Monthly Archives: August 2011

It’s a Knowledge Economy – Do You Know Where to Turn?

Today’s economy is a knowledge (driven) economy, “one in which the generation and the exploitation of knowledge has come to play the predominant part in the creation of wealth. It is not simply about pushing back the frontiers of knowledge; it is also about the more effective use and exploitation of all types of knowledge in all manner of economic activity“. Very little has changed since the Department of Trade and Industry of Great Britain penned these words in 1998.

In fact, the importance of knowledge in wealth creation is accelerating by the day now that global trade, information technology, new media, and, in particular, the social web is increasing in innovation, size, and market penetration on an exponential basis. Leading organizations now “follow the sun” and operate core business processes 24/7/365 on a global basis. Product and service pricing are increasingly being driven by value first and cost second. Organizations have to either accept the new economic reality created by the knowledge economy or fall further behind their peers in sales and market size.

But over the the past three decades, the knowledge required to compete in today’s global economy has increased exponentially. And, for your organization to survive, it needs people who are up to the challenge. People who need to be well educated, and, for the most part, better educated than they are because the world keeps changing, while the education your people received, 5, 10, and 25 years ago doesn’t.

So how do you go about educating your Supply Management workforce? Especially when there are at least seven different options available to you? You start by asking the right questions. And you find out what those questions are by downloading the latest white paper by the doctor of Sourcing Innovation, sponsored by BravoSolution, on The Knowledge Economy.

Six Red Flags In Any Relationship, Not Just Outsourcing

A recent article over on the Outsourcing Center, an Alsbridge Company, highlighted “six red flags to help avoid a bad outsourcing relationship from ever starting” that is a good read for anyone negotiating any kind of deal with a product or service provider, including a deal for (supply management) software and associated services.

The following six soft characteristic red flags are indicative of a provider that is likely to bring with it a dysfunctional and damaging relationship.

  1. Selling, Not Solving
    Is the provider listening and offering what you need, or selling what they have, whether or not it solves your problem.
  2. Telling, Not Listening
    Does the provider assault you with the triple digit PowerPoint presentation rapid-fire, without letting you get a word in edgewise, or let you drive the conversation, breaking out slides only as needed.
  3. Homogeneous, Not Diversified
    Is the provider diverse enough to understand your cultural nuances, or only aware of his or her own company’s culture.
  4. Complicating, Not Simplified
    Is the sales process, and proposed solution, overly complex, or is it simple and straight-forward, addressing the problems you have now, not the problems you may have in five years. While it’s important that the provider can grow with you, it’s not important that they dive into details of problems you don’t have today, or sell you solutions before you need them.
  5. Far, Not Near
    Relationships and decision making should be as close to you as possible, not half a world away.
  6. Arrogant, Not Supplicant
    The provider should be confident, but not arrogant. The provider should be willing to listen and understand your problem before proclaiming that they have solved it before. That’s confidence. And that is what you want.

While the lack of these red flags will not guarantee a good relationship, as a nearby supplicant solution-driven diversified provider that listens and simplifies can still be incompetent, at least there’s a good chance that the relationship can work. And any odds of success are much better than virtually guaranteed failure.

What China’s Five Year Plan Ultimately Means for Your Business

If you are sourcing from China because it is part of your LCCS (Low-Cost Country Sourcing) Strategy, you will need to find a new low cost country to source from. Just like India is no longer a low cost country for call centers and outsourced support, it won’t be long before China is no longer a low cost country for manufacturing. As clearly pointed out in this recent McKinsey Quarterly article on “What China’s five-year plan means for business”, the plan targets:

  • a 13% increase in minimum wages each year,
  • an annual increase in household income of 7% each year,
  • new policies for pricing energy, raw materials, and water … that will increase costs further … and
  • tighter environmental regulations … that will increase costs even further.

In other words, your labor costs will be 84% higher within five years. And your raw material and environmental disposals cost will likely see a comparative price increase. Low Cost Country? Not anymore!

Outsourcing is in Decline – But What’s the Real Reason?

A recent article in The Economist on the trouble with outsourcing noted that the latest TPI quarterly index of outsourcing suggested that the total value of contracts for the second quarter of 2011 fell by 18% compared with the second quarter of 2010. Dismal figures in the United States dragged down the average, and this can be, at least, partly explained by the economy, but is this the whole story?

According to the article, TPI suspects that part of this is due to the fact that much of what can sensibly outsourced has already been outsourced. While it’s a good theory, I disagree. Maybe most of the companies with a willingness to jump on the outsourcing bandwagon have already done so and outsourced everything they can, but there are still a lot of companies who haven’t jumped on the outsourcing bandwagon. But more importantly, with the recent rise in Global Services Organizations, it’s possible to outsource pretty much everything that a company does.

Another reason could be, as the article notes, that some of the worst business disasters in recent times have been caused, or aggravated by outsourcing. This makes sense, but it’s just as easy to screw a product or service up in-house if the right processes, checks, and balances are not in place. But it is true that, when outsourcing goes wrong, it is the devil to put right.

SI agrees with the editor and believes that companies are rethinking outsourcing. Not only are they replacing huge long-term deals with smaller, less rigid ones that are more easily managed, and terminated if things go wrong, but also considering other viable options such as setting up their own Global Services centers, if they are large enough, or taking advantage of low costs at home when the backyard is empty and incentives plentiful. There are still situations where outsourcing makes sense, but not as many, and they are not as cut and dry as they used to be. Companies have to do an analysis, and to make sure they are not the next name on the disaster list, have to be careful about the decision they make. It’s a new age of outsourcing, and it should prove to be a smarter one.

What’s a BHAG (and why is it important)?


Today’s guest post is from Robert A. Rudzki, President of Greybeard Advisors LLC, who has (co-) authored a number of acclaimed business books, including Beat the Odds: Avoid Corporate Death and Build a Resilient Enterprise, On-Demand Supply Management, and the just published text on Next Level Supply Management Excellence that is a follow up to the now-classic Straight to the Bottom Line.

In the classic leadership book Built to Last (James C. Collins and Jerry I. Porras), the concept of BHAG was introduced. A BHAG (Big Hairy Audacious Goal) is a common element among long-lasting, successful companies and organizations. A BHAG engages people. It is tangible, energizing and highly focused. People “get it” right away; it takes little or no explanation. President Kennedy’s pronouncement that “We will land a man on the moon” is a famous example of a BHAG that literally captured the minds and hearts of an entire nation.
On a similar note, management guru C.K. Prahalad tells executives to think big. “Set ambitious goals and then figure out how to mobilize the resources to achieve them — rather than the other way around. Most companies limit themselves because they focus primarily on what they believe they can afford.”

Do you have a BHAG for your supply management organization? If not, you should. It’s a valuable component of an overall transformation plan.

What about so-called SMART goals, a concept many companies have adopted? SMART goals are Specific, Measurable, Attainable, Realistic and Timely. There is not necessarily a conflict between BHAG and SMART goals. Think about it this way: BHAGs are often at the department or company level, provide overall guidance and excitement, and typically are multi-year endeavors. SMART goals help translate the overarching BHAG into near-term goals on a personal level.

BHAG and SMART: important elements in the arsenal of a good leader.

Note: part of this column was excerpted from Chapter 1 of the book Next Level Supply Management Excellence by Robert Rudzki and Robert Trent.

Thanks, Bob.