Rethinking the Off-Shore Model

I was talking with a colleague the other day. We got into a discussion on outsourcing. We did not get into a heavy debate on the socio-economic-political ramifications. The discussion centered on cost to the outsourcer and the outsourcee.

The discussion turned to India. "How can you compete?" my colleague asked. I think it is getting easier to compete. This article from http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4218(you have to register) talks to the changing economic situations in India.

The rupee is beginning to appreciate against the dollar. The author thinks the rupee can reach 15 to the dollar in the next 20 years. For the life of me I can't find where the rupee is trading today. Trust me, it is a lot more than 15:1.

If your business model has you competing on cost - suddenly you are finding that the cost difference is not such a slam-dunk as it has been for the last 5-7 years. As costs rise because of the stronger rupee, you become less profitable. Your competitive advantage erodes.

The author points India to the Japanese of the 1980's when the yen strengthened against the dollar:

For product lines where they made the highest margins, such as the Lexus, they continued production in Japan. However, for lower-priced models -- where their profit margins were lower and would have been eroded further by the rising yen
-- they moved production to the U.S. They protected their margins on non-premium products by moving production -- and therefore shifting costs -- into dollar-denominated areas.

Indian outsourcers will be forced to raise their prices to meet their costs. They will also have to look for other areas of competitive advantage. They will have to "change the mix of activities carried out in India versus other countries."

The author also feels that the Indian companies will further evolve and become global companies that are just based in India.

You have to compete on value.

Focus on the Customer

I know it has been a ridiculous amount of time since I last posted. I will try to do better. I lost focus. I am trying to correct that.

"Focusing on the Customer..." is the latest interview from the McKinsey Quarterly. You need to register to view the article. The piece focuses on Merrill Lynch (where I landed my first job that didn't involve delivering newspapers or replenishing gallon jugs of milk) and their efforts to drive quality of service by combining IT and customer operations.

I like this approach. I like it a lot. I am not a technology zealot. I do not think that technology is the answer to all problems. If anything, I am on the opposite side of that fence. I am not a Luddite, don't get me wrong. But technology can do more harm than good. Especially when the stakeholders put all of their bets on it.

Merrill has combined these two business units under one leader, Diane Schueneman. She seems to have her eyes on the prize...she understands that the customer does not care about whatever product the suits put together. The customer cares about quality of service and the overall customer experience.

So the whole reason to combine technology and operations rests on the customer's needs. And to deliver against those needs requires the best operational processes and the best technology. But you can't start with one and graft on the other.

I've seen this happen many times in my career. The technology investment was so overwhelmingly great at one point that fear of change sets in - no one has the courage to stand up and admit that the best course of action is to stop what we're doing and start over. Instead, we patch. We duct tape. We MacGuyver. We make it work. But is that the best thing for the customer?

Schueneman goes on to identify what her team found:

...if you really want to satisfy customers, let's make sure that human beings aren't touching processes and slowing them down.

I love it. Technology should help. Not be a hindrance. Ponder that for a minute. Maybe a couple of minutes.