Wednesday, June 24, 2015

Eight Ways Outsourcing Is Re-Inventing

If your company is a buyer of outsourced services - or a provider of outsourced services - you likely know that yesterday’s recipe for success no longer makes sense. It was a nice business model while it lasted, but the forces of progress have moved onward.  Re-invention is at work.

Like other industries that rely almost entirely on technology, the outsourcing industry has evolved at a rapid pace as each new wave of technological capability comes to reality.

Many now recognize that the outsourcing industry is the implementation arm for new service models made possible by technological innovations. 

For the past twenty years, large services companies with a heritage in “systems integration” found that their core competencies in knitting together a complex rubric of pieces and parts were ideal for the outsourcing industry. You could succeed by being good at managing complexity, either as a buyer or as a provider. You could earn nice margins in the grey area between yesterday’s mess and tomorrow’s promise of industrial-grade utilities.

More recently, many companies turned to the outsourcing industry to manage down their legacy operations. The theory was this would free up time and resources for the adoption of disruptive new capabilities.

Today, the outsourcing industry is spending more time than ever before at the front-end of the technology adoption lifecycle. This is true for the development of automation and for the application of analytics.

There’s a lot of talk around robotics and automation of work processes. Superficially, this is about replacing people with ‘bots’. That begins to challenge the fundamental labor arbitrage lever of outsourcing. Much of the promised new world capability never materialized because the industry stalled at squeezing wages for the elusive margin.

Here’s a comparison of outdated outsourcing models versus the latest thinking from progressive buyers and providers.

1. New: Micro-scale specialized arrangements for built-for-purpose services versus the old: large-scale contracts for generalized scope

2. New: Transactional modularity providing maximum flexibility to the buyer; rapid adoption of new service platforms versus the old: long-term commitments; half the term devoted to transformational programs

3. New: Economies of automation (eliminating work) with focus on productivity versus the old: economies of standardization (procedural efficiencies) with focus on unit costs of effort

4. New: Optimizing bundled business services; measuring value delivered and total cost of operations versus the old: optimizing commodity volumes with committed purchases of scale

5. New: Integration of services platforms that are specific to the functional domain versus the old: holistic enterprise applications

6. New: Bundled and turn-key services that are paid for based upon attainment of desired effect versus the old: asset focus; counting and charging for pieces and parts

7. New: Agility through a future state model; flexibility to create new capabilities over time versus the old: lower cost for today’s environment; optimizing the known

8. New: Ease of switching; maximum freedom to realign the service components of the enterprise versus the old: transition & termination complexity; hostage-taking

Each of the “new world” characteristics enables the buyers of outsourcing to increase the degree to which they run their companies on the balance sheets of their service providers.  Make no mistake, that’s the economic underpinning of any services proposition.

More to the point, the successful industry service providers will embrace this new responsibility through confidence that their expertise in the bundling of components into business-relevant services can yield higher margins.  Alas, that’s the litmus test that determines survivors of reinvention versus those holding onto yesterday’s vapor.

To take advantage of these new approaches, buyer organizations need new skills and the talent for services integration.  If you want to accelerate an IoT aspiration, for example, you’ll need built-for-purpose partners that are linked up to deliver specialized services.

These shifts are just getting started. We will continue to see exciting new forms of outsourced services, new means of adoption and integration, and enhanced commercial terms. We’ll also see many new players on the field of competition.

Peter Allen has many years of operating experience as a top executive and strategic advisor for companies of all shapes and sizes, and in assessing sales and marketing effectiveness. He is now a Boston-based Managing Director at Alvarez & Marsal.


Image: ikewinski/Flickr





Tuesday, June 23, 2015

How to Monetize the Internet of Things


Several years ago, one of my colleagues commonly used the phrase “data exhaust” to observe that so many business processes occurred without any attention to the metrics they produce. In other words, these processes generate valuable data that is being ignored or treated as waste products.

Today we have the Internet of Things (IoT) movement. At its heart, IoT is about leveraging our ability to control and measure devices, sensors, and virtually any living or inorganic item. In this realm, data exhaust is gold.

Remember this old adage? “If it’s measured, it can be managed.” With IoT, if it’s measured, it can be monetized.

This is the real breakthrough that IoT brings us. Businesses will discover wholly new sources of revenue from being expert at the collection, correlation, and packaging of data insights. This knowledge will come from massive amounts of data relating to a broad range of things.

This isn’t an entirely new trend. Look at the online advertising market that has been powered through the monetization of page views and click-through rates. During the first Internet boom, the most common business model could be described as "get a ton of traffic, then figure out how to make money".

