When is the right time for sourcing of services? Is it when you are at the nadir of corporate fortunes or when profits are robust? Is it when your industry’s margins are squeezed, or when there are fundamental changes to your industry structure? Is there a clock to help us find direction?
As a child of the late sixties, I had a steady diet of the Byrds and Judy Collins’ respective musical takes on Ecclesiastes. Before you jump to the next article, please be assured that this column has not turned into thinly veiled Bible lesson. But it strikes me that there is a correlation between the vagaries of corporate performance and the interest in and ability to adopt and implement various forms of offshoring and outsourcing. Call it the Global Services Clock, for want of a better metaphor.
Driven by the timing of market performance, there seems to be an ebb and flow of take up of global services as a corporate delivery strategy. At the top of the market, or 12 o’clock, stock prices are riding high, and there is often little impetus to alter the status quo to sweat through major change. Forecasts of business performance are on a rosy straight line trajectory, with only the sky as the limit. Business lines’ religion is generally based on growth through the buoyancy of market conditions; as a result, any broad scale tinkering with the operating model seems like tempting fate. As an illustration, with rack rates peaking at over $500 per night in New York last autumn, the hotel industry has had little recent interest in outsourcing or offshoring. Similarly, when oil and gas companies’ profits ride high, the “if it ain’t broke don’t fix it” attitude prevails. The process of getting buy in is slow.
However, some organizations take the time to investigate services globalization at this point… with a focus on sourcing to position growth, rather than gaining immediate payback through cost reduction. High flyers have the opportunity to examine a range of options, and perhaps push the edge of the envelope when structuring the right model.
Fast forward to 6 on the clock, when companies are fighting for economic survival. Major change is rarely on the menu; making moves to keep the proverbial corporate heads above water is the order of the day. Offering up a change program that 1) costs money to implement; and 2) is not a silver bullet but a long-term program of at least 18 months duration is difficult when the next quarter’s results are on the line. Revising forecasts, slashing headcount and rapidly closing down operating units is a tried and tested approach with more immediate results. Searching other, more sustainable and beneficial avenues to ensure profitability and efficiencies is not in the battle plan. Taking the long view is a luxury, not an imperative.
And importantly, the talent to strategize for an implement global sourcing is often nowhere to be found. Remember, the corporate best and brightest have been recruited as soldiers in the war – cancelling and renegotiating contracts, identifying surplus staff and dealing with HR issues, and picking through budgets to identify alleged corporate excess spending.
A proof point? As a proxy, think about the current state of an industry like financial services. Will there be a groundswell of banking or investment management outsourcing in a year when banking profits are battered by subprime loans, personal bankruptcies are on the rise, and, in the fight for market share, the retail battle of the fee cuts is on? Can companies rescue their stock prices by announcing radical adjustments in their operating models, pledging results several quarters in the future? Watch how this year unfolds … it’s a safe bet that there will be limited focus on the strategy for and implementation of global services in this sector in the very near term.
THE WITCHING HOURS
When are the ‘witching hours’ for offshoring and outsourcing? Anecdotally, companies seem to switch onto the global services timetable between 8 and 10, and again between two and four, based on different drivers.
Take the hours of eight to 10. The savviest of companies take the opportunity to challenge existing paradigms as they come out of the corporate equivalent of a “near death” experience. The opportunity to query such sacred cows as the sanctity of vertical operating models, traditional notional compacts with employees, full and absolute control of all tasks in all processes, and assumptions about the pace at which the organization can embrace change can be powerfully intoxicating. All the cards can be put openly on the table, and there’s enough time and resource to look around at what the competition is doing, and develop a comprehensive business case. With a close brush with death at top of mind, a more radical change in operating models can be promulgated, with plenty of lead-time to evolve to the right model rather than react to the need for a quick fix.
As a corollary, think about the man who makes it through open-heart surgery and gets instant religion about changing his lifestyle. He hits the gym pretty fast. There is nothing like fear as a motivator for change…whether personal or corporate. And the change seems to stick.
As the clock ticks past the top of the hour when corporate forecasts stops looking so very rosy, companies tend again aggressively to consider the benefits of implementing global services. During the hours of 2 to 4 o’clock, the pursuit of outsourcing or offshoring is often easily justified as a buffer or prophylactic to the effects of a downturn.
Companies in this timeframe may look for alternatives, which are simple to implement, calculating a quick ROI in the face of economic uncertainty. Cost reduction and efficiencies are the drivers rather than a more fundamental approach to developing global, flexible or economically resilient operating models, which are in the sights of the 8 to 10 crowd.
Go back to the hotel example. As oil prices skyrocket, recession fears takes hold amongst the traveling public, and competition becomes more aggressive, travel industry segments such as hotel investors and operators, cruise ships and car rental agencies may react to time loudly ticking by, forcing them to seek out delivery models that yield ‘low hanging fruit’ in the form of cost reduction, flexibility in volumes and pricing, and other efficiencies ahead of the curve. The appetite for adoption is driven by the clock.
Does the so-called global services clock serve as a metaphor for an absolute truth, or is it only the cute construct of a weary industry observer? The basis of any metaphor is the observation of a pattern that can be likened to another object or concept. Some companies do invest in new operating models at the top of the hour, while others are able to get enough cover at 6 in order to make the type of changes that will position them well in the future. But let’s not discount the implications of the ticking economic clock.