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Semita - Sourcing for Growth 2-15

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Semita - Sourcing for Growth 2-15

  1. 1. Sourcing for Growth Introduction to a sourcing model for client / partner collaboration “Conformity is the jailer of freedom and the enemy of growth”, John F Kennedy A recent Accenture study, “increasing Agility to Fuel Growth and Competitiveness” found that only 21 per cent of respondents were confident they had the right initiatives in place to achieve cost reduction targets. However, in an age when digital disruption is turning industries upside down and inside out, the picture may be even more alarming. Astute sourcing activity offers vast opportunity and may be the only sensible way of tapping into global capabilities be it for cost advantage or to access unique expertise. The exam question is how to make this happen. Staring into the Abyss As John Kotter has pointed out, industry is changing at an accelerating rate. It is a volatile, uncertain, ambiguous and complex world and organisations are having to re-examine the fundamentals of their operations. What changes are required to meet the needs of our customers and expectations of shareholders?  Can we deliver cost reductions and service improvements? Historically what have we achieved and why?  What’s our technology delivery track record? What happened? What changes do we need to introduce to leverage new technology opportunities?  Where does risk lie? Why is this? What does the Regulator think?  How do we invest for growth? How is it linked with cost reduction? What is the role of sourcing partners?  Are our operating models able to flex to accommodate customer demand, structural change and growth opportunities?  Are we making the most of the global economy? Do we have the skills for it?  Are we getting the most out of our partners? Why or maybe why not? Existing Services Cost / Service Loop New Services Innovation Loop Plan Execute Measure Engage Evaluate Execute Measure Execute Cut to sever loop Copyright Semita Ltd 2016
  2. 2.  How do we currently work with partners to share the champagne and the bullets? Why is this so?  How do we coordinate initiatives? How do they impact on customers? Are we just exhausted by it all?  How do Executives align (or not) behind cost reduction and/or growth initiatives? Why? How are their interests aligned (or not)?  What does being “digital” and “disruptive” mean for us and our customers? Where will it end? At the TCS European Summit this year, Mario Monti, the economist and former Italian Prime Minister was asked what was the biggest threat to global prosperity. He answered “populism”, by which he meant the offering of grossly inadequate soundbite “solutions” to problems of massive complexity. One should not suggest that the shifting operations and revenues of anything but the smallest organisation are straightforward, however it is clear that sourcing can be the foundation that underpins many of the answers. With typical models of engagement, the right conversations are simply not always being had and significant opportunities are being missed. A Sourcing Model for Client / Partner Collaboration The client / partner collaboration cycle makes a direct connection between utilising partners for cost reduction / service improvement and as gates to the future, enriching and accelerating innovation cycles to deliver growth through leverage of their global delivery footprints, vast networks and multi-industry, multi-disciplinary expertise. By linking the loops in the Collaboration Cycle, a formal link is established between cost reduction and the ability to invest funds in growth activities and customer experience. Illustration. The Client / Partner Collaboration Cycle The familiar right hand side of the model is about doing things differently for cost and service benefit. The left hand side is about doing entirely different things. However, in most Existing Services Cost / Service Loop New Services Innovation Loop Plan Execute Measure Engage Evaluate Execute Measure Execute Cut to sever loop Copyright Semita Ltd 2016
  3. 3. cases, in an existing relationship, making the right hand side work is a precursor to engaging on the left hand side. In this respect, the model flows from right to left. Delivery of benefit in existing activities earns the right to drive strategic growth initiatives. Earning the Right to Collaborate and then Collaborating As it stands, many client / partner relationships are stuck on the right hand side of the model with the invoice being the main topic of debate. Clients have used the scissors! It conforms to an established approach of “buying” product but misses the point. As the Managing Director of a domestic UK Energy provider said to me recently “It’s OK to be tough, but it is hardly an end in itself”. To compound the issue, some partner behaviours are also overly focussed on the short term. Clients and partners must earn the right to collaborate, to extend their relationships for mutual benefit and this boils down to having in place the right contracts, people and governance as shown in the table below. Table. Different approaches across the Client / Partner Collaboration Cycle Innovation Loop Cost / Service Loop Contracts Predominantly output or outcome based. Some short term input pricingfor blue sky innovation. Investment sharing. Incentive sharing. Risk sharing. Predominantly output or outcome based. Move to as-a-servicepricing. Transfer risk towards partner. Committed priceand service outcomes. People Greater Executive commitment. Broader IT / Operational input Possibleorganisational impact, bringingpartner “within the fold”. Usually contained within vendor management organisation. Light Executive input. Governance Innovation Boards. Innovation Steering Group. Partners have a formal role in the innovation cycleand are potentially hard-wired into the organisation structure. Regular operational,relationship and commercial governance. Defined escalation routes. In meeting the demands being faced by organisations, sourcing has a key role to play in providing agility and a set of capabilities that in all likelihood cannot be replicated internally. Partners fundamentally expand opportunities and choices and although they have historically worked predominantly on the right hand side of the Collaboration Cycle, their greatest influence is potentially realised from the left hand side. A Call to Action Managing the transition across the model isn’t necessarily smooth. For example, if the right hand side of the model isn’t functioning properly and at the same time competitors are happily working on the left hand side of it, then can one afford to delay? There will be a balance to be achieved in architecting the transition, but all of the following need
  4. 4. consideration. They follow a logical order, but in all likelihood we be initiated to some degree concurrently. 1. Re-examine current contracts and partner relationships and establish remedial actions if necessary to re-lay foundations or perhaps lay new ones 2. Prioritise customer retention, cost reduction and service improvement initiatives to fund growth activities 3. Build innovation / growth partnership management structures and manage initiatives 4. Review and measure constantly and adjust as appropriate Ed Tann Managing Director Semita Ltd February 2016.