The CFO Mandate

A recent article in Information Week struck a nerve with me.  It touches upon the common disconnect between the IT organization and the CFO around business requirements, the tendency to sustain addiction to heavy-handed ERP platforms, and the frustration at the time/cost to drive change through legacy processes and the systems that enable those processes.

The article was written by a reputable BPO services provider and promotes the virtuous claim that “process-based design and transformation can harness the newest technology for what matters, thoroughly utilizing process analytics and focusing on how business process (and the related human factor) drives the desired business outcomes”.

Well, I’ve had the privilege of being in a fair number of conversations with CFOs recently on this topic.  I am encouraged by the awareness that most bring to the table – they know that there are better mouse traps being invented with great pace.

The impact that WorkDay has brought to the HR function is an easy example.  Similarly, there are analytics tools and process engines for the Finance, Supply Chain, Procurement, and Planning functions that yield great promise.

The questions that I hear most often don’t relate to the availability of clever new applications to automate work.  Instead, they relate to the implications around leadership.  How is the CFO meant to provide the guardrails and ambition to enable the organization to break from the comfort zone of legacy ways of doing things?

I’ve been answering these questions with a playbook for the Finance function. 

1)     Don’t Assume.  The frame of thinking that worked in the past may not be suited to the new market dynamics of subscription-based business support functions.

2)     Think Subscribe.  No longer is it acceptable to build/operate a proprietary solution.  There’s almost always a market option to consider.

3)     No Victims.  The transformation implied here takes time … and deliberation.  Delaying only perpetuates the risk of being held hostage to the legacy.

4)     ROIC Rules.  Yes, cash is important, but the ultimate measure of leadership is the return delivered to shareholders from prudent investments.  Run the business through the P&L, not the balance sheet.

5)     New Friends. Finance leaders need to enlist many different competencies to conceive and enable new operating models.

6)     Time to Results.  It’s self-evident, but we live in times of immediate gratification.  The competition is moving fast, so urgency is the name of the game.

The mantra of Capital Utilization, Operating Agility, and Growth now dominates the halls of Finance.  Pretty nice contrast to the past 5+ years of cost-cutting to survive.

Peter

A Poster Child for Platforms – Amazon in the Enterprise

A Poster Child for Platforms – Amazon in the Enterprise

 

I received a good amount of feedback on my last post about how platforms make the world go round – more than usual.  Thanks for the comments.

That post prominently applauded the impact felt by the success of Salesforce.com in paving the way for enterprises to recognize the opportunity to rethink and redesign how business processes are served.  I also gave a nod to the fact that the business principle that underlies platform-based operations is cascading across many other front-office, mid-office, and back-office disciplines.

Well, it’s appropriate for me to tip my hat to another of the trailblazers in this transformation from legacy-laden to platform-nimble:  Amazon.com. 

Most of us might think foremost of books and online retailing when we hear the name Amazon.  Increasingly, businesses are recognizing Amazon for Amazon Web Services (AWS) as a leader in provisioning compute/storage infrastructure services – the platform for computing capacity.

Yet, Amazon has embraced and promoted the notion of platforms so thoroughly that it prevails in virtually everything that they do.  It’s how the leadership think about the consumer, the access to the consumer, and the ongoing relationship with the consumer.  Ditto for the enterprise. 

My colleague John Rossman just published a fascinating book called The Amazon Way. 

John’s perspectives are also published via his blog at  http://on-amzn.com/

A Business Week interview with John is also fascinating.

John and I frequently compare notes on the profound changes we see in businesses of all sizes and forms.  John is fond of telling the story of FBA – Fulfillment by Amazon – as one of the more successful distribution “as a service” platforms that is helping to drive efficiencies for so many businesses.

In a recent meeting with a CIO, just after AWS had made one of its recent dramatic price adjustments for its IaaS services, I was asked: "What are we supposed to do with our existing ITO agreements when the market for those services is so highly variable?"  Indeed ... platforms deliver agility at an entirely new scale and pace.

If you think that Amazon has revolutionized retailing, just wait to see what it is planning for the enterprise.  John’s insights give a sense to the genuine conviction that Amazon’s leaders hold for platform-based business models.

