TON Takes A Look At Supplier Relationship Management

April 5, 2017  |  No Comments

We had a truly great program at Mærsk on Thursday, March 23. William Menzel, Head of Supplier Relationship Management, Mærsk Line, outdid himself pulling in valuable contributors with valuable input on our topic of Supplier Relationship Management (SRM).

 

Michael Mol, Professor, CBS, kicked off our program with our Red Thread for the day. Central to his message is that there are essentially two key levers that can be pulled in any supplier relationship: 1) Trust: As in I can work WITH you; and 2) Power: As in you will work FOR me. The first is driven by the idea that together we can grow the size of the “pie.” The second is that we are determining the split of the “pie.” The key in Supplier Relationship Management therefore is to determine when and how to use each lever.

 

Jan Esbech, Head of Global Marine & Inland, Mærsk Line, then welcomed our network to Mærsk and gave us a detailed look at Mærsk, the current state of the shipping industry, and the context in which its work with Supplier Relationship Management exists. In tandem with the new focus on collaboration across the Mærsk Group, Mærsk Line also needs to be able to define and extract value from its external relationships. Critical to this effort, is knowing which relationships are actually worth it.

 

William Menzel took to the floor to give us a deep dive into Strategic Supplier Relationship Management on a Global Scale, including the challenges and roadblocks that they have experienced implementing it. Mærsk Line sees the true value of SRM being a better relationship, fewer escalations, better unit cost, and increased productivity.  Unequivocally part of the picture is Mærsk’s size. Their supplier spend alone is billions of USD. William noted several challenges in realising successful SRM such as the lack of overview and tools to properly support SRM and that the organisation often didn’t leverage (or aggregate) its global presence in various vendor relationships.

 

After lunch, Michael Jarnum, Commercial Excellence Advisor, Commerzial, focused our discussions on accelerating trust and relationships. Key to Michael’s message is that trust can not just be conjured up. It is critical to deliberately build it up over time through personal interactions.  But why should we? Michael points out that with increased trust comes more flexibility, easier problem resolution, a lowering of risk, and a way to prioritise differently; all of which contribute to value creation. According to Michael, trustworthiness equals credibility plus reliability plus intimacy divided by self orientation.

 

Our final session of the day took a look at supplier performance management. Martin Wiese, Director, PPG Industries, challenged our network to really examine the ways in which we monitor and measure supplier performance. For instance, are we calculating the cost of complaints? Do we measure business impact? Which is most important: cost or performance? And do we align targets based on that choice? Martin’s central message is that we all need to pick our battles and then measure accordingly.

 

Our day together concluded with a bit of liquid networking once the formal program ended: A great way to speak a bit more informally about building relationships and trust.

 

We look forward to our next TON program: May 18 at Danske Bank, Holmens Kanal. We will take a look at how we can strike a balance between commitment and flexibility. We hope to see you there.

TON Supplier Relationship Management at Maersk on March 23, 2017

March 13, 2017  |  No Comments

Our program for the TON network meeting on the 23rd is rounding out nicely.

Program highlights include:

 

The Road Ahead–Jan Esbech, Head of Global Marine & Inland, Mærsk Line
–Update on the exciting road ahed for Mærsk Transport & Logistics as well as a high level view of the value of supplier relationship management
 
Supplier Relationship Management–William Menzel, Head of Supplier Relationship Management, Mærsk Line
–Presentation of Mærsk’s supplier relationship management program–Strategic supplier management on a global scale
 
Flip-side of the Coin: Challenges and Roadblocks in Implementing Strategic Supplier Management in Mærsk–William Menzel, Head of Supplier Relationship Management, Mærsk Line
 
Accelerating Trust and Relationships: A Practical Model–Michael Jarnum, Commercial Excellence Advisor, Commerzial
 
Supplier Performance Management–Martin Wiese, Director, PPG Industries

 

And of course, there will be ample time for discussion and networking.

 

 

If you are interested in hearing more about our TON network, take a look here or contact Katie Gove at kg@trellis.dk

TON Looks at Internal Alignment. Often Underestimated. Always Critical.

March 13, 2017  |  No Comments

Thanks again to our community for such an engaging day at FLSmidth on January 26, 2017. Our program took a look at two particular areas of internal alignment: Global In-house Center talent development and internal stakeholder alignment.

