Contributors

Eternal Vigilance

Successful globalizers know that their oversight doesn’t end once the process has been transferred offshore.
 
By Atul Vashistha
 
In previous columns, we have explored the importance of embracing globalization and the power of globalization to provide transformation in addition to cost reduction. Now we come to the third secret of successful globalizers: adopting a lifecycle approach.
Successful globalizers understand that services globalization is a journey and not just a destination. It requires management of the entire lifecycle and due diligence from the first step of understanding where services globalization fits within the business to managing offshore supplier relationships.
 
Where so many services globalization initiatives fail is in a lack of understanding of services globalization, in picking wrong processes, and in the drop-off of oversight once a supplier is selected and the process is transferred offshore. In reality, the sourcing step is only the third in a crucial four-step process that involves knowledge, planning, sourcing, and managing.
 
In order to successfully engage the lifecycle process, an organization must:
1. Share a belief that planning and lifecycle management are important to long-term success;
2. Believe that a rigorous process, models, and data should drive decision-making; and
3. Develop a long-term roadmap and governance procedures to ensure adherence to the plan.
 
The first phase of the services globalization lifecycle is knowledge. An organization must understand a whole series of components within its process: why it is globalizing services; the differences among supply markets; the different services among globalization models (third-party, captive center, BOT, joint venture); and the risks associated with services globalization.
 
It’s been said before that ignorance is no excuse. It’s also been said that knowledge is power. In services globalization, those adages are not advice: They’re the law.
 
The kind of knowledge an organization might gain in this phase of the services globalization lifecycle concerns supplier locations generally: What are the competitive advantages of each location? What are the centers of excellence? What are the risks?
 
Sourcing to India is no longer the across-the-board best decision. The Philippines, for example, might offer the optimal location for call center operations, while Russia might prove to be optimal for high-level actuarial analysis. An effective understanding of supplier locations will involve knowledge of exogenous factors, catalyst factors, and business environments.
 
How organizations manage risk can determine the success or failure of their engagements. For example, former Lenovo and Nortel CIO Steve Bandrowczak says that the lifecycle approach is particularly important in his  company because of the importance of reducing risk. “We’ve adopted the lifecycle approach because we’re trying to radically reduce our risk. We focus a lot on strategy, on being in the right markets for us, and then making sure that there’s good governance to minimize risk.”
 
But an organization does not have to embark on the knowledge-gaining process alone. (Indeed, if an organization were to try, it would spend years just attempting to reach the manage phase of the lifecycle). Instead, successful globalizers enlist established, experienced, knowledgeable third-party advisors to help educate them about supply locations and suppliers, offshore models, and the risks associated with poorly planned globalization initiatives. Some of the best known firms include TPI, Equaterra, Everest and, of course, Neo Advisory (Formerly neoIT).
 
The second phase of the services globalization lifecycle is planning—developing a services globalization roadmap. An organization must determine if it is ready for services globalization, then determine if the process it plans to globalize is actually ready for that globalization. The organization must also determine when each process will go global and understand, articulate, and account for the total cost of offshoring.
 
The goal of the planning phase is to answer a series of questions: Why will the organization globalize? Should it globalize? What will it globalize? When will it globalize?
 
In answering those questions, an organization creates a blueprint for its services globalization strategy. The tasks involved in accomplishing those goals include some key specifics:
• Assessing the global readiness of current processes within the portfolio;
• Conducting a base-case cost analysis;
• Defining outsourcing and globalization objectives;
• Conducting a strategic evaluation of offshoring options;
•Identifying candidate suppliers and locations; and
• Defining a timeframe.
 
First, the company must analyze its services globalization maturity. Ron Kifer, group VP and CIO of Applied Materials explains, “The lifecycle is on various axes. One axis is based on the idea of globalizing the simple functions first, the more complex ones next, etc. Another axis is doing things that we know how to do—in this particular case, IT, first. BPO might be easier to do, but we don’t know how to do that as an organization, so we are getting there next. What comes first, what comes next, is based on maturity of the processes, maturity of the organization and sponsorship in the organization.”
 
Sometimes even when an organization is ready for services globalization, its processes are not. The third step in the planning phase—a portfolio assessment and analysis—involves determining the readiness of the processes that an organization has identified for potential offshoring.
 
When deciding if a particular process is suitable for globalization, an organization must consider four factors: scale, domain knowledge, maturity, and complexity.
 
Rolling out globalization initiatives in waves is critical, according to Kifer. “The various components that have the potential for globalization are at varying levels of maturity and they take varying levels of time in order to put into place. In some areas it takes more time, for example, to convince the larger organization to globalize,” he explains. Bandrowczak, adds that it’s not a one-shot deal. “It’s not just one wave. Or one wave of waves. As soon as you’re done with the first wave, you start all over again.”
 
The third phase of the services globalization lifecycle is sourcing. An organization must decide on the services globalization model that it believes will work best given its services globalization maturity, the maturity of its prospective suppliers, and the maturity of the process it is globalizing. The organization must consider the implications of sourcing to third-party service providers as well as the implications of building a captive center.
 
The goals of the sourcing phase are also to select a vendor and negotiate a contract that specifies the rules of engagement. The key tasks involved in accomplishing the source phase goals involve a fairly specific sequence:
• Creating requirements documents;
• Conducting a solutioning process with prospective suppliers;
• Enabling suppliers to better understand the client’s business;
• Reviewing and evaluating each supplier’s solution and proposal;
• Conducting due diligence and supporting reverse due diligence; and
• Negotiating a contract with the right terms and conditions.
 
For successful globalizers, the sourcing phase is not just about selecting a supplier. “For FedEx, it’s about flexible global resourcing—how you integrate flexible capacity from the supply-side or the offshore operations into your organization,” says FedEx’s CIO, Rob Carter.
 
The fourth phase of the services globalization lifecycle is management. This is a phase that is applicable not just in the post-contract phase; it plays a role in strategy and sourcing too. While each lifecycle stage is critical, most services globalization engagements fail not because they were improperly sourced or planned but because they were improperly managed.
 
The goals of the management phase include:
1. Providing ongoing contract governance;
2. Providing ongoing program management;
3. Ensuring that performance is in line with quality expectations; and
4. Realizing the strategy and projected benefits.
 
The key tasks involved in accomplishing those goals are:
• Determining the performance impact of the transition;
• Defining and implementing processes for issue and risk management;
• Effecting transition;
• Managing performance, relationships, contracts, resources and finances; and
• Conducting a health check.
 
Successful globalizers also realize that the knowledge, plan, manage and source phases of the lifecycle are not discrete, one-off projects. As Kifer of Applied Materials explains, “One important aspect of the lifecycle approach to globalization is the idea that the core competency of today is the contextual activity of tomorrow. So we’re constantly evaluating our internal organization and deciding over time what is still core, what is still value-added, what still provides a competitive differentiation and refocus our resources on that and move those things that have evolved and matured into contextual activities to our managed services partners. And we know that’s a continual, evolving process, and you have to have a model that recognizes that and accommodates for it.”
 
A unique model being leveraged by Applied Materials is the partnering of a number of supply management functions to Neo Group. While Applied Materials leaders continue to own governance, Neo Group team members manage day-to-day resource management, performance management, contract management, and process discipline management.
 
Atul Vashistha is founder and chairman of Neo Advisory (formerly neoIT), a management consultancy focused on offshore and global sourcing. He can be reached atul@neoIT.com.

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