Peter

Platforms Make the World Go Round

Remember when the phrase “Operating Model” was commonly interpreted to be a clever way to discuss “organizational structure”?  Indeed, it wasn’t unusual for the Operating Model of a business to be expressed via an Org Chart and a RACI matrix.  (For the uninitiated, RACI is an acronym and equates to “decision rights”.)

I’ve been observing recently that when I speak with a company and the topic of Operating Model arises, we inevitably go down a different path of conversation.  The most prominent word in those conversations?  Platform.

In the world of business, the term “Platform” has come to refer to the idyllic state of broad, ubiquitous relevance for conducting commerce.  It’s the way that machines interact seamlessly to knit together complex processes by bringing together tasks performance by various parties. 

Platforms infer a high degree of automation and consistency of execution.  They are launching points for doing other things, the foundation from which activity yields value.

Once a business adopts a platform, it tends to define business processes – the protocols through which work occurs – around the platform’s features and functionality.

Salesforce.com is a Platform.  It’s hard to escape or ignore the profound impact that Salesforce.com has delivered to enterprise strategies and their Operating models.

Ease of implementation, ease of use, ease of interoperability … all virtues of frictionless operation.  Not the same emotions as consumer experiences, but emotional attachment nonetheless.

In the world of Business Process Outsourcing, platforms are the central point of demarcation between the players and the pretenders.  I see this to be true in the strategies of major companies, and even the mid-market.

Yesterday, BPO providers delivered services using the Client’s systems and processes.  Value was harvested by improving the processes through repeated execution and refinement, and lower cost of labor. 

Today, Clients are commonly quizzing their incumbent and prospective BPO providers with the core question:  “What is your platform strategy for your services?”  Expressed a bit differently, this really implies: how do you think you will be relevant to me over time?

I am struck by the wide variability that exists across BPO providers in answering this central question.  Most commonly, there is a sense that the Client has a “right answer” in mind when the question is posed.  You can see the shuffling of proverbial feet when a BPO provider seeks to articulate a direction with confidence.  This is the moment of truth, the blink that implies “we can be all things to all people” that erodes confidence (and interest) in a flash.

Players in the world of platform-based Operating Models need to market themselves differently, sell differently, contract differently, and service differently. 
 

Pretenders need not apply.

Peter

Target Operating Models - Continuous Refinement

One of the more commonly used terms in the sphere of enterprise business process and IT operations is “target operating model.”  In my opinion, one of the better explanations of an operating model was published in a 2008 Harvard Business Review paper entitled “Define Your Operating Model”.

That article defined an operating model as driving the design of the execution of a business strategy.  Thus, the operating model represents choices about what strategies are going to be supported.  The article goes on to build the case that business process standardization and integration are the two seminal dimensions of an operating model.

When companies consider the merits of outsourcing or organizing for shared services operations, they typically look to enable and accelerate the central operating model of the business.  Thus, the strategy for sourcing of services represents the “how” and not the “what” of an operating model.
The operating model concept requires that management put a stake in the ground and declare which business processes will distinguish the company from its competitors.  It’s a holistic articulation of how the business is meant to operate.

In my experience, the refresh of a company’s operating model has typically occurred only in the context of substantial change.  New leadership, new product/service offerings, or new competitive threats have been the impetus for material adjustments to the operating model.  Those changes, in turn, drive adjustments to the services sourcing strategies for front-, middle-, and back-office functions.

Because changes to the operating model happened so infrequently, companies rarely developed the internal competency to drive changes throughout the services ecosystem.  That reality spurred demand for specialized management consultants who are engaged to design the change programs to bring new operating models to reality.  These were expensive and time-consuming undertakings.

Consider the environment of today, however.  The pace of change in virtually every industry’s competitive landscape, and through technological innovations, requires that companies review and refresh their operating models much more frequently.  Innovations in mobility, for example, are one example of an impetus to reconsider how a company plans to serve its markets and enable its employees.  Those changes often lead to substantive adjustment to the operating model.  Further, the services architecture – how internal and external service providers are organized and aligned to the strategy – must similarly be adjusted.

And, the principles of “As a Service” business operations lead companies to reconsider whether build/maintain should be supplanted with subscribe/operate.  New skills and planning practices are emerging to own the responsibility for stewardship of the operating model, and alignment of the services resources employed across the business.