 

 

Our day kicked off with input from Michael Mol, Professor, CBS. Michael put focus on defining internal alignment and emphasising that “boundary spanners” can be critical for successfully bridging internal and external stakeholders. Often, there are challenges and misalignment due to external factors and/or changing demands of internal stakeholders. Boundary spanners can be indispensible for successfully managing these challenges. Michael pointed out that while companies can assign more people in order to improve any misalignment, there is a dis-economy of scale with more people and layers of management. Echoing this thought, Kalvin Lyle from IO Interactive noted that in all possible cases, he works to put the end customer (his internal teams) in direct contact with the developer or designer so as to minimise miscommunication and to strengthen their relationship.

 

 

We then were joined by Anurag Srivastava, VP Global Sourcing, Everest Group who presented their research into talent development at Global In-house Centers (GICs). GICs (f.k.a. captive centers) currently represent 25% of the offshore/nearshore headcount. Everest Group estimates that this footprint will grow significantly as digital services grow. These services tend to be more tightly connected to companies’ core business, thus increasing the interest of client organizations keeping the work in-house rather than availing themselves of an outsourced option.  A central theme in Anurag’s session was that future in-house center talent demands will be much higher on softer skills and “learnability” instead of exclusively focusing on technical skills. To successfully deliver on this new talent demand, companies will need to look beyond traditional talent sources, improve their internal training, and significantly increase their retention numbers.

 

 

Our afternoon was comprised of a workshop on stakeholder alignment. Run by Gritt Løschenkohl, Partner, Utænkt, the workshop gave us a chance to use “personas” as a way of better identifying stakeholder motivation as a way to better communicate and activate key stakeholders. In small groups, we acted as “detectives” to build five concrete personas: What motivates them? What are their internal drivers?  Using this, each group was then able to address the challenge specific to their stakeholder, for instance to secure their support in introducing robotic process automation or to volunteer to run a sourcing pilot even though they are skeptical. We are glad that we had the chance to work with these tools in TON and hope that our members try out the techniques in their own work.

 

 

It was a great way to kick off 2017! Thanks to all who were a part of it!

 

 

We are looking forward to our next TON program. It is being held at Mærsk in Copenhagen. We will be taking a look at supplier relationship management. William Menzel of Mærsk, is already on the program to talk about their journey in supplier relationship management.

Aligning Internally for Successful Outsourcing and/or Offshoring

November 16, 2016  |  No Comments

TON will kick off 2017 with a full-day program on internal alignment to be held at FLSmidth on January 26.

 

Our preliminary program includes:

 

  • A session on talent development at Global In-house Centers (GICs) by Anurag Srivastava, Vice President Global Sourcing, Everest Group
  • A mini workshop on stakeholder alignment to be run by Gritt Løschenkohl, Partner, Utænkt

 

For more information on TON, please check here.

 

Should you wish to participate in the program on January 26, please contact Katie Gove at +45 5180 0763 or kg@trellis.dk

 

Transformational Outsourcing: Intentional and Unintentional

November 16, 2016  |  No Comments

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.

Transformational Outsourcing: TON Program for November 10 at GN

October 25, 2016  |  No Comments
We are really looking forward to out next TON program which is being held at GN on November 10.
 
The program which will look at transformational outsourcing and offshoring includes:
  • Jeffrey Saunders, Director, Copenhagen Institute for Future Studies presenting and leading a group discussion on “mesh sourcing.” The Center has been doing some really interesting research into this kind of deeply interdependent sourcing (typically with product development and/or R&D).
  • A session on The Modular Organization by Lydia Bals, University of Applied Sciences Mainz.
  • A look at how GN’s own development process was affected by outsourcing, specifically by being pressed to codify and specify in a way that can be shared across organizations. Claus Holm, Director R&D Management Office, will discuss how GN’s work with outsourcing has both forced and enabled the organization to set new standards for project governance, documentation and empowerment of internal and external resources.
  • Insight from Kenneth Pilgaard, Manager-Design for Value, GN on how cost structures have been transformed through working with Design for Value and supplier engagement.
  • And ample time for us to discuss our own experiences and ambitions with transformational outsourcing and offshoring.

