Wednesday, March 28, 2007

Outsourcing Will Be Replaced by Networks

“Ram” Ramadorai is the CEO of Tata Consultancy Services, an Indian information technology company with revenues exceeding $3 billion per year. Tata is the biggest IT services company in India, and as such it is one of those companies that Lou Dobbs regularly rails against: it’s a business that offers information systems, business process, infrastructure and engineering services to corporate customers for cheaper rates than do comparable U.S. firms like IBM, HP and Oracle. Therefore, we should view Tata with deep suspicion, for as we all know, Indian outsourcing businesses are nasty, evil, American-job-sucking monsters.Or are they? In a recent keynote speech to the World Outsourcing Summit sponsored by International Association of Outsourcing Professionals, I argued that in the future, terms like “outsourcing” and “offshoring” will become increasingly irrelevant. These terms assume a longstanding stereotype-- that nearly all the work of any company occurs within four organizational walls located within one country, with little bits and pieces of routine work occasionally (and grudgingly) being farmed out for dirt cheap rates to organizations in other (usually developing) countries. That stereotype is dying, and rightfully so. Increasingly, cutting-edge companies are defining themselves as global webs of best-of-breed relationships, as seamless networks of talent and resources not limited by geography. In that context, the value and health of the company is based in large part on the value and health of its partners, and thus the traditional stereotype of “internal” vs. “outsourced”, or “domestic” vs. “offshored”, becomes less and less germane. That’s why companies as diverse as GE and Proctor and Gamble have numerous ventures and research labs outside the U.S., and view much of their future growth and competitive advantage as coming from new products and systems developed by partners outside the U.S. It’s why telecom supplier Ericsson attributes its amazing turnaround in the last five years to its collaborative network of global relationships—like Sony for design and style, French Telecom for music and audio, Flextronics for manufacturing, and Google for Web capabilities. Ericsson didn’t seek the cheapest “suppliers”; it chose the most value-adding partners to fill specific gaps in its own knowledge bank.So back to Tata. Yes, its prices are attractively lower than those of many other American and European providers, but it’s good at what it does. There’s no price-quality “trade-off”. Once a simple source of offshoring for American firms, Tata has become so successful that it is now expanding into countries like China, Brazil, Chile, Hungary, and the U.S.—and hiring the locals (like 10,000 U.S. employees). One could legitimately argue that Tata is outsourcing the outsourcing business, but that’s the wrong paradigm. Increasingly, in all businesses, the new strategic conversations will be about borderless collaborations. The new “organizations” will be hubs of best-in-class capabilities and contributions from anywhere around the world. And Tata, like GE and Ericsson, will be part of that paradigm. (Small wonder that Ram Ramadorai counts IBM, Oracle, Adobe and HP—traditional “competitors”—as partners in specific ventures.) The net result will be more corporate growth and more jobs everywhere. American companies that outsource their IT functions to Tata grow and hire more Americans. As Tata grows, it hires more Americans. Meanwhile, as American and non-American companies grow, they hire more non-Americans elsewhere.As companies transition themselves to collaborative, borderless networks, I don’t want to be too Mary Poppins sugary about all this. As I’ve written elsewhere, the individuals who lose jobs when work goes elsewhere are in pain, and deserve some societal help. And “partnerships” require a lot of work to maintain. But at the end of the day, as Ramadorai puts it: “Any creation of jobs or opportunities in one country is not at the cost of another country. The multiplier effect of the value the U.S. corporations we work with will deliver to shareholders and their employees is phenomenal.”

