There is only one Lee Coulter. Service providers tremble at the very sound of his name, consultants run for the hills… practitioners flock for advice. And when he isn't performing carpentry or attempting cordon bleu, Lee has the small task of being SVP for Kraft's shared services, where he is a key leader of the firm's corporate transformation program "Organize for Growth". He is responsible for Kraft's IT services, global finance and HR shared service centers, in addition to the firm's BPO activities. He even once threatened to smash up my blackberry.
On a more serious note, Lee has a practical and experienced perspective on how enterprises today should approach global sourcing, and we have enjoyed his exuberance and candor in our buyers' group meetings. Today, we are blessed with the first part of a lengthy interview with Lee, where he is discussing how practitioners should approach global sourcing in this economic climate, how to select and engage the right service partner and how to decipher and execute innovation (yes, I said it) in a global sourcing environment…
PF: Lee, we’ve been through some major developments in the world of global sourcing over the last decade. As a senior operations leader in one of the world’s largest multinationals, what, in your opinion, has worked, and what hasn’t?
LC: Let me start by saying that the global sourcing industry has proven its most basic value proposition, and that is a huge success. There are many skeptics of
this industry, however I’m seeing that they are starting to agree that BPO adds value, and is here to stay. Now within that primary success, there are a few areas that need some attention. I have a top three in terms of growing pains in the industry:
– The global mega deal. Simply put, there is very little truly global scale advantage. In almost every BPO vertical, the synergies stop at regional pairs (by regional, I mean North America (NA), Latin America (LA), European Union (EU), Asia-Pacific (AP), and Central Europe/Middle East/Africa) (CEEMA). There are lots of pairs that you see frequently in BPO: NA-AP, NA-LA, NA-CEMA, EU-CEEMA, etc. It is rare that there is any advantage to including more than two regions either as a client or a provider. All the trends today support a regional best of breed approach. So I would say the global mega deal didn’t work out so well, and the regional best of breed strategy is working pretty well. Now we need to spend some time getting more modular and better at managing the interfaces between providers.
– Multi-client, public utility (MTPU) based services. This has long been a promise of all kinds of BPO services. Generally, companies that have enough scale to benefit from BPO at all, are usually capable of creating single-tenant, dedicated (or private) utility (STDU) based services. While there are exceptions, generally a BPO provider is only capable of the minor scale advantage over the client’s capabilities that comes from running many STDUs for many clients. There are a lot of reasons for why MTPU based services have been difficult, but this is one area that I don’t think has worked so well and I believe it is key to the future of the industry. (btw – I made up the acronyms, but if no one else coined it, they work for me)
– Contracting for successful partnerships. Despite literally thousands of relationships that exist in the BPO industry, the industry as a whole has not cracked the code on how to contract for a successful relationship. It seems there is little science here, and mostly art. If you look at the long term success of BPO relationships (getting completely through the originally intended contract term), it is a bit disappointing. I am certain it’s more about client and provider behavior than anything that is written in the MSA, but I think we should have come farther in being able to predictably create sustainable and satisfying relationships.
PF: We’re clearly at an inflection point in the industry as the fog lifts from this Great Recession. Are companies approaching outsourcing any differently as a consequence? Do you believe companies are investigating more in-house models, namely captives or shared services operations as a result?
LC: I believe there are some basic and unchanging (despite a recession) rules that anyone looking at shared services should consider to make the best delivery model decision. I don’t make a distinction between shared services and BPO. BPO is simply a choice to use an external provider for your delivery model. All the essential components of shared services are present in both models. In BPO, the service agreements and chargeback methods might be more complicated, but aside from that, they are very similar. Regardless of the economic climate, any company should examine process capability, client organizational readiness, short and long term financial goals, level of automation and technology, and risk to make the decision on in-house, captive, modified captive, or outsourcing models.
The limits or thresholds of these key dimensions might change slightly because of the recession, but I don’t think they change the basic questions you need to ask to choose the right answer. I will go one step further by saying that I think there is a natural progression (in-house, captive, modified captive, outsourced) that makes a lot of sense. There are times when skipping a phase is the right thing to do, but generally I recommend anyone looking at shared services get the basics in place as a shared service before looking to turn it over to an external. That doesn’t need to take five years either, but to give yourself the greatest advantage of succeeding in outsourcing, implement a shared service first and move up the sophistication spectrum.
In Part II of this interview, Lee will discuss innovation strategies for global sourcing and service provider management