TON is a private network of client organizations and academic institutions. We meet five times a year. For more information, take a look here or contact Katie Gove at kg@trellis.dk

TON at LEGO: Peer learning in outsourcing and offshoring September 8, 2016

September 15, 2016  |  No Comments

Permit me to say that “Everythindsc_0516g was AWESOME!!” at the TON event held on Thursday, September 8, 2016 at LEGO (ok, I admit they won’t be needing me for any screen-writing for The LEGO Movie II).

 

We shared an active and engaging day which gave us a chance to understand LEGO’s learnings and journey through outsourcing and offshoring. With contributions from Xellia, IO Interactive and Arla in our panel discussion, we took a broader scope while our LEGO Serious Play session encouraged us individually to use LEGO bricks to express our insights to truly successful outsourcing and offshoring. A heartfelt thanks to LEGO and all of our program contributors.

 

 

 

 

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The day kicked off with a welcome from Frank Gaardsvig, Director CIT LEGO, who highlighted the history of LEGO and its current super-charged growth spurring transformation. It was inspiring to hear that what drives LEGO and its employees is the same thing that drives its owners and leadership: Affecting children’s lives positively through play. Yet LEGO’s substantial global success is putting pressure on its organisational structure and the way in which it works. It’s not feasible to do everything in Billund. How does a company that needs (and wants) to work globally stay true to the LEGO culture? Frank noted L EGO’s efforts to support a globally connected LEGO culture, for example their recent Play Day where everyone in the organisation world-wide, took several hours on the same day to just play.

 

Bent Petersen, Professor, CBS, threw out a few thoughts for the day’s discussions, including recent research findings findings that show that Denmark’s manufacturing sector learns about outsourcing and offshoring through experimentation, growing stepwise rather than starting out with a comprehensive strategic vision. Emphasising the positive aspects, Be nt said that experiential learning delivers benefits of deeper insights and long-lasting learnings. Bent referred to research by Peter Ørberg Jensen of CBS (and TON) that shows that companies in our market are adopting a deliberate emerging strategy which focuses on imprdsc_0530ovising and deciding along the way rather than elaborately planning ahead.

 

Another insight that Bent provided was research showing where preparation is useful and where it is better to just dive in and start working. A critical criteria is that if the destination market is substantially different than the originating market, preparation and planning provides only a limited gain as compared to experimentation and piloting. Valuable food for thought for our own work in many markets.
Britta Ponti, Director CIT BE Vendor Management, LEGO, then took us on a deep-dive of LEGO’s journey through managed services–or at least through the ambition both stalled and re-activated, todsc_0479 transition to them. LEGO currently runs a hefty project portfolio–roughly 120 at any time. The process for managing this work is not tightly structured and reflects a current philosophy of having the individual project teams manage specifications, interactions and processes. Some of the learnings that Bridsc_0488tta and her team have encountered as they have worked through the As-Is set-up is that most folks don’t know the contract specificat ions, aren’t familiar with what LEGO is specifically “buying,” and can’t clarify either escalation procedures or governance. While strong technical skills abound, the challenge is moving the set-up to a more well-defined one that more easily scales in order to meet the growing LEGO demand. Britta identified a few key drivers for the future of LEGO’s IT outsourcing: Scalability, innovation, time-to-market, simplification, cost-effectiveness and global. Britta observed that the challenges in responding effectively to these drivers will demand that the organisation works in new ways.

 

We then got a chance to hear from Allan Lykke Christensen, Senior Manager–Markets CMA, LEGO. Allan has been deep “in the weeds” of LEGO’s Offshore Development Center (ODC) and was able to give us the perspective on implementation. Allan noted that while some of CMA’s experience echoed Corporate IT’s, the nature of CMA’s development work demanded modifications in the approach. One key decision early ondsc_0416 was to send a LEGO developer to the ODC for a year. This developer functioned as a standard bearer of LEGO values while also functioning as a team member, not the leader. Structuring the team this way allowed LEGO’s CMA to firmly cement and scale their way of working in the offshored development team. Allan also spoke about the experimental approach that LEGO CMA took to both the set-up and the future vision in that the end-state was not defined when they began building up the ODC. Critical to progressing successfully was the insight the vendor provided about LEGO’s approach in that there were better ways to get results than in using self-organising teams while managing the individual team-resources from Billund. Summarising, Allan noted a few key learnings: Focus on value streams; Empower the team by delegating; Let “Whys” and “Painpoints” drive the change; and Invest in leadership development.