Monday, March 19, 2007

The Ingredients for Leading Change

I recently received an e-mail that is so “perfect” for my blog that I simply reprint it here. The writer, a client and a division president of a prominent high-tech firm, wishes to remain anonymous, but his words, mindset, and passion about leading change are so on-target that they deserve everyone’s attention. I’ve deleted the confidential portions of his e-mail, but what remains is gold for the kind of spirit that is needed to create a “break from the pack” change. His firm is a “business to business” enterprise in the high-tech market, but trust me--any leader in any business can read, enjoy, and learn from his message. Here it is: Our "New" (Company X) is now transforming its identity to focus sharplyon a differentiation model. I believe we need a revolutionaryapproach to making this transformation, not an evolutionary one. Frommy perspective, there are a few VERY important things we mustaggressively address:1 - The trend of commoditization across our product lines isaccelerating. We are caught up in it and moving down rapids toward thefalls. Prime conditions in our industry are feeding this frenzy:several competent competitors and many strong customers with sophisticated Purchasingorganizations. We must build a high sense of urgency within ourorganization regarding the final outcome of this direction (to avoid CommodityHell, as you call it) and the need to ACTIVELY / RADICALLY swim out ofthese rapids toward shores of sustainable profitability.2 - We must find new, creative ways to identify, understand and executeunique combinations of hardware, software and service offerings.These offerings must be wrapped in a unique customer EXPERIENCE whichradically sets us apart from the competition in a way which is valuableto the customer (and translates into margin-building prices/$$$ for us).3 - This new identity must also be credible and viable... built largelyon a foundation of EXISTING core competencies and strengths which allowus to deliver on our promise to the customer, albeit in new and creativeways.4 - We must inject a more powerful Marketing mindset which defines theseofferings and experiences through the eyes of a powerful, discretionarycustomer. A customer which makes buying decisions influenced not onlyby valuable functions and features, but also by perceived value in areasof trust, image, emotion, reliability, exclusivity, etc. Today, we aredominated by a mindset which is still blinded by asterile, logical belief that if a product has more features, performanceand functionality, it should demand a higher premium from customers.There is little focus or even understanding of the need to deliversweet-spot solutions to customers perceived as worth the premium becausethey deliver something unique beyond just the bestperformance-per-penny.5 - I intend to create a small group dedicated to working very closelywith our strongest sales teams at our most important customers instrategic market segments to deeply understand these value driversacross many areas mostly overlooked. I believe this group needs to becompletely dedicated to this charter and recruited with a specificskills set, not found in our current sales or marketing teams. Thisgroup will report directly to me.OK... I am obviously passionate about this topic. I see it so clearlyand want to build the same passionate conviction within my leadershipteam because I am convinced it will lead us to sustainable andprofitable leadership.Now that's the kind of e-mail I like to receive!!

Thursday, March 08, 2007

Offshoring Heart Surgery?!

Last month I gave a keynote speech to the delegates at the Outsourcing World Summit. It was my fourth keynote to this group over the past few years, so I like to think I know something about the subject (see for example, an article entitled “Offshoring Realities, Onshore Solutions” http://www.harari.com/articles.php?WhichArticle=45). But only a couple days ago I had a profound and emotional “aha!” moment that may have permanently affected my entire perspective on offshoring. After finishing a speech to a corporate group , I was invited to have lunch with the CEO of the company. As we broke bread, he introduced me to the luncheon speaker, who turned out to be Dr. Billy Cohn of the Texas Heart Institute in Houston, who is one of the nation’s premier heart surgeons. Cohn gave a superlative speech on the latest mind-blowing innovations in cardiology and surgery, particularly new non-invasive approaches which will replace many of today’s “open ‘em up and cut ‘em” procedures. But one scenario Cohn described was really wild: a prototype technology in which the surgeon, hunched over a computer screen showing the precise graphic details of the patient’s anatomy, was able to simulate the surgery online, and in the process control robots which did the actual invasive and non-invasive surgeries on the patient's heart. This is a much more precise and accurate intervention, and it will be scalable and common within a decade, if not sooner. Cohn showed a short video in which the surgeon, armed with his desktop computer, worked about 10 feet from the robots and the patient on the operating table. Fascinating. And then Cohn said something that really blew me away: He pointed out that there was no reason for the surgeon to be in the same room as the robots and the patient; in fact, there was no reason for him or her to be in the same country! As long as the computer can be digitally connected with the robots, the patient can be in San Francisco and the doctor can be in New York, Zurich or Delhi. Wow! Suddenly the accelerating velocity of globalized offshoring took on a deeply profound dimension. If I want to have heart surgery (or, for that matter, any type of surgery), I can theoretically choose the best doctor for me from anywhere in the world, and I don’t have to visit him, and he doesn’t have to come here. He can do what's necessary from wherever he or she is: instantly receive whatever medical data he needs from the hospital, talk to me via phone or Web or videoconference, schedule the surgery, and then “do it” to me even if we’re separated by thousands of miles. And, technically, given the amazing precision of the hardware and software, he would do a better job that way than if he was actually doing the surgery by hand on site.I’ve often said that every industry nowadays is being impacted by the “Perfect Storm” collision of globalization, deregulation, and technological advance, all of which relentlessly crush time, distance and physical barriers to the accomplishment of work. Viewed in that context, remote digitalized surgeries are a natural consequence. Is that “offshoring”? I suppose it is, but I predict that in the near future that won’t matter. In fact, I predict that “offshoring” will soon become a non-word, or at least an irrelevant one. “Offshoring” suggests that nearly all the work of the organization occurs within four walls, or within sharply defined borders, and little snippets of work are (reluctantly) parceled out to foreign entities when absolutely necessary. But in the future, the successful “organization” will increasingly be seen as a web of high value-add relationships--an extended global network of optimal talent, knowledge, resources, and assets. Companies as diverse as IBM, GE, and Proctor and Gamble are already beginning to operate as such, in tasks as varied as product development, supply chain management, engineering and design. Proctor and Gamble CEO A.G. Laffley, for example, reckons that by the year 2010, at least 50% of new products in P & G’s pipeline will come from employees and external partners located outside the U.S. That, of course, will generate new growth for the company, which will then contract with more talent both in the U.S. and abroad.Think about it: A hospital in the U.S. that views itself as a web of high-value global relationships will be able to seek the best medical staff in the world. The difference is that those talented MD’s may be scattered around multiple continents and will not have to move to the U.S. to deal with that hospital’s patients.

