Recently it dawned on me that sourcing industry is pursuing a great game of navel gazing. We’re like a closed society—we think we have all the answers, yet I’m not sure we know what all the questions are. Isn’t it about time that we started to think of ourselves as a business tool or technique that is applied to business functions, or even better, start to listen to the guys on the outside of our industry. Maybe they have different…or better…ideas.
Not too long ago I found Steven Pearlstein…or rather I started to read his columns in the Washington Post. In the October 28th edition he wrote about an old line Milwaukee company called Harnischfeger. Harnischfeger doesn’t do anything exotic, unless you are a miner. As a mining and extraction equipment provider, it also sells leasing and maintenance arrangements where pricing is set based upon the number of tons of minerals extracted. Under the arrangement, the company becomes a service provider and financier, turning a product sale into a long term relationship based upon a predictable operating cost. Harnischfeger in effect works on the performance principle.
Now Pearlstein does not consider himself an outsourcing guru, or even profess to have much interest in it (I asked him). But he did ring a bellfor me when he goes on in the article to talk about performance-based contracts. Leading organizations are now veritable alchemists—turning fixed into variable cost or performance-based compensation, operating arrangements into financings and manufacturers into service companies.
So the question becomes—why is the outsourcing industry at its core a time and materials play Sure, we talk about performance-based pricing, but too often it’s just niggling at the edges of what is fundamentally a cost-plus arrangement that is institutionalized in huge providers organizations.
Perhaps it’s time to stop looking for solutions inside the network and start looking at what the rest of the world does. Sort of an outside—in approach. Otherwise we in the sourcing industry will be left behind.
This blog was originally posted on the Shared Services and Outsourcing Network website: www.ssonetwork.com