 

Our afternoon began with a facilitated LEGO Serious Play session, lead by Carsten Brinch Larsen, Director CMA, LEGO. Using LEGO bricks, we first expressed “The Manager From Hell” and then “The Most Important Learning From Working With Outsourcing and Offshoring.” While it will surprise few that the first exercise produced evil-looking figures holding whips, the second exercise developed metaphorsdsc_0525 such as dsc_0523building bridges, connecting over distances, and setting a vision. Carsten encouraged us to share this kind of communicating through playing (with LEGOs) in our own teams at our work.

 

Our final session of the formal program was a panel discussion including, Lotte Astrup, Director Program Management Office, Xellia; Kalvin Lyle, Outsourcing Manager, Idsc_0533O Interactive; and Jesper Thøger Jacobsen, Head of Vendor Management, Arla Foods.  We focused on their learnings and the realities encountered while working with offshoring and/or outsourcing. One critical learning that was broached was that it takes time to mature the vendor to the particular client and vice versa. This also means that being flexible while contracting will allow for growth without being too restrictive. Managing the change internally turned out to be a much bigger task than originally anticipated; Yet knowing the ideal set-up at the beginning is not necessarily possibl
e. Experimentation and iteration go a long way towards helping companies to grow through the ambiguity.  Our session ended with a discussion of the necessary skills and competencies to successfully deliver via outsourcing/offshoring–skills which weren’t necessarily present when companies began the journey but needed to develop along the way, such as cross-cultural and leadership skills.

 

After the close of our formal program, we took a short walk to the LEGO Museum where we got a guided tour of LEGO’s history. As the Museum is not open to the public, we truly got an insider’s view of the transformation of the company from its origins as a carpentry shop to the global force in play that it is today.

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Our next TON program will be held on November 10 at GN in Ballerup. We will take a look at both intentional and unintentional transformation via outsourcing and offshoring.

 

If you are interested in hearing more about our work in TON, please take look here or contact Katie Gove at kg@trellis.dk.

 

The Outsourcing/Offshoring Network (TON)’s September 8 Program at LEGO — Program Details

June 23, 2016  |  No Comments

Our theme for the TON program being held at LEGO on September 8 will be “Trial & Error and Course Correction.” We’ll use the day to look at how we have both learned from our mistakes as well as experimented/piloted as we work our way through to better results with outsourcing and offshoring.

 

On the agenda, we’ll have input from Allan Lykke Christensen from LEGO’s CMA group and Britta Ponti from LEGO’s IT Group. Allan and Britta will share their organizations’ learnings with outsourcing and offshoring. Carsten Brinch Larsen from CMA will facilitate a LEGO Serious Play session where we’ll all get a chance to share our own “journeys” in outsourcing and/or offshoring. We’ll end the program with a panel discussion. Currently, Lotte Astrup Frandsen from Xellia and Kalvin Lyle from IO Interactive are panelists.

 

We’ll swing by the LEGO Museum and get a quick look at the LEGO House prior to heading to our social event scheduled for the evening.

 

TON is Denmark’s only cross-industry, cross-functional network working with outsourcing and offshoring. We are a network of client organizations and the network is vendor-free. If you are interested in finding out more, take a look here or contact Katie Gove at kg@trellis.dk.

Innovation and Outsourcing: TON’s Program at DTU Executive School of Business on May 26

May 30, 2016  |  No Comments

BjörnThe TON network met this past Thursday at DTU’s Executive School of Business and spent the day discussing how (and if) innovation and outsourcing have symbiotic properties that are leveraged by our member organizations. Innovation clearly is the life-blood of business growth. How then do we apply it to outsourcing and offshoring in a way that can deliver on business goals?

