Is there a predictive fit between such characteristics as culture, measurement systems, ways of working, procurement strategy and the type of global services solutions specific companies should implement? Deborah Kops seems to think so
Now here’s an analogy — watching women buy shoes has similarities to observing sourcing sweepstakes for global services. Some shoes are stylish but too narrow in cut; others suit feet with high arches rather than flat. By way of extrapolation, companies sometimes try to shove their organizations into a services solution that just does not fit their DNA. Ways of working, power base, the dominance of the supply chain, performance culture — all of these factors need to be incorporated into the DNA of a company. And when a solution just doesn’t fit? Well, ask the woman who shoves her size seven foot into a size six, five-inch Jimmy Choo — it’s sheer agony.
Fitting a services solution is not just a left-brained adopt a sourcing methodology, tick the boxes, calculate the return on investment, beat the provider into price- and scope-submission exercise. Successful sourcing is predicated upon an honest assessment as to how the company really functions — its market conditions and challenges, where the sourcing power base resides, the drivers of its culture, amongst other factors. Such factors have a substantial bearing on the structure of the solution — end-to-end or single process; focus on cost or push for value; highly customized or off-the-shelf.
Outsourcing as an industry is at least 20 years old, yet we have not identified the patterns to date that suggest certain types of companies are most successful when they source certain types of delivery. Unfortunately, there is no outsourcing Myers-Briggs scale that suggests the fit between factors and the range of solutions.
Looking around the outsourcing industry, it is possible to discern a clustering of certain factors or characteristics that empirically suggest at least five distinctive customer profiles. Each profile in turn suggests outsourcing values, or what each profile tends to buy.
THE PROCESS–DRIVEN CUSTOMER
This customer type faces stiff competition for price and quality in a mature, saturated market, often in a real or perceived race for product superiority in a commoditized marketplace. Think mature products or services with low margins and potential for growth; for those companies where process drives production, increasing market share and margins is of paramount importance.
Often the organization is very controlling and hierarchical, often in a regulated industry. The procurement department takes on great prominence in the sourcing process As a result, benchmarking is a very important performance-management tool.
Outsourcing value: For these customers, whose processes are driven by benchmarks, acceptable functionality at a lower cost compared to the competition is the key buyer value.
Companies in the marketeer category must cope with and manage rapid market shifts in order to survive. These organizations, often hollow in structure with production through contract manufacturing, require economies of scale, flexible production capability and low overheads to thrive.
The organization is driven by customer needs and wants, and Peter Drucker’s theories drive the organization. The sourcing decision may rest in the hands of the corporate center, or geographic management can pull the trigger to outsource, depending on the need for flexibility.
Outsourcing value. Because of the need for speed to end state, and avoidance of capital outlay, marketeers typically source flexible “plug and play” functionality rather than customized solutions.
Unlike process managers, innovators are under continual pressure to launch new products or services in order to sustain or increase market share, or indeed create new markets. The business challenge for these companies is to update, improve and speed enabling processes to support critical innovation.
The innovator organization is highly collegial with a strong sense of structure. Continuous improvement is the mantra of these organizations. Most often, the dominant business unit leadership sponsors the decision to outsource.
Outsourcing value: Innovator companies generally seek superior functionality at moderate cost. Outsourcing is seen as a tool to enhance the quality of services, whether the solution consists of a single-process, multiple-processes or an end-to-end solution.
THE NETWORKED CUSTOMER
Networked customers sell multiple products and services into economically turbulent, highly competitive marketplaces. Mega-multinational such as oil and gas companies come to mind. These companies’ business challenge is the maintenance and development of adequate enabling functions to support and cope with global market complexities, and multiple product lines. Their firms are driven by collaboration, often with functional experts networked across business lines and geographies.
Efficiency is the performance focus of the networked customer; as a result, sourcing decisions are often driven by shared services leads looking to scale and enhance performance, or sometimes by aligned functional leads seeking to reach the next level of performance without internal investment.
Outsourcing value. In order to standardize and harmonize, networked customers typically seek to transform both processes and technology at one go. Alignment and change management are important value propositions.
THE KNOWLEDGE MANAGERS
This customer profile experiences pressure to develop and produce increasingly sophisticated products or technologies that, over time, experience pricing pressures and obsolescence. In a marketplace where creativity fuels the competitive edge, the organizational mantra is trust and common vision, and the performance focus is on standards that support complexity. Generally, the sourcing decision is driven by the corporate center as a strategy to focus on key market differentiators rather than push investment in processes and technology in functions such as HR or finance and accounting.
Outsourcing value: Knowledge customers seek scalable end-to-end solutions, and are often willing to co-invest and co-invent with their outsourcing provider. The ability to partner is key to the selection process.
Other signposts suggest the fit between customer DNA and provider solution, yet most of us, developing the proposition almost exclusively using the left side of the brain, ignore. These three ”chromosomes”— strength of culture, spans of control and measurement approach — must be understood to lay the groundwork for relationship success.
Culture: Some cultures are so strong that just the mere utterance of the name of the company says it all. If the codes of conduct, and the ways of working are so very deeply ingrained in the customer’s culture, the act of outsourcing will come as a shock to the system. A company with a strong culture may be best served by a provider whose ways of working or delivery strategy can easily adopt and mirror the culture. Conversely, partnering with a provider with another strong culture can contribute to the outsourcing version of “the battle of the titans.”
Spans of control: The proverbial “Big Brother” watches everything in some organizations. Those with often Byzantine systems of checks and balances may not be comfortable ceding responsibility for end-to-end delivery of a complete function such as finance and accounting by a third party. Companies with control compulsions may be better served by sourcing a number of single process solutions, managing the integration and coordination in-house.
Performance-management approach: Ask a company that thinks “Six Sigma” is the only pathway to performance excellence to adopt another methodology and tissue rejection can easily follow. If a particular approach is so imbued into the culture that it has seeped into the language and problem solving, sourcing to a provider with a different toolkit will adversely affect ways of working right off the bat.
Why determine customer DNA from the get-go? The benefits are quantifiable for both the customer and potential providers. First, a good sense of which sourcing solution will work best reduces the sourcing lifecycle, shortening the time to value for the client, and alleviating costly cattle calls cum fishing expeditions for the provider. Second, and more importantly, since outsourcing changes an operating model, an accurate interpretation of the customer and provider cultures allows both parties to assess their ability to work together. The benefits to the provider are numerous. Smart providers can easily identify the customer’s propensity to buy their particular range of solutions in the early stages, reducing opportunity cost associated with chasing those deals that just don’t fit a target-delivery profile. This in turn drives up the percentage of wins.
Should there be a Myers-Briggs test to “fit” a solution to a customer DNA? Perhaps some day the industry will reach a level of sophistication such that factors such as market context, propensity to control, performance-management orientation, power base and others can be correlated in a predictive model. In the meantime, a good look in the mirror will have to suffice.