Companies spend a lot of time constantly evaluating what they are doing in-house versus what they are pushing outside their four walls-as they should. The value creation model should be evaluated on an ongoing basis to ensure that it continues to provide a competitive advantage. There is a raging debate right now as to whether too much has been pushed outside the four walls in chase of lower costs and focusing on core competencies. Many are blaming much of Boeing’s current woes on a too aggressive push on that strategy. Many companies rid themselves of almost all their functions and became focused on mostly design, marketing and final assembly. While we have long advocated a constant evaluation of what a company does, we advise clients to follow a Strategic Portfolio Management approach to determine their “four wall” strategy.
We encourage them to assess their internal functions from a portfolio perspective, with the intent of improving performance, responsiveness, flexibility, and costs. This is done to determine whether to deploy:
- Insourcing
- Consolidation/standardization
- Strategic alliances
- Outsourcing etc.
Strategic Portfolio Management” provides a top-down framework for assessing and realigning functions within an organization in a top down, comprehensive and systematic approach for assessing and realigning those functions.
Let’s use a simple IT example:
There may be a number of Lines of Businesses that the function services
- Human Resources
- Finance
- Accounting
- Supply Chain Management
These businesses each have a set of Stakeholder Value Drivers:
- Improved Service
- Lower Risk
- Increased Responsiveness
- Increased Flexibility
- Lower Costs
The IT function probably has a set of different activities it performs:
- Application Development
- Architecture
- Data Center
- LAN Desktop
- Telecom Network
When we were working with this client, we helped them develop some critical criteris as a leadership team as part of the engagement:
- Performance management
- Cost and economics
- Alignment with business and strategies
- Standardization versus customization
- Time to market
- Access to technology and skills
In addition, they developed some high-level decision principles to help them move rapidly through their decision process and here is a simple example of them. If the function was:
- Strategic/Critical — Keep Close To The Business
- Moderate Potential For Value Enhancement — Evaluate Restructuring
- Strong Potential For Value Recovery — Outsource/Consolidate
And based on a comprehensive Strategic Portfolio management approach, they determined the following:
- Architecture should be insourced or kept in-house because it is too strategic to have it be done outside.
- IT procurement should be standardized across ALL IT functions and locations
- Transaction Processing will be done through a Group Purchasing Organization for scale
- Telecommunications will be outsourced
This is of course not a static approach and should be constantly evaluated to ensure an optimal strategy is in place. This approach helped develop an overall risk profile for each function that significantly accelerated the decision process. Most importantly, it created significant alignment amongst the leadership team that helped the Adoption process and convinced Executive Leadership to support the IT leadership team and their decisions – not an easy feat. This effort was led by the Category Management organization under the leadership of the IT leadership team. One of the things that also helped convince the Executive team was the extremely robust and vigorous process that was deployed when it came to selecting a supplier. For example, for one of the small functions to be outsourced, here is a brief description:
- Assessment criteria were developed to match XYZ risk profile
- Twelve potential suppliers were assessed against six key criteria:
- BPO Experience – Must have relevant process experience or experience in related areas
- Revenue / Staff Growth – Addition of XYZ business should not result in increase of more than 20% of revenues or BPO staff
- Years in Business – Number of years BPO experience, indicates viability/longevity.
- Delivery Locations – Measure of maturity of Supplier’s offshore delivery capability to global customers.
- Management Experience – Management team with industry experience
- Prior Experience – Core Team experience working with Suppliers
- Three top suppliers were selected
All Category Management organizations should be helping lead their stakeholder organizations through a Strategic Portfolio Management assessment and refreshing it on a periodic basis.