 

Our program kicked-off with a presentation given by Björn Rudberg, Director Strategic Sourcing, Ericsson. Björn’s focus was on co-developing with vendors. Critical to being able to co-develop with vendors, noted Björn, is a change in mindset from the typical transactional, procurement-oriented thinking. Co-developing means that we need to establish commonly agreed upon goals and activities while also sharing an open economy and risk within the partnering area.Björn presentation

 

This is un-chartered area for many, indeed. Björn acknowledged that it’s easier to engage in this way when growth is part of the equation and that external factors like the financial crisis can in many instances make this kind of transparency and dependency almost impossible. Yet, the value that can be generated from complementary committed partnerships is worth exploring as it can be impossible to achieve otherwise, for instance due to specific technologies or markets.

 

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Peter presentation

Peter Skyttegaard, Head of IT Strategy, Mærsk Line took the discussion in another direction, that is, the way in which Mærsk Line has innovated IT outsourcing models as a direct reflection of broader IT market strategies over the years. Mærsk Line is “the conveyer belt that makes global trade possible” and as such, has experienced rapid expansion along with the globe’s growth in trade over the past 20 years. During this growth, Mærsk Line has, at times, had an aggressively outsourced profile, and alternatively, a deep push to bring things back in-house, a cycle that is now coming back “in style” as digital transformation brings IT front-and-center with business strategy. The speed of change and the high demand for flexibility are challenging and disrupting traditional outsourcing models, demanding innovation.

 

Peter closed with a reflection that none of the models that Mærsk Line has used or will use have been end-states in themselves. Instead, they have been appropriate responses to business strategy, market conditions and availability. We can expect to see more change going forward.

 

SamOur afternoon program consisted of a mini-workshop on innovation and outsourcing. The opening salvo for the workshop came from Sam Kondo Steffensen, Program Director, DTU-Business, who declared that “sourcing is the future.” Steffensen’s point was that the industrial digital globalization unfolding now means that companies will be defined by a system of strategic relationships that enables them to develop and deliver value. Value eco-systems will develop around IP clusters begging the question of what, exactly, will a company be in the future?

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The focus on knowledge-intensive contribution in a market place where the role of space/distance has markedly declined means that companies are moving away from a heavy manufacturing base towards one of tech convergence.

 

With these thoughts in mind, Zoran Perunovic, Associate Professor, DTU Executive School of Business, facilitated a small group discussion on innovation and outsourcing among TON member companies. Central to our discussions was hearing where companies are innovating and where they are outsourcing. Are there commonalities? Are there missed opportunities?

 

Some of the observations from among the group discussions were: “Our company will need to gain more maturity to be able to master the network thinking we’ve talked about today.” “We are predominantly utilizing incremental innovation. Radical innovation would require us to risk too much.” “We don’t think about the opportunity agenda, we think about the problem agenda.” Yet, there is a shared realization that, “We Katiecan’t be great at every single thing. We have got both to focus and to partner to be able to cover the scope of what we need to do.”

 

Our day’s program concluded with an ironic observation that by focusing on core, we are often limiting our companies to incremental innovation while excluding the possibilities of radical innovation. Food for thought.

 
Our next TON program will take place at LEGO on September 8. We will take a look at experimentation and course correction in outsourcing and offshoring. Should you be interested in hearing more about our TON network, please contact Katie Gove at kg@trellis.dk or take a look here: TON.

 

KMD Poland’s Jens Brinksten: Firms Ask Much of Sourcing Partners, Not Enough of Themselves

March 30, 2016  |  No Comments

JensBrinkstenOne of the true outsourcing veterans in Nordic business, Jens Brinksten, brings first-hand knowledge of alternative sourcing to Denmark’s KMD, as head of KMD Poland — a level of experience unusual among parent company executives. He has set up offshore operations across Eastern Europe and Central Asia. Jens shared his perspective with the audience at the March TON meetings; we caught up with him shortly after the event and asked him to enlarge on some issues he raised during his provocative presentation.

 

Jens, you seem to suggest that when companies run into problems in outsourcing projects, the first place they should look for answers is inside their own organizations, not their partners’ operations.

 

My angle on outsourcing is very practical. A lot of companies spend a lot of money on consultants, lawyers and auditors to do things that KMD did entirely internally. People tend to believe that if they hire McKinsey, everything will go well. But if your company is fully committed to outsourcing as a discipline, have people with first-hand experience in it and plan things very thoroughly from the beginning, you really don’t need the outside help.

