Tuesday, July 19, 2016

Economic Game Planning for Services Evolution

I had a recent experience attending a round-table discussion with executives who are sharing approaches for evolving their outsourcing strategies in the face of changes occurring among the service provider landscape.  Each of the participants represented leading institutions, and all had considerable experience in the selection and contracting of technology-enabled services.

It’s always enlightening to me to participate in a candid exchange of challenges and opportunities among some of the more accomplished practitioners in the art of services contracting. 

Much to my surprise, my greatest take-away conclusion centered on the degree to which many companies continue to focus on staff augmentation or labor-based capacity arrangements.  Despite much of the marketplace rhetoric to the contrary – notably promoted by yours truly – around the shift to “As A Service” modes of contracting, this conversation gave me pause.

Just about every one of the 12 global firms represented in the discussion was more focused on matters relating to retention of talent, sizing bench resources, and matters of cost-effective resource management.  I found this odd, given my own experience in seeing progressive strategies in other sectors.

Our discussion revealed the reasons for this apparent reluctance, among these firms, to embrace new forms of services contracting.

1)      Buying “As A Service” would require that requirements are well-understood and expressed, and enterprise services interfaces are well-defined.  Most of the companies in my conversation admitted that they lacked the confidence in the business direction and lacked the investment in the required services architecture to allow for subscribing to market-based offerings.  As such, “As A Service” is a strategy for only selected and specialized functions today.
2)      Incumbent providers aren’t paving the way to transition from labor-based arrangements.  There was a fair amount of disdain expressed for the heritage ITO and BPO services providers when it comes to evolving existing service models towards more market-based and leveraged arrangements.  The firms felt that the rhetoric around outcome-oriented contracting is not yet mature among existing services providers.
3)      Managers don’t know how to operate in an “As A Service” world.  That is, the executives who are responsible for business functions and services have grown up being trained to manage people and effort and processes.  They have not yet acquired the skills to manage services interfaces. 

Reflecting on these three obstacles to innovation in adopting market-defined services, I can’t help but observe the self-fulfilling prophesy attendant to the cycle.  In my simple world of expression, what I heard was:

a)      I can’t buy “As A Service” because I don’t know what to ask for, or how to plug the service into my company’s operations;
b)      Further, my existing providers aren’t investing in services that reflect their awareness of my industry’s needs – which means that there either isn’t much commonality or there isn’t a willingness of the market to buy differently; and
c)      Even if there were built-for-purpose alternatives to buying labor capacity, my organization isn’t prepared, equipped, or motivated to do so.

I won’t overly generalize, but I sense that there’s something behind this logic.  This group of highly-experienced practitioners felt constrained in the ability to drive greater value creation by the lack of institutional commitment to running their businesses in a different way.  Instead, they are focused on developing Service Level Agreements that are tied to performance and retention … a weird intermingling of the what with the how.

As I reflected on this conclusion, I was drawn to compare what I had heard with other examples in my past of aggressive adoption of platform-based “As A Service” modes of operating.  What was different?

The differences start with senior business leadership who are enlightened around the fact that innovation in services demands that much of the sacred legacy approaches need to be left behind, including many of the rituals that have defined the role of managers.  I can recall, easily, a dozen or more really accomplished CIOs, CAOs, Shared Services executives, or COOs of major companies who owned the strategy to reorient functions away from effort and towards predictable outcomes. 

One such executive taught me a great lesson on how to operationalize this shift in thinking about the contracting for services.  She promoted the use of an “Economic Game Plan” as the central nexus for managing a broad portfolio of business support functions, including those outsourced in whole or in part.

The EGP is a means of expressing the handful of levers that are available for any given business function to drive down costs, align capacity with demand, and improve quality of performance.  She insisted that this technique be applied to all of the business functions in her company, and that this form the basis for a multi-year plan around standards, fixed/variable cost bets, disruptive innovations, and service partner selection.

The EGP is not a procurement tool; it’s a management utility.  What my client experienced through its adoption was a steady improvement in the awareness and competency of her staff to understand that they are managing moving pieces, and that a good leader will develop keen awareness of the various levers available at any given time to respond to change.

The executive who sponsored this liked to tell her team that the adoption of standards and focused accountability was not driven by the desire to lock down on what’s comfortable and convenient, but rather to enable agility and change when the business required flexibility.

I’ve been a disciple of Economic Game Planning ever since that experience.  It’s a technique to foster a conversation among the service recipients and service providers that enables evolution.

I sense a great opportunity to educate companies in the art of the possible when functions are assessed through an Economic Game Plan, rather than through the lens of “can we find cheaper people to do this work?”

Peter Allen applies many years of operating experience as a top executive and strategic advisor for companies of all shapes and sizes, with focus on technology-enabled business services. He is now Chief Evangelist at Peter Allen & Partners and Senior Advisor for Alvarez & Marsal.