Often, the way those businesses tried to make money on that traffic was to use display or text advertising. Advertising is fixated on impressions. Making money from advertising is still possible, but it's no longer as easy as building a site and putting some ads on it. Impressions, after all, are a means to an end.

Fortunately, there are a number of business models from which to choose, and IoT is a driving force for innovation around the value of data – for advertising and well beyond.

My career focuses on the world of technology-enabled business processes. Using the interconnection of people, processes, and systems, I often explore “How do we improve efficiency, accuracy and resilience of business?” Up until recently, we’ve lacked the ability to generate, store, correlate, analyze, and interpret real world data so that we can impact our future, not just record our past. 

Today, I see virtually unlimited potential in the exhaust that was previously thought to be without value.  Before you internet-enable anything it’s best to know what decisions can be made differently as a result of this new connectivity.

It’s a great time to be open-minded about new sources of value. Data exhaust can help us make better decisions about the allocation of precious resources. The best ideas will look nothing like what we’ve done in the past

In my mind, IoT is about the Internet of Thinking.

Peter Allen has many years of operating experience as a top executive of rapidly-growing multi-billion dollar companies and in assessing sales and marketing effectiveness. He is now a Boston-based Managing Director at Alvarez & Marsal.


Image: horstjens/Flickr





Friday, May 15, 2015

Three Steps Bring Agility to Corporate Services

If you want to increase the agility of your back-office functions, you need to consider three essential steps. All are a bit on the immature side in the market today, but all are also evolving quickly.

1. Adopt a Services Catalog. While the term may conjure images of a restaurant menu, a Services Catalog enables informed decisions around service design, sourcing, and lifecycle management. A Services Catalog applies the disciplines of product/category management to the world of back-office support functions.

A well-designed Services Catalog provides an assortment of building blocks. These blocks represent capabilities that are managed through a holistic lifecycle. By this I mean that they are created, deployed, scaled and eventually retired in response to competitive requirements in the markets you serve, even if those markets are frames by internal business units.

We are still early in the adoption of a Service Catalog governance model for IT or for a Shared Services organization. There is, however, an obvious nexus for the application of a Service Catalog – it’s the point of intersection among the demand-side business and the supply-side support functions.  This is not a tool, but rather a management discipline.

2. Embrace and empower the role of DevOps in their support for business partners. This is a cultural shift, not a technology job description. Firms that adopt such a mindset are demonstrating true progressiveness in capitalizing on a generation of knowledge workers who are central to innovation. 

The Service Catalog has the potential to conjure fears of overly structured and tightly disciplined constraints that restrict innovation; DevOps is the perfect offset to such fears.

I ask every one of my clients whether their organizations utilize DevOps techniques to accelerate the business-to-IT agenda. Over the past several years, I’ve seen the positive responses increase dramatically.

The DevOps role is to make change happen both quickly and efficiently within the operating parameters of business expectations for resilience. Those are tough hurdles to meet: rapid innovation, with positive effect, without undue risk. But the mission of DevOps is to drive speed to effect.

3. Create a mature and transparent Charge Back mechanism. This is another term that evokes images of bureaucratic cost allocations within the hairball of corporate structures. In reality, it’s actually an essential discipline for effective governance through a program of change. 

Most companies recover the costs of back-office operations by applying allocations of those costs to their market-facing business units. The most common techniques for making the allocation decisions are to spread the costs based on such factors as net revenue, or headcount, or office locations. While the accountants might favor the mathematical ease of these algorithms, most business leaders detest allocation-based cost recovery approaches.

Achieving progressive capabilities in back-office support functions demands high correlation between the needs of the business and the form of the associated support. That fidelity implies choice. Those choices – such as the quality of the office space, the speed of response, etc. – carry varying costs.

A modern Charge Back mechanism empowers innovation by making clear the effects of decisions around business options. A business unit that can lower costs and/or increase revenues will enjoy those benefits directly.  Like the prior points, this is less about a tool than it is about a management philosophy.

When combined, these three ingredients – Service Catalog, DevOps, and Charge Back – will improve your organization’s agility. Without them, agility is just a pipe dream.

Peter Allen has many years of operating experience as a top executive of rapidly-growing multi-billion dollar companies and in assessing sales and marketing effectiveness. He is now a Boston-based Managing Director at Alvarez & Marsal.


Image: dark_ghetto28/Flickr

Thursday, April 9, 2015

Who Could Want Me As a Mentor?

