Strategie di Innovazione dei Processi e Commercio

Outsourcing & Offshoring

Strategie di Innovazione dei Processi e Commercio ElettronicoFacoltà di Economia - Università degli Studi di Bergamo

Alberto [email protected]

Outsourcing, Co-sourcing, In-sourcing, Off-shoring:Specializzazione e Riconfigurazione dell’Impresa

3Alberto Sportoletti – Strategie di Innovazione dei Processi

Consumers Selectively Trade Up and Down

Gro

wth

Historical Demand

Emerging Demand

Price Positioning

Source: Company Annual Reports; OneSource; Silverstein, Michael J. and Fiske, Neil, “Trading Up: The New American Luxury,” 2003

Consumers are trading both up and down within categories, demanding differentiated value from businesses

3-Year Sales CAGR 99/02

Consumers seek

“good enough”

quality at rock-

bottom prices

when they

perceive no

differentiated

value

Consumers are

willing to pay

large premiums

for “new luxury”

brands when

they deliver

differentiated

value

Autos

Apparel

Grocery

Kia 24.8%

TJX 10.9%

Costco 12.2%

Chrysler -4.1%

Limited -4.6%

Albertson’s -1.7%

Mercedes C Class 10.6%

French Connection 24.4%

Whole Foods 21.7%


In particular, the market is increasingly characterized by bifurcation between mass and targeted propositions

Polarization in the Consumer Marketplace

Competitive Spectrum

“Bell Curves”

“Well Curves”

Mass Targeted

Industry competitors must

have highly focused, relevant

value propositions to grow in a world

of extremes.

Mega-players are rapidly capturing dominant market share by

delivering “good enough ” value at very low prices.

Consumers are seeking to maximize their buying power for basic goods

with low emotional investment.

Differentiated specialists are building profitable, high-growth niches by

delivering unique, relevant value to targeted groups of consumers.

Consumers are seeking to maximize “personal value ” when purchasing

goods with high emotional importance.

Gro

wth

and

pe

rcei

ved

valu

e


Polarization consequencies

A clear positioning in one of the two areas will be crucial:

• in the “commodities” area, developing an efficiency/coststrategy

• in the “personal value” area, developing strategiesbased on brand and/or luxury segment for consumer products or based on innovation and/or niches forservices and B2B


The new strategic imperative

Western companies, due to market polarization and tough competition of emerging countries in costs/prices, have to understand that theircompetitive advantage can come mainly from theirinnovation capability (eventually sustained by de-localizations actions)


Innovation in the Value Chain/Business Architecture

Innovating the position/role in the Business Value Chain

or….

Innovating just the Supply Chain

or….

Innovating the Enterprise Architecture/Configuration Approach

The specialized “on demand” enterprise:A fundamental redesign of firms and industries


CEOs recognize that they must make simultaneous step-change performance increases across three key

imperatives

In a world with intensifying competition, companies must continuously innovate and provide differentiated offeringsto grow their business

Given increasingly uncertain and rapidly-changing markets, firms must become more adaptive to realize new opportunities and eliminate underperformance

Even with the progress made in recent years, leaders believe they must find additional ways to decrease costs and maximize productivity

Two-thirds of CEOs indicate that cost reduction will remain a major focus area , making it a not-too-distant second place to sales growth

CEOs find that growth can come by increasing the customer voice in product development while reducing cycle time

Over 64% of CEOs globally believe new products and services will lead their enterprise’s growth

Source: IBM “Global CEO Study 2004”, IBM Institute for Business Value

Responsiveness Efficiency

Implication

CEOPerspective

Differentiation

ImperativesCEOs need to make step-changing performance breakthroughs in three critical areas:


The need of Specialization of Enterprises

The Specialized Enterprise Supports the Business Imperatives

Source: IBM Institute for Business Value

Specialized enterprisesenhance market differentiation by focusing management time, talent and capital investment on the selected critical components that matter most to their specific strategies

Specialized enterprisesdynamically evolve their business models in response to changing market requirements by organizing as a network of internal and external loosely-coupled specialists

Specialized enterprisesbring together similar business activities from across their organizations as components in order to exploit economies of scale and expertise, and gain benefits from best-in-class partners in other areas

Responsive EfficientDifferentiated

Executive Summary #14


By 2010, the world’s most successful firms will be “specialized enterprises” focusing on a few critical components

Enterprise Optimized

Business Unit

Optimized

External SpecializationInternally Integrated Industry Networked

Inte

rnal

Spe

cial

izat

ion

Silo 1

ExternalPartnerSilo 2

Silo 3

Silo 1

Silo 2

Silo 3

Specialized EnterpriseComponentized Enterprise

Networked EnterpriseTraditional Enterprise

Business Functions Business Functions

Business Components Business Components



The specialized enterprise leverages a flexible, networked design that is based on excellence in all parts of its business


