If the Shoe Fits | Article

Building for Future Competition and Growth

outsourcing supplier putting on shoeDramatic technological changes now regularly unsettle our ways of doing business, and this trend promises to wreak even more havoc in the future as technological advances occur even more quickly. Future organizational success already depends on strategies to make companies more agile in their ability to change so that their competitors don’t pass them by. Where will your company be five years from now? Successful companies will have evolved to operate in fresh new, more effective ways. Motivational speaker and author, John L. Mason, advises people that if the shoe fits, they shouldn’t wear it, for they are not allowing room for growth. Companies that don’t change but continue to operate as they do today will become eccentric, for growth and success require change.

To stay in the game, executives must decide to stop doing things the way they have always been done, realizing that organizations have limitations and can’t be good at everything. To become more efficient and cost-competitive, a company needs to outsource its “context” functions – the vital work that must be done to support the company’s core expertise by which it distinguishes itself in the marketplace, but which does not generate shareholder value.

Over the next five years, outsourcing will leap to the forefront as the only effective strategy for success. Most companies will be smaller and will be shaped differently, as they turn over their context processes to world-class outsourcers and as they learn to go to market with new alliance partners in gain-sharing agreements. Because the Internet is a catalyst for change, being world-class at what your company does won’t be enough to ensure future success. Organizations will need to switch gears quickly with minimal costs. The way to achieve that mode of operation is to outsource to suppliers with economies of scale, expertise and access to resources that they can leverage on your behalf.

Blueprint for the Future

Although scenarios will vary slightly, tomorrow’s leading companies will share five important characteristics: (1) secure instant access to real-time information, (2) innovation, (3) globalization, (4) an increase in intellectual capital, and (5) they will outsource to achieve the first four. Millions of dollars are already being spent to ensure security of Internet data communications, increasing employee knowledge and developing wireless access to business applications so that companies can operate in a proactive instead of reactive manner.

Theodore Roosevelt said that nine-tenths of wisdom is being wise in time. Futuristic companies will need to focus not only on innovation but on accelerating innovation; for it is the early movers who win. They will rely totally on outsourcing their innovation strategies to the development-on-demand solutions provided by companies such as MERANT. (See “Fly Like an Eagle” in this issue.)

Enterprise Risk Management in Going Global

Whether it’s to purchase materials, supplies or services, or to set up or acquire businesses in other countries, global expansion is the way of the future. Jack Rose, global lead partner for KPMG’s Management Assurance Services, advises clients to choose outsourcers with “expert geographic knowledge of local language, government regulations, taxation systems, statutory requirements while you keep your eye on the business that you are running.” The outsourcer also must have industry-specific knowledge, understand the business risks and have a good communication network for geographic coverage so it can draw on people from around the world almost instantaneously.

KPMG’s Management Assurance Services practice has grown out of internal audit outsourcing. Rose says the new-style auditing is a governance process rather than a compliance process. It focuses on the company’s business risks and the controls or activities necessary to manage those risks and create value for the company. This KPMG service is enjoying rapid growth as more and more companies go global and see the necessity of minimizing potential risks while doing so.

By outsourcing this process to an organization such as KPMG, companies gain the leverage of the supplier’s expertise in enterprise risk management on a global basis. To make sure they fully understand the risks in going global — which are different from the risks in the current marketplace in which a company operates — Rose advises starting with a holistic risk assessment.

KPMG has found added value for companies outsourcing this assessment. “Often, people will not talk to a guy from the corporate office about the business risks they are facing because they might see that as a sign of weakness or an inability to deal with it,” explains Rose. “But when you’ve got an outside party doing that assessment, they seem to open up, so the company gets a full value from it.” He adds that it’s advisable to perform an initial risk assessment at the front end in order to better manage the activities of globalization and then again on an annual basis.

Potential Number One Barrier to Success

The most prominent characteristic of futuristic companies, Rose believes, will be their ability to be flexible. With marketplaces continually changing, he says it is important to “have a good solid understanding of what your business is. Then, if your business — or the nuances of it — happen to change, you must have the flexibility to be able to step back and away from something that you may have been doing for a decade. You have to be able to move forward with the new economy. (See “The Future of Contract Manufacturing” in this issue.)

Mindsets need to be changed for future success — starting with “the corporate culture that says we are going to do it all ourselves and we know how to do it best,” Rose admonishes. “When you outsource, you have to ensure that your outsourcer is a leader in its field and that it is going to stay on the leading edge. Having done that, you have to change your mindset to give the outsourcer enough room to work in and bring in their expertise. Your company’s mindset has to become more flexible to accept new ways of doing things.”


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