This is the third in a series of an excerpt from the newly published book by Atul Vashistha, Globalization Wisdom: The Seven Secrets of Great Globalizers. Services globalization is a journey and not just a destination; it requires management of the entire lifecycle—from the knowledge phase (understanding the true services globalization opportunity) to the planning phase (developing a services globalization roadmap) and on to the sourcing and management phases.
The third secret of successful globalizers is: Adopt 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 is important to long-term success
2. Believe that a rigorous process, models, and data should drive decision-making
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 why it is globalizing services; understand the different supply markets; understand the different services globalization models (third-party, captive center, BOT, joint venture); and understand the risks associated with services globalization. It’s been said before that ignorance is not a justifiable excuse and that knowledge is power. In services globalization, those adages are law.
The kind of knowledge an organization may 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, may be the optimal location for call center operations, while Russia may 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, Steve Bandrowczak says that the lifecycle approach is particularly important in that 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 tried it would spend years trying to get to 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 ready for 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 the 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 key tasks involved in accomplishing those goals are:
- 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
- Defining a timeframe
First, the company must analyze its services globalization maturity. Ron Kifer at 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 an organization wants to offshore.
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 Ron Kifer, Group VP and CIO of Applied Materials. “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. Former Lenovo CIO, Steve 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 the services globalization model that 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 rules of engagement. The key tasks involved in accomplishing the source phase goals are:
- Creating requirements documents
- Conducting a solutioning process with prospective suppliers
- Enabling suppliers to better understand the clients business
- Reviewing and evaluating each supplier’s solution and proposal
- Conducting due diligence and supporting reverse due diligence
- 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 to not just post-contract but 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
- 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 Ron Kifer, Group VP and CIO at 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.