“Specialized Enterprise”A company organized into components that delivers b est-in-class performance

through internal excellence and external partnershi ps

� Components are individual business modules that play a specifically designed role within the enterprise ecosystem

� Each component contains people, activities and supporting technology

� The inputs and outputs of a components are largely standardized

� These components collaborate and integrate seamlessly with each other using agreed upon cost and service levels

� Each component may play a significant or subordinate role in differentiating the company’s strategy

Business Components



A Global Connectivity Platform reduces transaction costs and serves as the foundation for internal and external specialization


Overview

Fall in Transaction Costs

Rise of Specialization

Internal Specialization External SpecializationInternal specialists combine the advantages of

centralized function (economies of scale, standardization for improvement) with the benefits

of decentralization (flexibility, accountability)

Firms can profit from efficiencies and expertise of external specialists while focusing on

capabilities that make themselves external specialists in their area

CommunicationNetworks

InformationTechnology

OpenStandards

Improved connectivity via broadband / wireless

Enhanced IT functionality and speed with reduced cost

Modularized vendor products with fewer proprietary solutions

As a result of the fall in transaction costs, succe ssful enterprises are optimizing their businesses to include internal and external s pecialization of business activities

Emergence of a Global Connectivity Platform

The Global Connectivity Platform substantially reduces the transaction costs of interconnecting business activities as firms can search, contract and coordinate their operations with

increasing ease and lower costs


Over the last two decades, businesses have migrated the focus of their optimization efforts


1970 1990 20001980 2010

Timeline of Internal Specialization

Stage 2: Processes Optimized

Stage 3: Enterprise Optimized

Stage 1: Functions Optimized� “Strategic Business Unit”, “Portfolio Management”� Business matrix� Product portfolio analysis� Best-in-class, end-to-end strategies

� “Business Process Reengineering”� New technology capabilities drive organizational change� Complex business systems such as SCM, ERP, CRM� Six Sigma, Total Quality Management (TQM)� Lean Manufacturing, ISO 9000

� Focus on strategic business capabilities� Centralization of back-office functions (e.g., procurement,

finance, IT and HR)� Adaptive organizations (Business Components, new

value chains)

On DemandEconomy


To make enterprise optimization practical, firms should embrace a design constructed of business components

“Componentized Enterprise”� A business design that aggregates business activiti es into cohesive and loosely-coupled

components that can be shared across a firm

� The design allows an organization to expand and evo lve without increasing complexity, while reducing risk, driving business performance, boosting productivity, controlling costs, and improving capital efficiency and financial pred ictability

Source: IBM Business Consulting Services

Business Components

Componentized Enterprise

“Business Component”

� An individual business module that contains similar activities supported by appropriate assets, such as people and technology

� The component serves a unique purpose and could, in principle, operate as an independent entity that may be internally or externally sourced


Early stage business designs do not permit optimization at the activity level and create complexity across the firm

Illustration of Internal Specialization

Stage 1:Business Unit Optimized

Stage 2:Process Optimized

Stage 3:Enterprise Optimized


� Duplication of activities is minimized,key activities are virtually centralized into a discrete business area (i.e., a component)

� The enterprise focuses on the empowerment of strategic business capabilities (i.e.business components)

� The enterprise has evolved its structure by centralizing activities within process centers that perform standardized activities

� Similar centralization, often managed virtually, occurs opportunistically in other parts of the value chain

� Activities are owned and operated by three distinct business units within the same enterprise

� In the extreme case of business unit optimization, each unit performs the same activities with no coordination or knowledge sharing

Record & Verify Info Center

Business Components

Silo 1

Silo 2

Silo 3

Business Functions

Process Centers

Silo 1

Silo 2

Silo 3


Phase 3: Industry Networked

� The enterprise partners with many external players

� The industry value chain is largely disaggregated and operated by experts in those functions

Phase 1: Internally Integrated

� The firm integrates all functions of the industry value chain

� Business unit silos are the dominant organizational structure

Phase 2: Strategically Partnered

� The firm works closely with a few external providers that support key pieces of the industry value chain

Integration is no longer efficient – firms can create value by leveraging industry networks and focusing on competencies

Illustration of External Specialization


ExternalPartner(s)

Standardized ConnectivityStandardized Connectivity

Silo 1

Silo 2

Silo 3

Proprietary Connectivity

Silo 1

Silo 2

Silo 3

ExternalPartner

Silo 1

Silo 2

Silo 3

ExternalPartner

Business Unit Silo 1



Hardwired ConnectivityHardwired Connectivity


The increasing acceptance of standards has enabled firms to specialize within the value chain and led to industry networks

