Stratoserve LLC

Input-process-output and the supply-firm-marketing chain

The input-process-output (see ICT model) is a way of looking at the firm's value chain. Supply managers handle the input coming in and the marketing folks handle the output coming out.

Like:                  

   global suppliers ->supply chain->[firm-]->marketing->global customers

Supply and Marketing folks are people who sit at either end of the firm and look at the world outside in the firm's value chain. The marketing manager reaches out to customers and supply chain managers reaches out to suppliers and also need to reach "in"to internal firm users.Both off course don't formally talk to one another - organizations are not set up to encourage the talking.  Unless there are operations review meetings, that can become mindless and boring. ERP systems can help but ERP speaks to only data and not the gut feel of these important folks.

If you look at the firm as just a processor - focused on creating superior value for its customers-you start realizing how much firms miss out in tapping on to the combined knowledge and expertise of their input and output side teams.

The G-20 meeting and global supply chains

World leaders are gathering at the G-20 meet in London to find common approaches to deal with the global financial crisis. Let's hope that there is some solid movement forward despite some concerns with more bailouts by France and Germany. A quick ,common and global approach is imperative to bring some measure of stability to global supply chains.For supply chains run on flow of money,goods and services and information. Both money and goods and services are not flowing well and the recession is fueling unrest in the developed world raising risks in parts of supply chains - not used to risks.You load a truck with goods in Western Europe and expect it to reach and don't need to have contingencies in place as in many developing markets.

A positive aspect in all of the current situation is that today there is instant global information flow and media coverage - and this should help resolve the crisis at multiple levels including at the G-20.

Managing risks, actuaries and lessons from AIG- where was the human factor?

Actuarial sciences are primarily mathematical and depend on past data. Since there was no past data the risk of insuring the mortgage-backed securities was underestimated. AIG insured banks for the securities they bought and these debt swaps were an unknown collection of mortgages- some of whom were simply bad loans.

It is not yet clear as to what happened to the human factor in all of this. Maybe the insurance piece was handled from London and there was no real understanding of what was happening on the ground in the US as AIG went on taking on balooning risks. For example, several years ago someone mentioned about a real estate agent he knew who just collected her 6% commission on a home sale being totally uncertain as to how the buyer was going to pay the mortgage. This kind of information was available and discussed accross communities in America as the AIG crisis was building up.

The buyer,seller, real estate agents, real estate closing lawyer, the bank's lawyer in every now defaulting loan closing day would have had a sense of the dubious nature of the loan. Why did not the risk guys at AIG pick it up? Or did they -and nobody listened? 

Banks know that there is risk  and that is why they buy insurance and that is why AIG is paying up and US tax payers have to foot the bill of this now enormous risk.

Going forward, business will have to re-examine their methods of gathering not just past data but new data that is readily available but in this case had not been built into the actuarial models. Raw numbers and technology cannot replace the human factor where human, qualitative real time input must be sought from the ground to get a better sense of the real risks.

From Culture's Consequences to "Project Match" - IBM needs to add home country fixed costs

IBM has come up with a rather controversial "Project Match" offer for laid off employees to work in "growth" markets in India, Nigeria, Eastern Europe etc. IBM is telling its laid off employees to look at opportunities in the IBM subsidiaries where the local market is growing. The catch is that you get paid the local salary which might be just 20% of the current home salary.

If your job is outsourced then the logic seems to be to  move you to the "source".

While IBM's idea seems blasphemous to a high cost country employee- it tells us something about the full circle that globalization has come to. In the 1980's IBM was perplexed as to why various subsidiaries understood and implemented "central commands" so differently. So the now famous Geert Hofstede was commissioned to figure out why this was so. Hofstede came up with culture's consequences and changed the way we look at national culture and its impact on work at subsidiaries of an MNC.

Today, what would a laid off IBM-US employee do with his/her kids college expenses and 401K and mortgage  if they took a job at 20% salary ? IBM and other multinationals need to look at the possibility of covering some of these "fixed" costs if the idea is to work.