Over the years, colleagues have approached me with a request that sounds benign and that has been increasingly common, “Would you be my mentor?” For reasons I haven’t fully understood, I find these requests uncomfortable; recently, I have been trying to understand why.

It’s not the time commitment that bothers me. I am more than happy to help, and am willing to invest in the development of a colleague. 
Rather, it’s the presumption that I have any wisdom worthy of sharing that nags at me. I interpret the question with more formality than it likely deserves, but can’t seem to think otherwise.

To find the most effective way to diffuse my anxiety, I’ve recalled mentoring situations from my own past.
In my first job out of college, I rose through the ranks of an ultra-scientific firm doing research on the early forms of computer networking. I wasn’t smart enough to discover new science, so I focused on the management side of the business. 

Bill Dlugos was a recently retired USAF Colonel and he was hired into a role that oversaw my scope of responsibility. While I reported to Bill, he also served as a coach and mentor to me, without either of us ever using those words. 
Over the next few years, Bill would ask me how I was approaching problems and generously offered his time to give me advice around how I was thinking about the tasks at hand. The projects I was leading were cutting-edge and complex: deploying a communications capability to the FBI, connecting NATO’s operating locations across Europe, and working on sensitive intelligence programs.

I listened intently to Bill because he was experienced in the business and thoughtful about me. I can’t recall him ever directing me. He always asked what I was thinking about a situation, and what alternatives might be practical. Being a junior manager leading my first complex assignments, this was uplifting because of the confidence it showed Bill had in my abilities – even when my judgment was poor.
A few years later, in a job for which I felt similarly unprepared, Don Bowen (retired USAF Brigadier General) recognized my anxiety and reached out with an offer that we have coffee once a week to talk about what I was experiencing. No agenda, just coffee.

Both of these men initiated the mentoring relationship. They didn’t wait for me to ask for it. Both of them were in positions of authority, but never used their positions as the framework for our conversations.
Bill and Don were career military officers, accustomed to structure, discipline, planning, and order. For whatever reason, they saw in me a potential that warranted the investment of their precious time.

I hadn’t thought about Bill Dlugos or Don Bowen for many years. I lost touch with them long ago.
As I place these memories in the context of being asked by colleagues to serve as a mentor, I am ashamed. I should not need to be asked, I should initiate. There does not need to be any formality to the act; it ought to be natural and casual.

In fact, much later in my career when I carried considerable management responsibilities, the CEO of my firm said to me one day, “Your value is much greater by BEING, rather that DOING.”
I work today with a great group of young professionals, and maintain a rich network of past colleagues. I will be offering coffee more often than before. I may just be old enough now to overcome my insecurities.

Peter Allen has many years of operating experience as a top executive of rapidly-growing multi-billion dollar companies and in assessing sales and marketing effectiveness. He is now a Boston-based Managing Director at Alvarez & Marsal.

