Sunday, February 26, 2006

Core Competency

Current wisdom in management thinking dictates that companies should outsource what they are not experts at but retain their core competencies. But do you always know what a core competency is?

As I leave TransitTV it's made me think about this. Their parent company, Torstar, is in the newspaper and publishing business (Toronto Star, Harlequin, Metroland, etc.). Their core competencies are around publishing, advertising even design. So, a few years ago, they outsourced their internal audit function to Deloitte. I'm sure the $ made sense at the time. However, in my time there, I kept meeting senior finance people who came up through the internal audit ranks. These were really smart, capable people but a number of them wondered where the next generation of finance execs were going to come from.

In his book, Winning, Jack Welch mentions internal audit in the same way at GE. A number of future CEO's and senior managers came out of internal audit. This makes me think that internal audit may be a core competency at these companies and that they may not realize it. Effectively, internal audit functions as a training ground for senior finance execs (at a minimum) and managers. It gives people a real overall view into a business that's hard to get other ways. It also lets them build LOTS of relationships for the future. If you outsource this function and hire finance execs when you need them, the cost for them to understand the business and build relationships is huge.

So if a company has a great Internal Audit department, is it a core competency and will anyone recognize it?

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