The name of the game is agility, and most companies seek to employ capabilities that can flex with the needs of the business at a pace that is much more dynamic than that which yesterday’s services sourcing techniques provided.  Long-term commitments are fading in favor of service models that can turn with the refresh of operating models. 

These are some of the reasons that companies in the ITO/BPO industry are challenged to redefine their own operating models to ensure continued relevance as their markets seek to leverage best-in-class services without undue drag on the imperative to adjust operating models over time.

Buyers are buying differently, and from different providers.  Providers are selling and delivering differently as well.  All driven by a more frequent, nearly continuous, refinement of operating models. Moving targets, indeed.

Peter

The Art of Layered Multi-Sourcing

It wasn’t too long ago that the term “multi-sourcing” meant that a company elected to assign responsibility to multiple providers for side-by-side responsibility for discrete service categories.  One provider for infrastructure operations, another one for applications support services, a third for customer care, and maybe a fourth for a business process like HR or F&A.

Commonly, these strategies were directed by a “vendor management” function that reported into Supply Chain or, more commonly, into a Shared Services organization.

The prevailing logic held that this sort of sourcing strategy avoided undue reliance on any one provider, and promoted a competitive tension that kept the providers on their toes. 

This side-by-side multi-sourcing still allocated unique responsibility for individual business support functions to unique providers, it’s just that no one provider had too much of the spend.  This meant that when a major issue arose, such as severe service breakdowns, performance irregularities, or the like, a “big event” resolution was required to introduce a course correction.

Alas, that was one of the benefits of having a vendor management office – to facilitate the interventions that called the parties to the table to work through the root causes and haggle over the right resolution.

The world had order to it.  Right?

Fast-forward to the emerging trend for “layered multi-sourcing”.  I don’t know whether that term will stick, but it’s the best that I can come up with to define what I am sensing as the progressive approach that companies are taking to deal with the frustration of “big event” resolution to service issues, and to promote true best-in-class performance.

Layered multi-sourcing moves beyond the side-by-side framework.  It embraces having multiple providers of common services.  Moving a piece of work to one provider over the other will be based on factors that are determined in real-time.  Spot-pricing.  Immediate Service Quality measures.  Contextual factors.

Does the processing of a workload today need to be performed by the same service provider who did that work last week?  Not always.  Think about this in the context of shopping for a hotel room.  Most of us select a hotel “service provider” based on the terms and factors associated with the immediate need, not based on having signed a 7-year contract for access to hotel rooms.  Pricing, location, past experience, loyalty rewards, rating of other customers … these all factor into our decision to choose one over another.

Users of Uber will recognize the power of ordering up a car service based on time of need, location, rating of the driver, type of car, etc.  Corporate business support processes can be provisioned similarly.

The implications are many, but one should be obvious: companies, and their approaches towards vendor management, will be increasing the number of providers with which they deal.  This is a reversal of the trend towards having a smaller number of larger service providers.  With layered multi-sourcing, those providers with best-in-class performance can find a place at the table.

Clients win by reaping the benefits of acquiring defined services when and where and how they are needed, avoiding the big bets of committing to providers in times of uncertain demand profiles or service quality experiences.  The price: companies need to rethink their architecture for engaging more providers in different ways, and must adopt a more progressive approach to governing this model.

It’s not vendor management.  It’s service management.  And, it follows the principles of category-based strategies for provisioning the right capacity in the right place, at the right cost, to meet the needs of a dynamic business.

And the Economic Game Planning gets more complex for everyone.

Peter

The Lost Art of Economic Game Planning

As I speak with outsourcing service providers and their Clients, I tend to look for points of similarity and difference.  That’s one way that I try to deduce the trends and find the nuances worthy of greater inspection.  I am finding that there are more points of similarity than uniqueness across the ITO and BPO provider community.

One particular characteristic that I’ve found to be prevalent is the lack of “economic game plans” for existing outsourcing arrangements.

It wasn’t too long ago that this art was central to the Account Planning techniques of most of the major service providers.  In the best of situations, the Economic Game Plan was a document that was openly shared with the Client.

The elements of the EGP aren’t especially complicated or obscure.  They include:

Ø  Volume forecasts for contracted services

Ø  Cost transformation projections to yield efficiencies

Ø  New service projections – timing, pricing, and volumes

By reviewing these metrics between and among the provider and Client, both parties were able to minimize surprises and align expectations.  It was also the forum for candidly discussing changes to volumes for future periods – enabling better cost and revenue forecasting by both parties.