Image: wallyg/Flickr





Monday, April 6, 2015

To Go Digital, Go Find Excellent Partners

For four years I led global sales and marketing for a large IT Services company, and experienced first-hand the powerful impacts of digital transformation. To deal with digital initiatives, many of the CIOs with whom I worked grappled with the choice between buy/subscribe versus build/operate.
This experience really emphasized for me that digital transformation redefines the nature of any underlying business, and changes the nature of services partnerships. This is not outsourcing as the industry previously defined it. 
In most cases, companies must increase their proficiency in the use of services partners (i.e. buy/subscribe), because the very nature of Digital business models demands agility and networked ecosystems. 
Getting comfortable with the structuring of external partnerships and a central strategy for driving a Digital agenda is no small feat. Here are five lessons I tallied during my operating experience:
1)    Digital is a Business Model, not a Technology. Companies that are well established in their markets recognize that digital enables new operating structures. This doesn’t just mean mobile; many others are emerging quickly, including social networks, multi-modal communications, edge computing, sensor-based data models, in-memory database processing, and others. 
Beyond the established organizations, look at the new entrants that are building their operations around a digital ecosystem. Both start-ups and carve-outs, many fueled by venture capital and private equity, insist on running their business via digital operating models; they are leaving behind the organizations and systems that defined business of yesterday.
The Internet-of-Things (IoT) conversation is a business model discussion, not a technology discussion.
2)    Digital is Everyone’s Business.  Even the most mundane industry segments are faced with digital threats and opportunities. If you’re a manufacturer, or a distributor, or a maintenance company, or a services entity … you’re likely spending time considering new ways to develop, sell, and service your customers using digital techniques. 
I’ve been impressed by some otherwise traditional business segments that have teams of people working to conceive new sources of operations through the use of emerging digital techniques. Many are using crowd-sourcing ideation programs to engage their employees in this process – a testament to the urgency of bringing everyone along on the journey of change.
3)    Digital is a New Muscle. Most of the companies that I work with readily admit that they are lacking in the expertise to transform their business via digital. The expertise they need is well beyond technological skills. They are missing a fundamental understanding how to conceive and operate new digital business models.
In most case, two realities fuel a burning ambition. First is the competitive threat that exists across industries from more nimble entrants who are more aggressive in embracing digital operating models. But the more powerful forcing function comes from reimagining how customers want to do business. When you apply an outside-in perspective, it’s often a liberating experience for employees who can see new ways to operate the business.
4)    Digital is Holistic. Unlike the era of Enterprise Resource Planning (ERP) platforms that focused on efficiencies in back-office operations, the digital promise touches on every aspect of the business cycle. It’s about how you win the right to serve your customers, all the way through the management of your supply chain.
5)    Digital Requires Partners. If you buy into the shift to digital in how business is conducted, then you are implicitly buying into the need for a robust eco-system of partners. Digital, by definition, implies the knitting together of buyers and providers through platforms and channels of commerce. 
This last point resonates most intimately with my own background in shared services and outsourcing. Executives are looking to their existing back-office service resources through the lens of enabling a digital ambition. Can the current shared services organization acquire the skills, orient the service model, and reach forward through the business?  Can the current outsourced service providers bring purposeful investments to bear through leveraged services in a digital business model?
It is the responsibility of executive leadership to mandate service partners to foster innovation in the delivery of front-office, mid-office, and back-office innovations. They can do this through automation, analytics, interconnectivity, and all of the other features of a digital business model. Digital is as much how as it is what.
The excellence of your service partners, and in the dynamic use of built-for-purpose solutions, is what will enable your business to be a leader in digital transformation.
Peter Allen has many years of operating experience as a top executive of rapidly-growing multi-billion dollar companies and in assessing sales and marketing effectiveness. He is now a Boston-based Managing Director at Alvarez & Marsal.
Image: sachman75

Thursday, March 19, 2015

When Activist Investors Knocked on the Door

A few years ago, I was on the Board of Directors for a NYSE-listed public company when an activist investor appeared at our doorstep. These investors are individuals or groups that purchase large numbers of a public company's shares - or seek to obtain seats on the company's board - with the goal of bringing about major changes.

In our case, the investor bought 8% of the company and over several weeks increased his holdings to almost 20%. As the lead director for our company, it was my duty to understand this investor’s motivation and intention.

Thus began my education in the tactics of outside investors who fundamentally disagree with the strategies of incumbent management.
Today, there are scores of such investors who are persistently scanning the performance records of public companies for opportunities to force change of strategy, direction and/or execution.  Here is a good summary of some leading activists.

These investors commonly look for one or more symptoms:
  • Low P/E multiples vs. peers, indicating a valuation disadvantage
  • Trend of missed earnings guidance
  • Clubby board composition
  • Companies going through a major change in leadership and/or market conditions
  • High levels of cash/assets that can be better monetized
  • Persistently under-performing divisions or operations; candidates for divestiture
  • History of accounting irregularities/governance issues
  • Declining investor sentiment

The common thread here is the indictment of current management strategies and practices.
In our case, the activist implemented a proxy fight and secured for himself both the CEO seat and half of the Board positions. At this point, the shareholders voted to give the activist the reigns to drive the company forward.

As activism has become increasingly common across industries, companies have become adept at interacting with these investors in ways intended to avoid loss of control.  Boards of Directors tend to communicate more readily with these investors, consider their questions and ideas, and gauge the degree of shareholder sentiment that these investors represent.
Sometimes the intervention of an activist is just the sort of forcing function that a company’s leadership needs to appreciate the seriousness of shareholder dissent. Too often, the motives of the activist are described as merely a selfish desire for seats on the Board. 

I am hearing this topic more and more in the hallways of the companies I serve. Many perceive the potential for an activist as a call to arms. Many leaders have the motivation to undertake value-enhancing steps themselves, rather than waiting for an activist to seize control of the agenda. 
Progressive CEOs are encouraging their leadership teams to challenge the comfortable and conventional doctrines of their business by asking, not entirely rhetorically, “What would an activist do to drive improved shareholder value?” Some of the more common avenues of inquiry that I experience include:

     Do we have a strategy to win in an increasingly digital market?

