Monthly Archives: September 2011

Does Outsourcing Save Jobs?

A recent article over on Global Services on “Outsourcing often Mischaracterized as Evil and Insidious” states that outsourcing costs jobs is one of the myths that turn outsourcing into an epithet.

The article states that it is a jobs fallacy that when a job disappears in a western country and turns up in India it was exported by a nefarious businessmen. The article claims that the reality is that the job was exported because the job has been uneconomic to maintain in the West, whether or not India exists. The example given in the article is that when Carly Fiorina exported 35,000 jobs, it was the right decision, because if HP did not remain competitive in fiercely competitive markets, HP would have lost 100,000 jobs. In addition, if a certain job gets too expensive to do, such as calling a patient to remind her to take her medications, then it will disappear. But if it can be outsourced at an affordable cost, it will not.

I certainly buy the second argument. But I don’t know how far I buy the first. Costs have to be kept under control to support solvency and maintain jobs, but does this mean they always have to be outsourced? Sometimes it’s just a matter of increasing productivity. While that may be hard to do in online customer support, in certain areas of manufacturing, new technology and processes might be all that is needed if the plant is put in an area where costs are low or government incentives are high. In other words, outsourcing may not always be saving as many jobs as other methods could. It’s a balance.

How To Increase Spend Compliance

A recent item over on the CPO Agenda addressed “How to Increase Spend Compliance” because, as we all know, procurement organizations still face opposition to initiatives to channel indirect spend through preferred suppliers. The article chronicled advice from Carrie Ericson, VP of Procurement and Analytic Solutions, at AT Kearney. This is what she had to say.

Treat it like an opportunity.
It might be a problem, but it’s also an opportunity to cut considerable cost. There’s a chance for procurement to deliver greater value by driving standardization to existing contracts through preferred suppliers.

Focus on the right thing.
A mature organization with quality contracts with preferred suppliers can focus on compliance, but an immature organization without quality contracts with preferred suppliers who can provided products and services that meet organizational needs cannot. This organization must first focus on vendor identification, supplier selection, strategic sourcing, and contract observation.

Procurement must be good at arbitration.
Where you have a category that a lot of different functions within the organization buy and use, you get a lot more perspectives on which is the right supplier or the right contract. It’s Procurement’s challenge to not only get them to align, but get them align in a way that meets corporate needs.

Procurement must understand that buyers think their needs are special.
Even if a user understands that a contract is good for the company, the buyer may still think they need something just a little bit different for their needs. Or they may have developed a relationship with a certain supplier over years and feel that no other vendor can provide the same level of service to them. Or they may feel that it will take too much time, and cost too much money, to transition to a new supplier because their needs are special.

Focus on thresholds, not 100% compliance.
A broad compliance initiative across all contracts and preferred suppliers is risky because it assumes that all the contracts and preferred suppliers procurement has in place actually meet the business users’ needs. If care was taken, this may be the case, but if there are a large number of diverse business units with (seemingly) diverse needs, it may not be feasible, or cost conscious, to meet all the needs with one supplier. Sometimes, it’s cheaper to let low spend business units (on that category) do their own thing. Procurement should establish a spend threshold where anyone having to spend over a certain amount needs to use the Master Contract or get Procurement involved. (And if a proper analysis is done, the Threshold can always be designed to insure that at least 80% will be on contract by default.) Then, the Procurement organization isn’t wasting dollars chasing pennies and if a unit’s needs truly are different, they can still get the right product (at the best value with the help of Procurement).

Visibility into what’s going on is a huge obstacle.
Much of the data CPOs can get their hands on is historical and the money has already been spent. (And that’s why there is no real-time spend visibility and it makes no sense to require that the central data store / spend analysis cubes get updated in real time. Even a spend cube for your fastest moving category doesn’t need to be updated more than once a week. Put the resources into analysis, not updates.) That’s why the biggest challenge for the CPO in driving benefits to the bottom line is influencing that spend before it actually occur.

