Transformational Outsourcing: Intentional and Unintentional

November 16, 2016

Our TON event generously hosted at GN on November 10, allowed us a glimpse not only into GN’s futuristic ‘resting pods’ but also their foresight and engaging approach towards outsourcing. With contributions from GN and Copenhagen Institute for Future Studies and other participants during the day we had the opportunity to understand how successful outsourcing relationships can evolve over time.

 

A presentation by Associate Prof. Peter Ørberg Jensen, Copenhagen Business School, set the stage for the discussions throughout the entire day by presenting research showing that there can be three types of outsourcing – tactical, strategic or transformative. As the topic for the day was transformative outsourcing and offshoring – we discussed how they could be used to redefine existing business models and combine experiences and capabilities of the client firm and enhance competitive advantage. Peter also posed some questions regarding the potential value added, risks and challenges of transformative outsourcing, which requires a high degree of engagement between the client firm and provider.

 

Claus Holm, our host at GN welcomed us, and shared GN’s ambitions to balance the demand for the hearing and sound business segments and realise the synergies between them. Claus identified that outsourcing has led to positive externalities within GN such as a higher level of documentation, which not only allows for cost savings but also leads to providers contributing to the design attributes before it is frozen.  Kenneth Pilgaard talked about the role providers could play in different stages of product development. Kenneth shared their experience of involving the providers in the early stages of development, which led to optimisation of design work and reducing costs during negotiations. The presentations from GN were unanimous in voicing the value gained through close involvement and interaction with the providers.

 

Jeffrey Saunders from the Copenhagen Institute for Future Studies presented his research on ‘mesh sourcing’ an eco-system where relationships among a variety of providers leverage each other’s competencies with more complex assignments. Participants raised the point that their current outsourcing practises were not aligned with mesh sourcing, as this raised several issues of ownership, control and property rights. Claus however, presented us with an example of a small start-up GN recently acquired that used a similar model and consequently were able to develop products way beyond the internal resources they possessed. While the participants were able to see the value of mesh sourcing, we also had a discussion on the degree to which mesh sourcing could be incorporated into the existing outsourcing set up.

 

Spurred on by the conversations around mesh sourcing and transformative outsourcing some participants pointed out that transformative relationships could also lead to a situation where you are locked into a relationship with a specific provider, therefore, it can also be necessary to maintain a portfolio of strategic and tactical relationships. William Menzel from Mærsk pointed out that in their context transformative relationships could be beneficial when searching for a specific solution, but from an operational perspective tactical partnerships with service providers were preferred. Through these different perspectives presented we see that though transformative outsourcing can be beneficial, as in the case of GN, there can be several ‘successful’ scenarios requiring a lower level of involvement and interaction with the provider. Therefore, committing to the mode of transformative outsourcing may not be beneficial for all scenarios of outsourcing.

 

The afternoon session was kicked off by a presentation by on the modular organization by Lydia Bals, University of Applied Sciences Mainz. As a specialist in procurement and supply chain management, Lydia discussed how activities in the supply chain could be modularized, leading to a more modular organization, which could also increase the possibilities for outsourcing. By dividing activities as strategic (judgement intensive) or transactional the outsourcing decisions regarding these activities could be simplified.

 

Claus Holm and Brian Hermann, GN, then shared the positive effects of outsourcing on GN’s development process – such as a more streamlined documentation process and increased control over costs. Claus mentioned how GN learned from the development process of established firms. As a contrast to the positives, Brian also shared how involving the providers in the development process can be a political process, with internal resistance in the form of ‘not invented here’. Therefore, Claus and Brian often found themselves in positions of having to convince their colleagues about the merits of transformative outsourcing. A key learning from the GN story is the importance of perspective, while Claus viewed the increase in documentation to be a positive, it could also have been viewed as an increased on workload and additional challenges in the process of outsourcing. It is therefore, important to continually take stock of the learning that takes place through the process of outsourcing, and how this contributes to the long-term strategic objectives.

 

Lydia summarised the discussions that took place during the day and concluded that it was heartening to see that though the underlying goal was to reduce costs through outsourcing, there was also an effort to move beyond price and find other sources of value. She discussed the recurring theme of intentional versus unintentional transformative outsourcing. Our session ended with a discussion on making the transition from unintentional learning to intentional learning, which evolves during the course of the relationship with the provider. Though there are several different strategic outcomes a firm may wish to fulfil through outsourcing, our discussions during the day highlighted that through engaging in learning by doing the process of outsourcing could be optimised and lead to more value for the client firm.

 

Thanks to all who participated. We look forward to welcoming our community to the next TON program which is being held at FLSmidth on January 26. Already on the program are a session on talent development at global in-house centers (GICs) by Everest Group and a mini workshop on stakeholder alignment to be run by Utænkt. Should you wish to hear more, please contact Katie Gove at kg@trellis.dk.


.