But if you have an expat offer (which takes care of these costs) and have not yet been laid off - this is the time to take it up!

Outsourcing and innovation - Hackett Study and NESCON Workshop

Apparently there is a new study  by the  Hackett Group that finds that while Business Process Outsourcing (BPO) is on the rise because of cost savings , outsourcing executives are generally unhappy with the innovation by suppliers. I will address some of these challenges in an upcoming talk at NESCON.

Here is the summary of the upcoming talk on October 6, 2008 at Marlborough MA.

Your organization has crunched all the numbers and evaluated offers and signed the global outsourcing contract. You are rather pleased with your efforts including involving your internal users in the RFP, perhaps organizing a great global reverse auction and concluding some great win-win supplier negotiations. Your CFO and CEO are delighted with the projected savings that will come from executing the global outsourcing contract. In fact your CEO (followed by your HR) proudly mentioned that all displaced employees might be possibly absorbed in other parts of the US organization, avoiding layoffs.  This would be possible as global outsourcing will reduce costs and many more new product development and innovation projects might be speeded up –substantially. More and speedily developed new products for global markets would actually mean more jobs in the US organization! You knew that global supply chains were the way to go….

Two years down the line you find that the envisaged contract volumes have not emerged. The suppliers are complaining, your internal organization had changed with the outsourcing contract, and it’s difficult to find the people who knew what was going on in the first place.  The global innovation engine is moving much slower than expected.

Check out the program here. Should have some interesting feedback.

Small business,gas prices and the Internet

Luckily for bigger organizations Internet adoption had come before the -$4/gallon gas prices. Since last year I was hearing about major organizations cutting empty office space because most people did knowledge work and preferred to work from home and come in for meetings. Yesterday the small Gloucester Township, New Jersey was reported to be considering closing municipal offices on Fridays to save 35000 $ in heating and cooling costs. I guess Gloucester City can manage most service activities from its website or at least get more applications on-line. Both citizens,employees and the town administrators would be happy so long as the town tax for next year is contained !

Small businesses, like your neighborhood plumber,on the other hand are extremely hard hit.Most rely on traditional advertising including painted vans (that move with gas) to spread their marketing message. A majority do not have websites and those that do -have no real system to keep track of inquires or sales leads and just can't afford fancy customized back-end databases to provide customer service. However, this very large engine of  the American economy is realizing the potential of saving gas and costs  through transferring some of  its business functions on-line. A day may not be far when your plumber gives you a recorded message to fill up a web form with your job details or check progress on-line on an ongoing project!

The Conceptual Age - reporting from ISM 93rd Conference St. Louis

Just returned from a wonderful conference - the ISM 93rd at St. Louis. St. Louis is a nice place and the conference center was great as was the metro train transportation which I used to check out a surprisingly great Indian Restaurant, Rasoi.

There were many great sessions throughout the conference and I will probably allude to them in future posts. However, Daniel Pink as the lunchtime speaker on Monday simply resonated with me and many other participants. Pink did not probably say something totally new but did manage to convey his message really well.

In a nutshell, Pink said that three things were changing our world, particularly in the developed West. These were Abundance, Asia and Automation.  His illustration of abundance was rather neat in that the rather new self storage industry is for the extra "stuff" we have gathered and the self storage industry exceeds 22 B $ and is larger than Hollywood. Asia  and the impact of China on manufacturing and India on services is well known as are the burgeoning markets and aspirations in these countries.  But it is automation that is the clincher of  the "conceptual age". If it can be codified and written down it will be either outsourced or automated, preferably automated. Interestingly, it is not Indian accountants that took over all the tax returns but the 29 $ software you can buy at Wal-Mart to file your taxes. Why would you pay 100+ $  to a tax preparer ??

This leads to Daniel Pink's thesis that it is necessary to have a prepared left brain that is analytical, sequential and is geared to doing well in the SAT. However, the left brain alone is not enough because by definition what the left brain can do, can be codified,written down and then outsourced and finally automated. So beyond the left brain is developing the "conceptual" skills of the right brain that 's about synthesis, modeling and innovation in your field of expertise no matter what your "left brained" expertise is. Very interesting and provoking and so thought many of the participants I talked to.

