A couple of weeks back I was in Chicago attending a senior management course at Booth School of Business and amongst the several areas of thought leadership I was privileged to be part of, quite a few stood out and one in particular seems to have resonance for this magazine.
Even since technology became a key aspect of businesses, technology was considered an enabling function - used for ensuring core business could utilize available technologies to streamline operations, remove efficiency barriers, create decision support systems for easier analysis etc - however things have changed now. Technology is no longer just an enabling function enabling core businesses like banks and telcos to streamline and run operations but actually is now increasingly defining strategic value more than ever. Let me explain.
Most of my working life I have been confronted with a statement from the CXO community - 'we have a business problem (& it could be efficiency, productivity, revenue or something else but mostly tangible), find me the best way to solve it - typically using a mix of consulting, business process engineering and technology provisioning.' What I am hearing now is an increasing number of CXOs speaking about disruption - brought about principally by technology. I am hearing more CXOs (and not just the CIOs, in fact the CIOs seem very quiet in this one!) who are asking me - well, we understand there is this new great technology or application (some CFOs, COOs and CEOs are even using acronymns like apps!) and we want to be able to leverage it, we are struggling with how we can use say facebook to provide better service for our customers or increase our branding. Incredible but for the first time in almost two decades, I am witnessing technology driving business innovation, desire and dynamics and business leaders are struggling to keep up with it.
So what is causing this transformation? So what is causing the COO or the CFO or the CEO to struggle to appreciate and utilize these trends? These are some of the smartest people I am privileged to work with and they should know how to leverage Facebook for their banks or telcos right? Well, I am not sure - not because the CXO communities are not smart - they are exceptionally so - but the fact remains that the rapid change is something no one has prepared anyone for. It is not something that can be taugth in a business school and no one really knows how to leverage knowledge economics at the speed of light. It just hasnt happened before and most standard management books are unable to provide a template or a framework for leveraging this phenomenon. Interesting isnt it? To put this into context - for today's consumer (& not just the Gen Y or Z), the last tweet is often is more important determinant than the career resume'! So by the time someone dreams up a strategy or framework to analyse and leverage the existing knowledge content, the time for it has already passed!!
The short answer on leveraging knowledge is - build agility as part of the business dynamics. Agility and adaptability have always been part of a CXO's agenda but they are probably more essential than ever before and the virtuous cycle of agility perhaps has to be exponentially rapid. Perhaps it is time to revisit the 1-5 year business plans, perhaps it is time to jettison large and complex programs that promise much in 18 months time (or more), perhaps it is time to re-think on what actually constitutes strategy - perhaps it is actually time for us to evaluate our knowledge content, its relevance and frameworks, perhaps it is time for us to revisit long held notions of importance given to revenue sustainability, marketing dynamics and I think most certainly it is time to rethink what actually constitutes our target markets (& marketing strategies thereof) and our competition.
Which is all good reasons why I thought a break to study at two world class institutions was a good idea! We shall go back to discussing outsourcing operations in my next article.
Thursday, June 23, 2011
Captives & their issues
Thanks for the comments on the last article, that provided me with significant food for thought and I felt that I should address some of the points raised before delving into the key dynamics for outsourcing.
The first point was on the issue of captives and my learned friend felt that a captive is perhaps best placed to leverage the efficiencies of scale and the dynamics for change and drive superior behaviour patterns and increased profitability. I personally think there has not been enough empirical data to support this view - we do have exceptions but in most of the cases where I have had to deal with captives, the experience has been less than great. There are some simple reasons why a captive - unless of significant scale and clarity of structure - will find it difficult to work efficiently. Also at the outset, it must be noted that outsourcing to a captive is a much older and thus more evolved business model than outsourcing to a third party - the British East India Company outsourced jute articles production to their own factories in Calcutta in the eighteenth century! I believe there are essentially four issues with captives and most organizations who have utilized their captives well have managed to appreciate and resolve at least two out of the four issues well -
1. Governance model - the key issue I have often seen is the method of interaction between the two entities - often the captives are treated as another vendor which results in suboptimal results. At the other end of the spectrum there are cases where the business leaders directly control their niche portions of the operations leading to an inability to leverage common functions better. There is always the issue with the captive employees who are often looked at as 'less essential' by the front office business folks in the parent organization
2. Lack of scale - sheer size is critical - lack of economies of scale, lack of career progression opportunities, lack of opportunities to work in different systems, processes and platforms, lack of opportunities to travel / live in different cities/countries and consequent issues with point 2
3. Lack of cross skilling - one of the key differentiators with external services providers is the ability to find interesting opportunities to work in different domains, technologies, countries etc - this makes for constant learning opportunities and creates a broader appreciation of the enterprise. One would argue that working in the same domain and technology creates significant reusable knowledge and thus efficiency but often it works exactly the other way around - working in the same domain and technology creates isolated knowledge centers and dependence on key individuals increasing operational risk. Also, one needs to remember that operations should essentially be repeatable back office work and one needs to often 'dumb' the process, simply the process and need for specialist knowledge to increase efficiency - with obvious exceptions to this point.