 

They tend to want to outsource outsourcing?

 

That’s a funny way of putting it, but yes. Danes in particular tend to assign these projects to their youngest managers to outsourcing projects, because nobody else in the company thinks this is fun. They put a new guy in charge, instead of a more experienced executive who really knows the business processes being outsourced and is in the best position to adapt those processes to the outsourced environment.

 

The outsourcing vendors that companies contract with in the offshore markets are very experienced nowadays. They rarely are the sources of the problems in outsourcing. They’ve run many, many projects in the last 15-20 years, and they really know what to do. Most of the bottlenecks and problems I see when I advise companies originate with the companies who want to outsource but are not prepared well enough.

 

When you outsource, you should do it in good times, when you have the budget and the resources to do the work internally, but you choose to outsource it because it makes sense to do that. Outsourcing is most costly during the first 18 months. That is an investment period. That is when you should be planning the entire process, from Day One to Exit. And this is something I’ve observed – outsourcing plans rarely include an exit strategy – a plan for what happens if the program doesn’t live up to expectations. That’s a mistake.

 

There’s a fear of being connected with an initiative that became a failure.

 

Yes. Too many managers and boards are too reluctant to close down an outsourcing engagement, because that’s never a popular decision. They would rather label it a success, even when everyone knows it’s a disaster. Maybe the cost per production hour has gone down, but that is because we just added more production hours to an existing cost base. We didn’t really save anything.

 

Projects also run into problems if they start out without top-level management buy-in. And it is important to involve the people who were most critical of the initiative directly in the outsourcing project. Those people usually have legitimate points, and you have to address their criticisms directly in your planning – if you can’t address those points, your critics probably were right. If you involve them, and they are wrong, at least they have had their say. In my experience, those people tend to be the ones who say what everyone else thinks. They are influencers. So having them on your side can make a big difference in getting and keeping management support.

 

Outsourcing projects need to be undertaken as openly as possible. It’s a sensitive subject. Outsourcing projects tend to generate rumors and to make people nervous about what it going to happen to their jobs. It is very difficult to get the communications right when it comes to outsourcing – why are we doing it, what’s in it for you, what’s in it for the company. Often, when I advise companies on outsourcing, I find that nobody has prepared a communication strategy – internal, for the employees, or external, for the financial community. There is no HR strategy.

 

Do you find people are receptive to this criticism?

 

I shared some of these kinds of stories at the TON meeting, and I could see a lot of people nodding. People came over to me during the breaks and shared similar stories. I heard from a lot of people that new sourcing approaches began when their companies were financially in the red and management viewed outsourcing as a way to save money, as a way to get back to profitability. They didn’t see that the benefits don’t really start to come until the project is 18-24 months along. So these people know that their management boards are losing sight of this initial period of investment – but they don’t dare to say it.

 

Scandinavian companies always want to offshore work to the top-notch people, but we don’t want to outsource the top-notch jobs. We hire these outstanding people and then we give them the worst jobs, which they are substantially overqualified to do – especially in Central and Eastern Europe – and then they get sick of it and leave. Then we wonder why we can’t keep good people in our offshore business centers. We forget that people in Eastern Europe are very ambitious, and they want challenges in their daily work. And if you can’t make them feel challenged, they can find another company that can.

 

There are thousands of books out there about sourcing. But what do most of these books focus their attention on? How to select an outsource vendor. The authors have forgotten to focus on the mother companies – how they should prepare themselves before they go out and source. What processes, procedures and best practices have to be in place, in the parent company, so we can be assured that people who come from another culture background and speak another language can understand our company and the work we need them to do?

 

That includes all of the specifications and documentation – are they delivered in a form and in language that the outsourcer’s people can understand and use them? We tend to view these things as the vendor’s responsibility, but it isn’t. It’s ours.

 

So management is basically saying, “This is a peripheral function, the kind of thing we would choose to outsource…why should we change anything about the way we run our business for the sake of doing some non-core business function better?”

 

Exactly. In my experience, we are not doing enough to involve our sourcing partners. Think of a man who is sitting there cutting stones. If you hire that man to cut stones, he will think about the work in one way; if you hire that man to build a cathedral, he will think about that work very differently. We are hiring too many stone-cutters.