1970 1990 20001980 2010

Timeline of External Specialization

Phase 1: Internally Integrated

� Ownership of adjacentareas of the value chain

� Emphasis on ensuring quality inputs and distribution

� Proprietary standards for manual and electronic communication within the enterprise (e.g., mainframe)

Phase 2:Strategically Partnered

� Initial specialization within the value chain

� Use of external partners to provide non-core activities

� Divestiture of non-core functional groups

� Emerging standards for intra-enterprise technology and communication (e.g., TCP/IP, Client Server)

Phase 3:Industry Networked

� Concentration on core activities and orchestrationof networked value chain

� Emergence of ecosystems around major players

� Niche players and value chain specialists emerge

� Open standards based on common technology and communications protocols (e.g., XML, Linux, JBOSS)


On DemandEconomy


Most companies today have a blended process optimized and partnered model and now need to decide where to go

Enterprise Optimized

Process Optimized

Business Unit

Optimized

Strategically Partnered

Silo 1

ExternalPartner

ExternalPartnerSilo 2

Silo 3

Silo 1

Silo 2

Silo 3

Silo 1

Silo 2

Silo 3

Internally Integrated Industry Networked

Business Components Business Components

Specialized EnterpriseComponentized Enterprise

Networked EnterpriseTraditional Enterprise

Business Functions Business Functions


External Specialization

Inte

rnal

Spe

cial

izat

ion


Record & Verify Info CenterProcess

Centers

Silo 1

Silo 2

Silo 3

Most enterprisesare positioned

within this spaceand have modest

levels of internaland external

specialization


Every industry has been moving down the path of external specialization with several entering the networked phase

Industries Are in Different Phases of External Spec ialization


Strategically Partnered Industry NetworkedInternally Integrated

Financial Services

Banking Banking *

Insurance Insurance

Financial Markets Financial Markets

CommunicationsTelecom Telecom

Media & Entertainment Media & Entertainment

Energy & Utilities Energy & Utilities

Consumer Products Consumer Products

DistributionRetail Retail

Life & Pharma Life & Pharma

Travel & Transp Travel & Transp

Public Sector

Industrial

Automotive Automotive *

Aerospace & Defense Aerospace & Defense

Chemical & Petrol Chemical & Petroleum

Electronics Electronics *

Forest & Paper Forest & Paper

Industrial ProductsIndustrial Products

Healthcare Healthcare

Profiled Industry

External Specialization Level - 1983External Specialization Level - 2003

*

KEY


Firms assess each component to determine where and how it should be managed


SupportComponent

StrategicComponent

Manage to meet the needs of strategic

components

Example: Risk Management

Invest and expand to gain component

advantages

Example: Product Ideation

Use multiple specialists that have a low cost of

entry and service

Example: Payroll

Ensure that partners meet critical business

requirements

Example: Call Center

Decision Matrix of Business Components

ExternalSpecialization

Non-Differentiating Differentiating

� Seeks performance excellence in all four types of business components

� Optimizes management of internally managed components and partnerships with external business components

� By choosing to focus and invest in the truly strategic components, the specialized enterprise supports the business by leveraging industry networks of best-in-class specialists

� Forms a network of excellence with continually improving value propositions as partners grow and improve their specialization

Specialized Enterprise

Internal Specialization

UtilityComponent

PartnerComponent



Over the next five years, firms will internally focus on strategic components by leveraging more external components

Initial Business Specialized Enterprise

Firms should evaluate component performance to determine where the greatest value is achieved

The decline in transaction costs increases the number of opportunities for external specialization

Simultaneously, external specialists build scale and further expand their absolute advantage

Absolute Advantage

Evolving the Composition of Business Components


Support Strategic

Utility Partner

Support Strategic

Utility Partner








Business Transformation:CBM approach(Component Business Modeling)


