Overview
This article sets out to unravel some indicators as to why the traditional established economies are in trouble, by providing a synopsis of the challenges and opportunities arising from the globalisation of supply and customer markets, and illustrate some proven approaches to resource and compete in these tough rapidly evolving business scenarios.
The challenges of globalisation
All advantage is temporary. The ultimate advantage is achieved by choosing high value competencies well and establishing how long to invest in them, and identifying commodity competencies to divest. The faster the product life cycle the shorter the advantage. In 1888 Kodak created the slogan "you press the button we do the rest" and from this a highly vertically integrated model was created maintaining an almost Neolithic control of the photographic market. This was achieved until digital technology arrived. It is essential that an organisation becomes flexible enough to jump when required.
There is no competence more critical to a business than the development of an end to end competency chain from the consumer to the raw material supply. There is no one make or buy strategy that will stand the test of time. It is by defining the long term distinctive specialisation of the organisation, and the organisations position in a network of complimentary specialist diversified suppliers that an organisation will achieve a competitive position. Diversified suppliers bring a wealth of experience from other customers; they provide an early warning platform and the ability to easily modify their existing loosely coupled customer business processes. Captive suppliers often have hard wired business processes making innovation more difficult. The speed of learning is then the key source of advantage, and the loose coupling provides the supplier the space to innovate to deliver clearly set performance targets. Further more; the scale enjoyed by many diversified suppliers enables them to provide attractive career paths to retain highly skilled employees. When looking at the business as a whole, the decision is how much of the past should be taken forwards and how much should be reviewed.
The emerging challenge for slow moving businesses is to look outside the business to review rapidly emerging business models. The best managers should look at the big picture which is rapidly becoming global in terms of suppliers and markets. Financial services in 2005 grew from 24% of the UK economy to 30% and manufacturing is 14% and still declining. As much of the UK financial services industry is located greater than 200m from customers this service too could be provided overseas.
Businesses firmly anchored in competitive emerging markets can successfully export their business models overseas for example ICICI an Indian Bank are signing up 1500 new Canadian accounts every week. There will always be room for specialists but will supply to the mass market ever return?
For hundreds of years up to the 1820s China like the US today controlled 30% of global GDP, and they were really the only economic superpower. From 1949-1976 during Mao's government, China lost a generation of entrepreneurs. Deng changed this and this enterprise has once again been let loose by relinquishing central control and providing the infrastructure and investment to support start up and growth. From 1978 - 1991 the number of local enterprises increased from 1.5m - 19m, and China has a vibrant aggressive market where only the most rapidly evolving businesses survive.
Cumulative operations improvements create the luxury of choice. Continual waves of innovation cannot be copied and create distinctive advantage, and being at the centre of the toughest markets helps mitigate the risks of predicting what the future will look like.
Developing management skills
Increasing shareholder value today presents resourcing challenges. In a recent survey 54% of UK PLCs suggested they don't have sufficient talent at senior management level, and only 21% have talent development programs. This high risk gap is often filled by recruiting permanent staff from outside. The skills required to line manage a business and align a business are very different. Recruiting a change manager into a permanent role can be a mistake. Conversely a capable line manager can fail due to lack of skill or support when faced with new and immediate challenges.
There are 3 main assets in any business; business process, employee knowledge, and fixed assets. Anyone can buy fixed assets. As a start leverage employee skills - the key tool to realise this is to develop the business process and work x functionally to address complex challenges. In a business environment where product life cycles are becoming shorter, products become commoditised very quickly - it is the service associated with these products that often differentiates suppliers. The main causal driver for customer satisfaction is employee motivation. There are 3 primary elements of employee satisfaction; clear direction, working relationships, and employee development focussed at realising these objectives. Individuals in the customer front line that feel empowered, and are involved in the problem solving business process, when supported and developed can effect lasting change, and significantly contribute to increasing customer satisfaction. This strategy builds a hugely motivating environment to work in.
The outcome of many US acquisitions of UK manufacturing businesses has been to outsource entire manufacturing operations to low cost centres. The reality of deploying this strategy wholesale to serve the huge variety in EMEA regional and bespoke customer requirements is that the supply chain becomes too long, leading to higher service costs, unresponsiveness and diluted supporting skills. Being in the centre of the toughest market is certainly core to developing the most effective capabilities and business processes, however the local retention of core skills and the requirements of local customisation should also be considered. Toyota for example has long established a tradition of retaining core design capabilities in house.
They foresaw the increase in importance of vehicle electronics systems and developed a joint venture with Texas Instruments to build a semiconductor factory. As automotive manufacturing is unlikely to become as modular as the PC industry this may be the best course. The key is to identify which competencies will be of the greatest value to invest in and which to outsource to most competitively meet customer requirements.
The challenge is to develop more resources by looking outside the organisation and viewing global competencies as complimentary rather than competitive, and accepting that the organisation should play a key role in developing these competencies to meet customer specific requirements.
Specialisation is a trend that is unlikely to be reversed; it gives access to global economies of scale and the associated refined competence that can be influenced. In competitive markets with excess capacity a dynamic is created whereby business models and product architectures are being built from the bottom up. Further more as technology is becoming more modular, equipment manufacturers are becoming design manufacturers. In the case of mobile phones, established players such as Nokia with their very high relative wage levels make a significant target for these emerging design manufacturers who could cut them out of the value chain by supplying service providers direct.
Managing customer - supplier interfaces for low cost is important to reduce the cost of switching suppliers. These interfaces should provide the opportunity to share learning between partners, and simplify the review and daily communication process.
Summary
Traditional operational savings no longer suffice, there is now a gap waiting to be filled to create more value through innovation, and the toughest market is likely to drive the most economic value in the relationship. There are 2 key decisions to be made; what to offshore, and what to outsource. Offshoring is the movement of business activity to exploit differentiating skills or cost differentials, whereas outsourcing is shedding non core business activities.
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1408
Date Published :
Dec 9 2008