
In the pre-1980’s era before widespread access to business computers, business managers responsible for providing goods or services to their customers had a simple choice: “build vs. buy.” Decisions were based on price, quality, delivery time, design, merchantability (the ability to sell the goods under the class of goods as described) and fitness for the customer’s particular uses. Not surprisingly, the Uniform Commercial Code, a statute on the sale of goods, focused on implied warranties of merchantability and fitness for a particular use.
The Computer-Enabled Age.
With the advent of computers, the choice became more complex: “build, buy or be a licensee of software.” Software enables companies to define a business process and perform it in high volume to accelerate transaction speed and aggregate customers having similar business needs. In the 1990’s, computer law emerged to define the rights and liabilities of software developers, as licensors, and their licensees.
The Computer-Vulnerability Age.
Then, in the late 1990’s, computers encountered the risk of catastrophic failure, with the possibility of an inability to convert from one date (in the 20th Century) to another date (the 21st Century). The “Year 2000” technical compliance risk highlighted the need for maintenance of computer and telecommunications infrastructures, as well as information security and disaster recovery. New concepts such as hackers, viruses, worms, spyware, zombies, Trojan horses, cyber-threats, cyber-security and identity theft came into common parlance. Business continuity planning and disaster recovery strategies emerged to protect enterprise systems against such new threats.
The Dynamic Sourcing Dilemma Today.
Today, the sourcing dilemma is even more complex. Not only are there more choices, but each choice may be counterbalanced against more alternatives:
- build (managing the process internally, directly or through “shared services organizations” or “captive” service providers, within the framework of “insourcing”),
- buy,
- license software to manage a business process (managing the software data and leaving the maintenance to the independent software vendor (“ISV”)), or
- hire a service provider to build goods or manage a business process (“outsourcing”).
Today’s sourcing dilemma is a dynamic, even Sisyphean, uphill battle. On a constant basis, the balance of value (“ROI”) and risk (“risk-weighted ROI”) in the sourcing decision changes rapidly due to new technology, laws and customer demands. Thus, the current sourcing dilemma challenges Boards of Directors, executives and their procurement managers to transform all business processes for optimization, and then review the alternatives again.
Business Process Management: “Global Solutions” to the Sourcing Dilemma.
In recent years, computers have come to enable management to get a total view of the enterprise as a concatenation and constellation of discrete business processes. Reconfiguration of those business processes is at the heart of innovation, efficiency, transparency, accountability and alignment with each business’ stated mission. Outsourcing law emerged to define the rights and liabilities of external service providers performing critical business processes for others on an ongoing basis.
Today, efficiency and legal compliance dictate that procurement functions be integrated across chains of suppliers and customers, with each supply chain forming a commercial ecosystem. The sourcing dilemma therefore creates a need to define the rules for interaction of such ecosystems and for their role as competitive ecosystems in the global commercial ecosystem.
Darwinian global competition thus forces enterprises to manage supply chains and cooperate with competitors in dynamically shifting alliances. This requires organizations to share business risks with external service providers and to harness alliances of competitive service providers. The Darwinian forces cause such ecosystems to restructure their interactions, for optimized competitive benefit for all members of the ecosystems.
Sourcing Law and Outsourcing Law.
“Sourcing law,” of which “outsourcing law” forms an essential part, structures the legal relationships of such competitive ecosystems. “Sourcing law” responds to changing commercial, technological, political, economic, demographic, financial and human relationships. Sourcing law covers the full range of choices in the modern sourcing dilemma and enables interactions of business processes from all sources. Outsourcing law is the product of this evolution in the sourcing dilemma.
Further reading