Three steps to take that will help your organization grow stronger during these difficult times.
by Atul Vashistha
RBS. Dresdner. Merrill Lynch. Citigroup. Lehman Brothers. Bear Stearns. There’s no doubt: Scores of U.S. and European companies, especially those involved in originating, bundling, or investing in risky financial instruments, have fallen on hard times, leading to massive bailouts. We are seeing similar actions in auto and other manufacturing industries spanning from China to Germany to the U.S.
But economic challenges can actually help some enterprises grow stronger. The key? Taking action to position your organization as a leader when the economy recovers.
During the U.S.’ last major downturn, many companies turned to offshore outsourcing to lower costs and realize other gains. Most companies focused on staff augmentation, keeping their offshore arrangements relatively simple and allowing them to easily scale up and down. How will companies change their global services arrangements during this economic downturn? Broadly, there are three steps to weathering—even growing through—the economic downturn.
Step 1: Find your business imperative. What business problems keep you up at night? Clearly, most companies have many. Think about how you would rate the importance of each of the following business needs:
- Reducing costs;
- Lowering internal demand;
- Increasing speed to market; and
- Creating flexible capacity.
For most companies, reducing cost is the key business imperative, particularly because of this economic downturn. But how do you accomplish a reduction in costs? To answer that question, we move on to step 2.
Step 2: Assess your portfolio. If your key business imperative is reducing costs, then your portfolio assessment should focus on the question: Where can I cut costs? This is where services globalization may come in. Begin by analyzing the ease of globalization. Consider:
- Remote operability;
- Skill requirements and availability;
- Business impact;
- Compliance; and
- Risk mitigation.
Step 3: Take operational action. Now that you’ve identified the key imperatives driving your organization (keeping you up at night) and assessed which processes can leverage services globalization to solve those key problems, it’s time for the rubber to meet the road. Here’s where you take the steps to actually follow through on your proposed solutions. It’s where you ask, “What can I do to cut expenses?” and act on the answer.
Of course, the operational action steps open to you will depend on your key imperative and portfolio assessment. Here are some examples of operational levers that you may use to accomplish your services globalization objectives (I’ve also noted the typical payback period for each lever): increase outsourcing portfolio (short); consolidate vendors (short); rationalize your portfolio (long); renegotiate contracts (short); innovate processes (long); implement continuous improvement programs (medium); consolidate delivery center locations (medium); implement shared services (short); cut excess spending (short); develop (or re-develop) a delivery location strategy (medium); improve governance (short); and engage merger and acquisition or divestment activities (long).
I wrote in this magazine last year about the futurized corporation—the company that has leveraged services globalization to a new level. One of its key characteristics is its flexibility; the futurized corporation is capable of taking the operational action steps necessary to adapt to economic cycles.
But a word of caution: Globalization can be fraught with challenges. Under pressure to complete a contract and realize cost savings, companies under duress (like those facing an economic downturn), often bypass critical steps. These skipped steps can create terms, conditions, and prices with negative implications that ripple through the company, during the downturn and beyond.
So while services globalization can allow companies to weather, even grow through, the economic downturn, it still has to be done right. Achieving a return on services globalization requires proactive measures, the right blend of expertise and experience, and a rigorous, tested approach. Yet in the end, organizations that can fully realize their return on services globalization will position themselves to emerge from the downturn as stronger, more competitive organizations