Strategy

Tactics

Execution

ConsumerRelationship

CustomerRelationship

Manufacturing Supply Chain &Distribution

BusinessAdministration

Category/Brand Strategy

Brand P&L Management

Matching Supply and Demand

Marketing Development & Effectiveness

Product Ideation

Marketing Execution

Product Directory

Category/Brand Planning

Assessing Customer Satisfaction

Customer Insights

Account Management

Value-Added Services

Customer Account Servicing

Retail Marketing Execution

Customer Directory

Manufacturing Strategy

Supplier Relationship Management

Production and Materials Planning

Manufacturing Oversight

Supplier Control

Make Products

Plant Inventory Management

Manufacturing Procurement

Assemble/Pkg. Products

Distribution Oversight

Distribution Center Operations

Transportation Resources

En route Inventory Management

In-bound Logistics

Corporate Strategy

Alliance Management

Line of Business Planning

Business Performance Management

External Market Analysis

Organization and Process Design

Legal and Regulatory Compliance

Treasury and Risk Management

Facilities and Equipment Management

IT Systems and Operations

HR Administration

Customer Relationship Strategy

Customer Relationship Planning

Supply Chain Strategy

Out-bound Logistics

Accounting and GL

Indirect Procurement

Corporate Planning

Concept/Product Testing

Product Management

Consumer ServiceIn-store Inventory Mgmt

First, create a componentized view of the business

Next, decide what’s differentiatingand what is simply operating

Then, analyze costs

Finally, prioritize your transformation initiatives

2

1

3

4

“CBM” Transformation Approach


CBM helps to respond to a number of business issues…

Strategy

Tactics

Execution

Illustrative CPG Company

ConsumerRelationship

CustomerRelationship

Manufacturing Supply Chain &Distribution

BusinessAdministration





Product Ideation

Marketing Execution

Product Directory



Customer Insights

Account Management




Customer Directory





Supplier Control

Make Products








In-bound Logistics

Corporate Strategy

Alliance Management









HR Administration




Supply Chain Planning

Out-bound Logistics

Accounting and GL


Corporate Planning


Product Development

Product Management


The CBM can be used to identify which components in a business are strategic and enable outsourcing/ partnering conversations




Marketing Development &Effectiveness

Product Ideation

Marketing Execution

Product Directory



Customer Insights

Account Management




Customer Directory





Supplier Control

Make Products








In-bound Logistics

Corporate Strategy

Alliance Management









HR Administration





Out-bound Logistics

Accounting and GL


Corporate Planning


Product Development

Product Management


Strategic differentiation

Strategic View

Competitive parity

Basic





Product Ideation

Marketing Execution

Product Directory



Customer Insights

Account Management




Customer Directory





Supplier Control

Make Products








In-bound Logistics

Corporate Strategy

Alliance Management









HR Administration





Out-boundLogistics

Accounting and GL


Corporate Planning


Product Development

Product Management


High Capital Area

High Cost & Capital Area

Financial View

High Cost Area

The CBM can be used to identify high cost and capital areas are in the organization.Activity based costing exercises can allocate cost and capital, revenues can only be approximated





Product Ideation

Marketing Execution

Product Directory



Customer Insights

Account Management




Customer Directory





Supplier Control

Make Products








In-bound Logistics

Corporate Strategy

Alliance Management









HR Administration





Out-bound Logistics

Accounting and GL


Corporate Planning


Product Development

Product Management


Immediate Priority

No Action

Transformational View

Medium Priority

The CBM can be used to help understand the linkage between components to create a prioritized portfolio of transformation initiatives


To address our clients’ business issues, we need to link business and technology

Integrated Response

Business Model

Technology

Business ProcessBusinessIssue

Component Business Model (CBM)

Solution Architecture View

Component Business Model (CBM)

Solution Architecture View (SAV)

CBM + Solution Architecture


Possible actions on selected business component

Degree of Company

Specificity

High

Low

INTERNALIZE

EXTERNALIZE

Optimize Differentiate

“Utilitize” Outsource

Manage internally to meet the needs of the business

Emphasize internally to gain comparative advantage

Use utility partners who provide standardized components with variable pricing

Develop specific contracts with partners who deliver against on demand imperatives

Decision Matrix

Strategic Differentiation

HighLow


Possible actions for “optimizing”

Possible Actions on Components

�Empower competencies

�Business Processes Improvement - Six Sigma Program

�Business Process Reengineering

�Costs reduction program

�Efficiency improvement program

�“Breakthrough Management” on some KPIs

�Change management

�………….

Manage internally to meet

the needs of the business

Optimize


Possible Actions for “Differentiating”

Possible Actions on components

�New products/services development

�Business Process Engineering

�Business Process Reengineering

�Breakthrough in some KPI

�Alliances development

�Insourcing

�…………

Differentiate

Emphasize internally to gain comparative advantage


Possible Actions for “Utilitizing”

Possible Actions on components

�Standardize service levels

�Costs / SLAs trade off analysis

�SLAs agreements

�Benchmarking analysis

�Integrate service providers

�Externalize and empower capabilities

�Develop service performance measurement

�………….

“Utilitize”

Use utility partners who provide standardized

components with variable pricing


Possible Actions for “Outsourcing”

Possible Actions on Components

�Integrate technologies

�IT/AMS Outsourcing

�Business Process Outsourcing

�Business Transformation Outsourcing

�Benchmarking analysis

�Cost / SLA trade off analysis

�SLA agreements

�Develop service performance measurement

�…….

Outsource

Develop specific contracts with partners who deliver

against on demand imperatives

Documents

Strategie di Innovazione dei Processi e Commercio