The Kraft of Outsourcing: Learnings from Lee Coulter (Part III)

Lee CoulterAnd finally… the last tranche of our three-part interview with Kraft’s Lee Coulter. Here’s Lee’s take on attributes service providers need to demonstrate, and some advice for budding sourcing executives today…

PF: Lee, when evaluating outsourcing service providers today, what attributes should companies look for? What should they try to avoid?

LC: That is a really big question and not one I am sure I can answer in less than ten pages. Every engagement is different, and the basic dimensions of suitability are: service scope, service quality, service cost, cultural match, the leadership teams, partnership capability, and risk. Assuming that you have providers capable of doing the job and meeting the objectives, then it is about the team and the commitment to true partnership (a topic for another day). These two things lead to a measure I use… confidence. So you would score the providers

based on their claims and statements and commitments to perform, then go back and add a factor based on your collective confidence that the all of the commitments would come to pass as committed.

The ‘what to avoid’ question is easier. I look to avoid what I call “irrational exuberance”. Those are $50 words that really just mean that a provider is not truthfully representing the realities of doing this often very difficult work and works to assure the client that it’s all going to work and they are good at all of it. No provider is good at all of it, and there will be issues. It is really important to me that this dialog be about how good the group is at dealing with surprises because they will arise.

PF: And finally – you have had a tremendously successful rise to prominence in the outsourcing industry over the last decade. What advice would you impart to ambitious operations executives today hoping to achieve success, especially in light of the economy? Do you see the role of the senior outsourcing executive on the buy-side set-up to win or fail in most of today’s multinationals?

LC: The advice I give others is to always have a strategy first. Shared services and BPO are not by themselves strategies. They are enablers of strategies that help drive value. It is important to recognize as well that value is an equation. It is not simply the best service or the lowest cost. Value is the ratio of the service expectation divided by the cost. In this world of services, the focus has to be on the ratio or the value in a service. Any shared service or BPO effort that is not driven within a greater functional or corporate strategy is going to have a tough time of it. SS and BPO involve a lot of change, and to appeal to the people, you must have a grander strategy that inspires people to be more ready for change.

Along with a strategy, create an environment that gives your company the genuine permission to demand that they be served by the highest value provider of services. Make it okay for all parts of the business to question the services, costs, quality, and comparability of all of the service providers that serve the company. When there is freedom to question what you have today and compare it against the world of other internal and external groups that do similar work, amazing things become possible. At GE I learned to take the best ideas (not patented or copyrighted of course!) proudly from anywhere and use them. There are great shared services, captives, assisted captives, and outsource service providers out there today doing fantastic work that can benefit your company. The key is creating a ready and receptive client at the same time you lead steady stream of improvements that take you up the value spectrum. Finally, the buy-side outsourcing executive has their own fate in their hands. Done well, shared services and outsourcing can reduce capital, improve cash flow, reduce cost, variable-ize traditionally fixed cost services, improve speed to market, and deliver transformation in non-core areas that can translate into a cumulative competitive advantage. Done poorly, organizations can be damaged by trying to do too much, too fast or by trying to skip essential steps where critical behaviors are learned.

PF: Lee – thanks so much for your time with us, I know many of our readers will enjoy hearing your views.

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One Comment

  1. Vinnie Mirchandani
    Posted June 1, 2009 at 9:48 am | Permalink

    Phil,

    I have enjoyed the interview with Lee.

    Slightly different POV from Lee on innovation though. There is little innovation from established, larger SIs and outsourcers because they invest less than 2% on R&D (even less really because even that is in things like solution centers which are more marketing that R&D or methodologies to keep some consistency in their practices ).Also majority of their revenue stream comes from large sw, hw and telecom vendors who themselves have not been innovating. So their revenues from SaaS, clouds, VoIP, virtualization, telemetry, mobility etc is small compared to traditional ERP, older data center, desk top, legacy apps support revenue streams.

    You cannot squeeze blood from a turnip – quit expecting innovation from majority of larger outsourcers. Find a way to shave 20-30-40% of their fees for their aging services and spend those savings on innovation. And bring in new generation SaaS SIs and cloud providers. That breaks the vendor consolidation mindset of many sourcing execs, but that’s what needs to happen.

    Vinnie Mirchandani

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