4. Lack of cross industry learning - one of the keys to the success of the India based firms has been the ability to leverage cross industry expertise. Telcos for example are very good with managing customer churn while most banks are not. Several service providers have figured on how to leverage such cross industry knowledge to create and drive additional value. Additionally - thanks to a broad industry base - many service providers are able to drive significant efficiency by leveraging common functions and technologies across industries by essentially 'dumbing' the process and technology value chain. Simply, a DB2 administrator performs similar (though not same) tasks in a retail firm or in a logistics firm - no reason to develop an industry specific knowledge - again with exceptions
The second point made by another learned colleague was the fact that customers are constantly looking for value creation in their outsourced relations. Price, process and quality arbitrage is all standards expected from a service provider but what additional benefit are they able to create becomes a crucial differentiator in an outsourcing relationship - this probably neatly brings me back to the topic I left last month's discussion on and which I think needs to be continued in our next post!
The first point was on the issue of captives and my learned friend felt that a captive is perhaps best placed to leverage the efficiencies of scale and the dynamics for change and drive superior behaviour patterns and increased profitability. I personally think there has not been enough empirical data to support this view - we do have exceptions but in most of the cases where I have had to deal with captives, the experience has been less than great. There are some simple reasons why a captive - unless of significant scale and clarity of structure - will find it difficult to work efficiently. Also at the outset, it must be noted that outsourcing to a captive is a much older and thus more evolved business model than outsourcing to a third party - the British East India Company outsourced jute articles production to their own factories in Calcutta in the eighteenth century! I believe there are essentially four issues with captives and most organizations who have utilized their captives well have managed to appreciate and resolve at least two out of the four issues well -
1. Governance model - the key issue I have often seen is the method of interaction between the two entities - often the captives are treated as another vendor which results in suboptimal results. At the other end of the spectrum there are cases where the business leaders directly control their niche portions of the operations leading to an inability to leverage common functions better. There is always the issue with the captive employees who are often looked at as 'less essential' by the front office business folks in the parent organization
2. Lack of scale - sheer size is critical - lack of economies of scale, lack of career progression opportunities, lack of opportunities to work in different systems, processes and platforms, lack of opportunities to travel / live in different cities/countries and consequent issues with point 2
3. Lack of cross skilling - one of the key differentiators with external services providers is the ability to find interesting opportunities to work in different domains, technologies, countries etc - this makes for constant learning opportunities and creates a broader appreciation of the enterprise. One would argue that working in the same domain and technology creates significant reusable knowledge and thus efficiency but often it works exactly the other way around - working in the same domain and technology creates isolated knowledge centers and dependence on key individuals increasing operational risk. Also, one needs to remember that operations should essentially be repeatable back office work and one needs to often 'dumb' the process, simply the process and need for specialist knowledge to increase efficiency - with obvious exceptions to this point.
4. Lack of cross industry learning - one of the keys to the success of the India based firms has been the ability to leverage cross industry expertise. Telcos for example are very good with managing customer churn while most banks are not. Several service providers have figured on how to leverage such cross industry knowledge to create and drive additional value. Additionally - thanks to a broad industry base - many service providers are able to drive significant efficiency by leveraging common functions and technologies across industries by essentially 'dumbing' the process and technology value chain. Simply, a DB2 administrator performs similar (though not same) tasks in a retail firm or in a logistics firm - no reason to develop an industry specific knowledge - again with exceptions
The second point made by another learned colleague was the fact that customers are constantly looking for value creation in their outsourced relations. Price, process and quality arbitrage is all standards expected from a service provider but what additional benefit are they able to create becomes a crucial differentiator in an outsourcing relationship - this probably neatly brings me back to the topic I left last month's discussion on and which I think needs to be continued in our next post!
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