And


Compliance is typically achieved through stakeholder alignment and outreach by Procurement.
This is the most important point in the article and, unfortunately, it’s buried at the bottom where you are likely to miss it. If the stakeholder’s aren’t aligned, they won’t buy in, and the only way you get buy in is to insure they are part of the process from day one. All of the key stakeholders should be part of the vendor identification, supplier selection, and strategic sourcing; every stakeholder who is affected should give a chance to provide their input up front, and before a contract is signed, the sourcing team should hold a session to explain why a supplier / contract selection is best for the company and each affected stakeholder should be given one more chance to provide their input. Stakeholders who feel they are part of the process are much more likely to accept the results than those who are ignored and have a contract forced on them. While it’s true that there are those whom you’ll never be able to make happy, this will get you to compliance faster (even though it’s more work up front) than any other effort you care to undertake. Work with your stakeholders, and they will work with you!

The Cloud is Full of Sweet Fluffy Dreams

If you want to win favour with the doctor, this is a good way to start. Over in the recent edition of the SIG newsletter, Kent Parker, COO of Ariba, wrote an article on how the Cloud represents a more scalable, efficient way to do business on a global basis because it requires no software, hardware or resources to deploy and time to value is near immediate. However, he noted that these rewards can only be reaped if the organizations providing these networked community capabilities transform in ways that enable them to deliver products and services that meet a completely new set of business challenges and customer needs. Otherwise, the benefit of the Cloud will remain nothing more than sweet, fluffy dreams.

In the article, Kent presented six new rules that companies need to follow if they are to transform in a way that will enable them to deliver the products and services that are required in today’s knowledge-based network economy. The first four were quite obvious:

  • break down application silos
    the goal is to connect all of your applications and let data flow through the lifecycle
  • make innovation a constant
    customers expect improvements on a rapid timeline
  • focus on quality
    because, simply put, no one wants cr@p
  • stay agile
    or you will be outmaneuvered by your competition

However, the last two were not and keys to success in today’s economy:

  • overhaul customer support
    In an always-on community, customers demand immediate, proactive response to their issues, particularly as they impact business commerce continuity. But if you’ve outsourced most of the function of internal IT to an external provider, then you need to make sure the provider is not only offering the service level guarantees, but that it has the competency to provide the necessary support. In the IT world, system restoration sometime between 8 am and 5 pm on the next business day is NOT acceptable.
  • redefine customer relationships
    Go-live is the beginning, not the end, of a customer relationship. In a network-driven cloud community, customers and other participants require more continuous, ongoing assistance with enabling and institutionalizing business commerce capabilities. A company that offers a cloud-based solution has to be willing to continuously work and support the customer on that solution. Or the customer will go elsewhere.

Is Globalization Hurting You?

A recent article over on the McKinsey Quarterly on “Understanding your Globalization Penalty” is very thought provoking and a must read for any organization — or supply chain — looking to extend its global reach. Not only does globalization bring with it a risk for every opportunity — creeping complexity, culture clashes, and courageous counters from local competitors to name a few, but, high-performing global companies consistently score lower than more locally focused ones on several critical dimensions of organizational health — direction setting, coordination and control, innovation, and external orientation. This is backed up by data from McKinsey’s organizational-health index database which contains the results of surveys of more than 600,000 employees who assessed the health of nearly 500 different corporations.

This is scary. We’re in a knowledge economy driven by innovation, which requires direction, coordination, and external collaboration with suppliers and partners. Everything that globalization appears to be putting at risk!

Given that at least 50 percent of an organization’s long-term success is a function of its health, this is doubly troubling. Especially since McKinsey restricted the study to 20 “local champions”, which had outperformed their industries over the previous ten years, and 18 “global champions”, which had likewise outperformed their industries and met the composite criteria for full globalization — the cream-of-the-crop, if you will.

So what’s the problem? According to interviews McKinsey conducted with executives, it’s the familiar challenge of balancing local adaption against global scale, scope, and coordination, often hindered by existing internal networks and linkages [that] are ineffective for managing global-local trade-offs and instead just add costs and complexity. For example, many companies can’t identify transferable lessons about low-income consumers in one high-growth emerging market and apply them in another while others struggle when local entrants undermine traditional business models and disrupt previously successful strategies.

So what can you do? Get a health check and find out if it’s hurting you, where, and why. Then you can craft an appropriate action plan which may be to pull back and focus more on local sales. Sometimes your best market is down the street.