Globalization 4.x – The Reality of Sourcing the Flat Corporation -- April 2008 (Also appearing in the MBA Tech NewsLink)
In striking contrast to the haze of the future is the clarity of the past. Financial and mortgage markets both domestically and globally continue to be unpredictable coupled with extensive losses – economic, jobs and investor confidence. The precise future direction, outcome, and timing of improvement are still very uncertain. However, the risks and actions of past deeds are never clearer especially when examining the historically laborious arrangement designed with global sourcing providers or more commonly referred to their using nationalistic tendencies as outsourcers.
Let me be very provocative, traditional sourcing practices and their operating arrangements are difficult to manage, govern and modify especially with the socio-economic shifts still playing out on the domestic and world stages. In fact, the results for many layered contractual arrangements result in failure or early separation approximately two-thirds of the time. We’ve all had experiences with information technology or business process third-party sourcing arrangements (i.e., outsourcing) that performed poorly or are consistently acrimonious.
Why? Did the advisor miss the mark? Were the organizational expectations set too high? Was the provider poorly prepared for the responsibility and process accountability? Was the arrangement too restrictive and unyielding in times of dynamic business conditions? Was it the sourcing organization and not the provider that was unprepared for the discipline and rigor needed to manage the operations post transition? Was it all of the aforementioned? Was it none of them?
It is evident in projecting forward, that success can no longer be guaranteed using dogmatic competitive approaches. Competition and success are no longer about organic head-to-head approaches. Tomorrow’s success is about collaboratively assembling or orchestrating operational delivery systems from a virtual base of suppliers, providers and customers. The point–based sourcing organizations / outsourcers have reached diminishing returns. Lastly, to set the proper stage for moving forward and contrary to popular opinion and political sentiments, we are entering not the second iteration of globalization – we are already experiencing the fourth.
The Rationale for Change
Moving forward, it appears the real opportunity for lenders, servicers and providers resides with the creation of principle-based structured arrangements that are flexible yet definitive with escalating accountability and measurements. What is the rationale for new operating agreements and delivery arrangements?
Empirically, it has been shown that the command and control arrangements of the past are often times directly correlated to global sourcing dissatisfaction and subsequent early termination. By not allowing contracts to collaboratively evolve with trust and results, organizations are disadvantaging themselves and their providers.
Historical sourcing arrangements were singularly about labor arbitrage – something offshore-centric advisors and provider organizations still advocate. Progressive providers and sourcing teams recognize that the future is less about shorelines instead of focusing their attention and results on knowledge delivery and process adaptability. Costs are still a factor, but they take on far less prominence for organizations struggling with new consumer models and evolving product offerings.
With the adoption of a lifecycle sourcing approach organizations will be able to promote unique customer offerings while ensuring back-office consistency.
Finally, organizational planners must accept that the fourth generation or iteration of globalization is about the proper balance of cost-effective resources measured against adaptability of arrangements. This change in philosophy is precipitated by shorter product durations, risk avoidance and regulatory compliance -- to name but a few of the knowledge factors that will be influencing customer profitability, selection, and retention.
Creating a “Force Multiplier”
The markets today are not as some have forecast simply about doom, gloom and blame. The market is about finding a new equilibrium or balance and creating sustainable growth opportunities for the permanently changed mortgage foundation. Delivering a set of offerings (i.e., products, services or thought capital) that are relevant to mature and evolving markets demands improved compartmentalization of processes, while leveraging elongated supply chains that are virtually integrated.
Paradoxically as the delivery strategies within the mortgage industry moves increasingly toward efficient electronic interchanges, the need and demand for “virtual” sourcing processes will further push contracts and terms to be less onerous and fear driven. The traditional terms and advisory approaches will be less relevant as we move into the next decade since they were designed for market circumstances that may no longer exist.
Whereas, there are many implications and avenues which cannot be explored in a short article such as this, there are some key questions that must be asked to increase the likelihood of organization success.
Who are the providers that recognize and promote adaptable collaborative relationships? |
First, the determination of who is best suited to fulfill a collaborative global sourcing relationship starts with a comprehensive business framework and measurable objectives. Without operational criteria aligned with business goals, lenders will be overwhelmed with the wide-array of choices, options, and trade-offs. Secondly, while advisory firms often have methodologies to aid with the proper selection of a provider, lenders must be wary of their ability to apply these prescriptive steps to a mortgage industry in an on-going, two year correction. Third, lending executives leading global sourcing initiatives must actively begin the governance of the relationship from the start of sourcing definition efforts – not just after transition or during transformation. |
What are the characteristics of these arrangements? |
The arrangements move well beyond the provider and advisory team advocating offshore solutions. These new arrangements are shoreline agnostic concentrating instead on knowledge, adaptability, and progressive governance. Leveraging techniques and methods across industries, force-multiplier arrangements seek continuous best-in-class operations regardless of who has direct responsibility for delivery. Sounds like a recipe for disaster? |
Where are the challenges in realizing a collaborative structured arrangement? |
There are many and each organization will thrust a unique mixture of culture and tolerance into these operating arrangements. The key balancing requirements will demand a equilibrium between delivery and flexibility, accountability versus responsibility, innovation versus reward, and control against collaboration – all supported by a framework of results, profitability and speed. |
Why haven’t these arrangements been used in the preceding 40 years of global sourcing? |
The two largest factors, in the fundamental shifts we are witnessing, resides with the rise of new wealth nations and global supply chain shifts regarding how process sourcing is accomplished. Spurred by changes in technology and state-sponsored educational systems, the rise of Asia-Pac sourcing enterprises have flourished. Leveraging their status, these organizations have become worldwide providers and consumers of commodities, manufacturing, financial instruments, and innovation. They are no longer solely dependent upon single regions or countries for growth. |
How should organizations approach these collaborative arrangements to ensure best-practices and on-going relevance? |
Now is the time to begin working very aggressively on growth and repositioning for the new markets that will emerge within 4 to 6 months. Moving forward, focus will be primarily on relevant innovations, sourcing “orchestration”, transformations, technology leverage, regulatory compliance, and “speed” of delivery (i.e., product, services, customer retention, lifecycle, process, et al). Furthermore, the shoreline obsession within our industry is not germane – agnostic solutions that span the value chain will be revered and sought after by your customers. |
Remember, the “next’s market” collaborative solutions are no longer about a singular option or company but the collective assembly of unique and adaptable operational solutions – some of which may reside within your competitors. “Capital avoidance” structures will be talked about by “smart” lenders, vendors, and servicers starting in 2009 – you may want to start anticipating the shift. After all, globalization has never been singularly about outsourcing – outsourcing is just a method of sourcing which is part of the wider, fourth iteration of globalization disciplines and delivery.
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As lenders, there is a definite change needed in accepting providers as collaborative partners – not subservient. For sourcing providers, there must be quick action that promotes not just offshore growth, but also domestic expansion that benefits local economies. Bottom line, there must be a moving of both parties and mind sets from the deployment extremes to a more centric approach that improves margins and grows the business.
As it was said once before during times of trials and pain, “if there is going to be an end, then it has to be an end with a purpose.” For the mortgage industry, if we are going to find an end or better yet a new beginning, it must be for a greater purpose then the re-adoption of the dogmatic processes and sourcing techniques that originally contributed to this situation and hampered our ability to innovate.
For 2008 MBA entries, click here