Lacking these open conversations, a Client might be left wondering why the service provider is taking certain actions … whether those action are to reduce costs or promote new sources of revenue.

Conversely, if the service provider is planning and acting without the benefit of alignment with the Client, the guesswork may yield disappointing results.

I’m not quite sure why this technique has faded from the management toolkit.  There once was a day when Clients insisted on the transparency and, quite frankly, the providers rejoiced in the opportunity to receive feedback on their plans.

Without bilateral EGPs, each party is left to surmise what the other is intending.  That’s not a healthy situation, and rarely does it come to pass that both are correct.

To be fair, a few service providers tell me that this discipline is central to their management models.  But, I’m not convinced that their Clients see the situation in the same light.

Peter

Are Your Outsourcing Relationships "Fit for Purpose" in the Age of "As a Service"?

Continuing my theme of bridging from one blog post to the next … and being a fan of “top ten lists” … I thought that I would offer my perception on the most important questions that Supply Chain executives should be asking of their outsourcing providers.

I direct this towards Supply Chain because of the central role these executives serve in connecting business units, corporate functions, and IT when it comes to contracting for outside services. That said, the questions I offer here can be equally asked by the CIO, CHRO, CFO, or business unit executives. 

In all cases, I am addressing the central question of whether or not incumbent service providers, or prospective service providers, are conforming to the principles of “As a Service” business operations.  In my experience, a candid assessment against these criteria will challenge the incumbent ITO/BPO provider community to show well.

1. Is capacity provisioned dynamically? Does the provider detect and respond to incremental/decremented demand through automation and in accordance with pre-determined rule sets?  If the SLAs deflect accountability due to the Client not having answered a question not yet asked … that’s not “As a Service.”
2. Are the services multi-tenant? Is the provider serving different customers from a shared hardware/ software/staffing instance?  Hint: if you’re paying based on effort, the answer is no.
3. Is scalability truly elastic?  Is the provider’s functionality sustained regardless of transaction volumes?  If the Client is asked to pay in advance for added capacity … including the capital assets on which the work is reliant … that’s a red flag. 
4. Are the services modular?  Does the provider deliver the ability to scale different components based on the nature of requests each component receives?  And, can the Client substitute providers with ease (perhaps even at the level of transactional demand)?
5. Is Meta Data – intelligence about the services delivered – part of the value to the Client? Information regarding the usage/performance of the service should enable the Client to make informed decisions about their business.  The Provider should not hold this information hostage.
6. Are the services secure – at the level of transaction, and operating resilience?  Assurance should be proven that all transactions are kept proprietary to each designated customer.  Superficial answers around encryption should be explored thoroughly.
7. Are there defined and automated workflow interfaces?  Defined interfaces, often referred to as APIs, should exist for interoperability with other enterprise business systems/processes.  Ideally, these APIs will be “open” to the Client’s development community (including other third-party providers).
8. Are the services readily customizable? The Client’s business planning experts should be equipped and empowered for data modeling, UI workflows, integration with legacy systems, etc.
9. Are there objective Service Quality commitments? Contracted services should be defined by objective measures of accuracy, performance, and effectiveness. Interoperable measures of service quality (between adjacent processes) should be actively enabled.
10. Is the pricing based on consumption that conforms to contracted levels of quality? Customers pay for units of service consumed, but only as those meet agreed levels of quality/accuracy (ideally measured in real time).  It’s the obligation of the service provider to track this and proactively report.

As one considers the roster of incumbent service providers, I find that it’s common for many of these questions to yield a “No” answer – and lead to a decision around what to do about these facts.  Any contracts for “commodity” IT services or staff-augmentation BPO or applications support are particularly attractive for review.

A common filter that is implied through this list is:  are all of the assets related to the provision of the contracted service under the purview of the service provider?  I find that most companies fail this test, having retained capital assets or licenses for tools, thus giving the relationship a decidedly non-Service profile.

Contracting best practices are applying these criteria to progressive strategies for engaging “As a Service” partners.  Alternatively, the next stage for some incumbent relationship may be to implement a platform-based “As a Service” network of best-in-class platforms, exiting long-standing relationships that have not evolved to the point of being truly “As a Service.”

More on that approach to come …

Peter