Thursday, March 01, 2007

When it Comes to Customer Service, We Still Love Heroes

I tell my corporate clients that if they want their company to build competitive advantage, they’ve got to focus on caring for the customer in extraordinary ways. But that’s not enough. I also tell my clients that if their customer-care systems and culture are tepid, they can’t rely on the occasional good-hearted employees who go out of their way to serve customers. That is, they can’t rely on episodic, or idiosyncratic acts of heroism from isolated individual employees. Instead, leaders must institutionalize the customer care process so that customer service is genuinely a #1 business priority—and even more important, so that every employee, every process, every system, and every job requirement contributes to leading customers to a terrific experience. The best customer service companies—like Virgin Airways, USAA, Four Seasons Hotels, Nordstrom—work feverishly to institutionalize great service as a means to brand themselves and justify their price points. And yet, and yet---after all my research-based commentary on institutionalizing customer care, I know that what really and truly touches us are the genuine acts of heroism from those overworked, underpaid individual front-line employees who solve our problems, give us a sense of joy and hope, make our lives better—and in the process make their organizations better and their executives richer. I know. I just experienced it. My parents just moved into a retirement village. New house. Guy from the cable company comes in to set up TV and Internet. After fiddling around everywhere, the cable guy says to my folks: “There’s a weak signal on this property. You’re going to get lousy reception on your tube and your pc’s. We can’t do anything.”Imagine. You’re 80 years old. You’ve just bought a new home. When doing your due diligence with your realtor, you never even assumed that there would be problems with TV and internet access. Now what? The deal is done. This is crazy. It’s crazy-making. So another call to the cable company which to its credit sends out another cable guy right away. Kudos to Comcast for understanding that its individual offerings are becoming commoditized, and that a big chunk of its value add will have to come from success in institutionalizing good after-sale customer service. So the second guy comes out. He reiterated the first guy’s conclusion, which was, in effect, You’re stuck with a lemon house, sucker. But I give him great credit for one thing: he provided my parents with the number of his supervisor in case they wanted to take up the matter further. His boss turned out to be the hero. I was there when it all happened. His name is Bob Hahn, and he called my parents at noon and told them--I kid you not--that he would be at their home “between 3:20 and 3:30 p.m.” Is this a joke? Of course he won’t be there within a ridiculous ten minute window. I was right. He was there at 3:15. What can I say? The guy spent more than three hours crawling in the attic and crawling out in the rain until he finally solved the problem. It wasn’t just the fact that he was ultra-competent (considerly more so than his predecessors); what really impressed us was that he was ultra-authentic and ultra-caring in a calm, professional, and friendly way. He always looped back to explain to us what he was doing and what he was finding. He treated my parents with dignity. And he left only after temporarily rigging up the system so that my parents could enjoy great reception that night, and only after reassuring them that he personally would come back to fix the system permanently. You don't need to have an MBA or Ph.D for this stuff. Why is it so hard for companies to understand its importance? I know this is an “aw-shucks” story. I like to think that Bob Hahn is amply recognized and rewarded at Comcast, and I like to think that more Bob Hahns are being recruited, trained, and groomed at Comcast, but I’m not naïve about these matters—except in companies where customer service is institutionalized rather than just being given lip service (and I’m not certain where Comcast falls on that continuum). But I do know this. My parents are staying with Comcast, probably for the rest of their lives—even though they have choices with competitors like AT&T, DirectTV, and super-low-price Astound. (And they’ve added Comcast’s phone service for good measure). And they’re remaining with Comcast not because of what Comcast’s high-priced CEO, CFO, consultants, program directors, and M & A dealmakers did for them. They’re staying because of what Bob Hahn did for them. Customers love front-line heroes. I wish more executives did.