     Are our operating units best positioned to perform as part of the enterprise, or as stand-alone companies?

     Are our business support processes sufficiently agile to flex with an increasing pace of change in our markets?

     Is our talent contemporary with the issues and opportunities of our markets?

     Are we engaging with our customers in the ways, and through the channels, that they find optimal?

     Is our structure fit-for-purpose in a world of increasingly nimble competitors?

     Are we investing in the things that make a competitive difference, and buying/subscribing to the services that are best leveraged?
I am finding that such questions increasingly frame the agenda for business units, corporate support functions, and shared services leaders at all levels of many organizations.

Complacency fuels activism. Leaders can leverage some of the same energy by bringing an owner’s mindset to all aspects of their organization’s strategy.

Peter Allen has many years of operating experience as a top executive of rapidly-growing multi-billion dollar companies and in assessing sales and marketing effectiveness. He is now a Boston-based Managing Director at Alvarez & Marsal.

 Image: cdx_cdx ✔/Flickr

Tuesday, March 3, 2015

Four Big Changes from the Internet of Things

As companies seek to integrate connectivity into devices that previously lacked connectivity, my clients want to understand the differences between profitable innovations and costly distractions.

We’re seeing some clever new possibilities. Connected health monitors, home automation, thermostats, and monitoring applications are already getting traction.
There are four implications to this trend that really excite me, and each of these are hairy topics for companies looking to capitalize on the Internet of Things (IoT) opportunity.

1. Upside-down Computing Architectures. Prevailing wisdom dictates that the most efficient way to operate an information-based service is to assemble the computing and data assets into the smallest possible number of locations; centralization drives efficiency. Indeed, one of the more common strategies of large companies today is to collapse their data center footprint into a smaller number of physical facilities. Smaller companies are inclined to tap into public-cloud services (such as Amazon Web Services or Microsoft Azure) that similarly operate massive computing facilities.

But IoT connects devices, not just people, leading to a greater fragmentation of software and hardware amidst an explosion of data.  All of that connected stuff is, by definition, dispersed and even mobile. We will need new ways to process information and make efficient use of communications as networks of devices proliferate.  Companies seeking to internet-enable their business shouldn’t assume that the processing paradigm of today will apply.

2.) Data Storage and Analysis. My favorite current use case is the deployment of body cameras for law enforcement. Just imagine the massive amount of data that those cameras will generate. In the vernacular of the industry, it will be unstructured data – meaning that its relevance is subject to interpretation and indexing. You can’t (yet) search a stream of video to find an item of interest in the same way that you can search a text document. We need new capabilities to efficiently store all of this digital content in ways that enable search and retrieval.  The storage requirements will be massive, and potentially expensive.  We need new storage paradigms, too, with embedded analytics for all of that digital content. 

3.) Multi-platform Collaboration. The deployment of connected devices is merely the next step in our evolution towards an information-based society. It’s not the end state. Every new device brings with it the potential for collaboration with other devices and platforms. There will be great value created by being able to find and combine data from different source platforms. But, before this can be accomplished, we will need common software and interoperability standards that others can work with and build upon. Connecting personal health monitors with the healthcare system (hospitals) and insurance carriers is still a significant challenge. The most powerful applications will be those that unify platforms.

4.) Services Over Products. The most profound implication, in my view, is the shift of product-oriented companies to become services companies. Once you internet-enable a refrigerator, oil field monitor, or baggage locator … you are setting expectations with your customers that their product is now part of an ecosystem of connected devices. Most product companies aren’t geared around the services business. Fulfilling the ambition of being a player in the world of IoT will require new muscles and, likely, new partners.
The best partners to enable these service models will not just take orders and fulfill requirements. Rather, they will have vested interests in the solutions. They will see the potential to become ingrained in the fabric of industry services. They will bring investments and intellectual horsepower.

Most of my clients recognize that IoT is bringing new opportunities, along with risks of obsolescence.  But they don’t all fully appreciate that many of today’s accepted operating principles - such as centralized processing, ordered storage of information, islands of platform autonomy, and product-oriented expectations - are fading as the innovation ramps upward.
Business models are quickly moving to the edge - into cars and homes, and onto the wrists of consumers. These are not trivial changes. Innovation is not just a technological endeavor; it’s a business model shift.

Peter Allen has many years of operating experience as a top executive of rapidly-growing multi-billion dollar companies and in assessing sales and marketing effectiveness. He is now a Boston-based Managing Director at Alvarez & Marsal.

Image: horstjens/Flickr