Upcoming KPO/BPO learning opportunities in Florida and New York

I am really glad to see the surge of recent interest on knowledge process outsourcing and the shared service domain. End of March you have the Orlando Florida event where you have the eminent strategy guru Ram Charan  leading the proceedings.  On a more applied and "what I can I do with this KPO thing specifically"  note is the nice event at New York on April 29 and 30 .

The KPO summit is chaired by the noted Duke University Professor Arie Y. Lewin . Talks include  financial sector KPO by Andy Eftathiou ; types of KPO including business,investment and legal research by Suresh Yannamani ;the India advantage by Ron Somers, and a KPO best practices panel discussion  with Vasant Bennett , Ken Cutshaw EVP and General Counsel of Church's Chicken and Ranjit  Dua of  Dua Associates.

On April 30th we have Julio Ramirez  on finance and accounting KPO, Marcia Mcleod of Williams Energy on contracting, Lawrence A. Schultis  on risk management in contracting, Jack Diggle    of Prince OMC   on managing human resources in KPO,  A group  from CPA Global  ( Bhaskar Bagchi, Inder Duggal and Susan Hanstad) with an operational KPO  case study; comparing India,Ghana,Philipines and Eastern Europe for KPO with Harry van Geijn of Fortis Insurance International; a case study of managing the "stay behind" workforce by Steve Hosle of AOL followed by Fauzia Zaman Malik  of Accenture  on captive vs build operate and transfer (BOT) models and finally  Frank Cocuzza of Penske (check out this story here) on relationship governance for KPO. Those new to BPO and KPO might like to attend the pre-conference sessions by  David Perla of Pangea3 LLC to prep for the main event.

KPO has indeed  come a long way from my various efforts since  2005 on "Global Outsourcing of Knowledge Based Services"!    

Michigan Auto Industry is changing

Somehow Michigan fascinates me for its auto industry and what it has given to the study of management,innovation and the wrong way to manage buyer seller relationships. When I heard on the radio about the leading rate of job losses and foreclosures in Michigan, I felt bad for the folks in Michigan. But this may be changing......

The news report that "suppliers learn collaboration and innovation" gave me hope. However, it is not the suppliers who need to learn collaboration but the auto industry who need to. In fact this blog has commented on the difference between US and Japanese auto and the long but vain scholarly research that has brought this out to an unresponsive auto sector.

But now, suppliers are no longer willing to cut prices to oblivion but are diversifying their customer portfolio and are not totally depending on the Auto industry but trying out opportunities in office furniture,food and appliance where a reverse auction type of mentality has started changing several years ago. Now the auto industry is changing, rationalizing the supply base and becoming more collaborative and driving innovation with its suppliers. I was particularly impressed with the take of Amerikam CEO Stephanie Leonardos on how long and painful this realization has been for Michigan Auto. But read the last few paragraphs of the interview here.

KPO is back in the news

Knowledge Process Outsourcing (KPO) is back in the news with estimates ranging from $10-17 Billion/year volume by 2010. I ran the first ever  MBA elective on "Global Outsourcing of Knowledge Based Services" in Fall 2005 - and a  CAPM seminar in April 2006, with the same title. While well attended, I think KPO  classes and seminars were rather early for 2005.  

During those early years "outsourcing" was a scary word associated only with  layoffs. Globalization and its opportunities was something that was not clearly apparent.

It was nice therefore to read the KPMG report  that explains the difference between "BPO" (Business Process Outsourcing ) and Knowledge Process Outsourcing particularly for the financial sector. The report is well written though I would disagree with the rather provocative subheading ...."outsourcing the core". You really cannot outsource your core competence  but you can certainly re-define what your firm's core competence is when you can get a knowledge task like equity research done overseas at a low cost. But all in all a great report !