11 Jun 10 Recession, change and the heroic leader

John Kay (Beware the cult of the heroic chief executive FT, June 9) provides us with an excellent summary of the failings of the dominant, heroic leader.

My research, conducted after the 1990s recession, shows that a special type of leadership is required if organisations are going to successfully pick their way through a changed post-recession business landscape.  Notably:

• Leaders must be strong enough to sweep away the blockers of change – those that believe “that the old ways will win through”.
• Leaders must also be prepared to admit that even they do not have enough knowledge of the new landscape to craft a new competitive strategy.
• Experimentation and learning.  Leaders need to focus their organisations on a period of experimentation and learning to fill this knowledge vacuum.
• Short-termist stakeholders – leaders must be strong enough too to resist the demands of those with only a short-term agenda.  Giving the organisation a breathing space to learn is an essential task.

Barking orders, vision statements and grand plans from the top, based on a dated and flawed view of the new world will have disastrous consequences.

My response to the above article, in the form of a letter to the FT, is here.

Tags: chief executive, competitive strategy, leadership, recession, vision statements

10 Jun 10 More on the Perfect Storm

The perfect storm awaiting businesses in the developed world and the research that I have been conducting with a team drawn from Cass Business School and the Chartered Insurance Institute are summarised in the FT Adviser.

Tags: Cass, chartered insurance institute, insurance, perfect storm

09 Jun 10 Interview: The Perfect Storm

Many businesses face the prospect of a “perfect storm”.

For those in the insurance industry, this is a combination of catastrophe losses followed by the challenges of a “W” shaped recession that could bring social upheaval and political change in many countries that we have historically considered as “stable entities”.

But the perfect storm is not limited to the insurance sector – it could sweep across all sectors in many developed economies and reshape the business landscape.

I talk more about the perfect storm and what it means for business in this interview which includes findings from the research project I conducted with Cass Business School and the Chartered Insurance Institute:

Tags: insurance industry, insurance sector, perfect storm, recession

08 Apr 10 Thoughts of an L-Shaped Recovery and Future Worlds

Overview
This post considers the implications of a long , slow L-shaped recovery in the developed economies. The outcome could be a divided world, with the developed economies split into two groups or blocs. In the scenario presented here, the lasting effects of the Great Recession are felt as seismic changes in both the political arena and consumer behaviour. There are material implications for businesses ranging from choice of markets, definition of customer segments through to sources of competitive advantage.

Introduction
The dominant thinking at the moment is that there is a real risk (at least in many parts of the developed world) of an L-Shaped Recovery, in other words, a protracted period, possibly measured in decades, of very low levels of economic growth. And all this will take place whilst the emerging economies power ahead.

The voices supporting this view include, for example, Butler[1] Johnson et al[2] and Wolf[3].

The arguments underpinning the L-Shaped “risk” range from (I) the high levels of national debt that weigh-down the developed economies[1],[4], (II) the real danger of another consumer-debt fuelled boom if confidence returns too quickly[3] to (III) the need for economies with a heavy dependency upon the financial services sector to return to a more traditional, export-led, foundation [5].

So, economically, what might an L-Shaped recovery look like? The National Bureau of Economic Research[6] is looking at a four-year recovery period for employment here in the UK – a situation that may well apply in other economies too[7].

The research arm of one major bank[8] is looking at GDP growth for the UK averaging 1.8% 2010-2015. And that’s the middle-ground scenario. The best scenario produces a six-year average annual growth rate of 2.4%, the worst scenario an average of a mere 1.4%.

The Carnegie Endowment’s scenario of the world order in 2050[9] points to relatively low average growth rates for the developed economies during the period 2009-2050:

UK 2.1%
France 2.1%
Italy 1.3%
Germany 1.4%
Japan 1.1%

The US does somewhat better in this projection, averaging 2.7% GDP growth, but all these projections must be contrasted with annual average growth rates well in excess of 5% over the next 40 years for India and China.

Other observers talk of the “W” – another period of economic contraction following an all too brief recovery. The new banking sector stress tests announced by the FSA[10] that factor in unemployment rising to 13.1%, give us a snapshot of the worst probable outlook for the UK.

With so many brains pointing towards, at best, a prolonged period of sluggish growth, we must ask the question “what will this mean for business?”

A conventional answer might be “belt tightening” and “preparing the business for real strong recovery – whenever it appears”.

But the implications of a slow, lumbering L-Shaped Recovery are far, far deeper.

The problem is that talking about the future in purely economic terms clouds our eyes and takes our attention away from what the real emerging issues actually are.

Two Elephants
I will argue that standing in the darkness, right in front of us, are two elephants. And we really need to consider, right now, the messages that these elephants bring for businesses in the developed world.

Elephant #1: The Political Scene
Both elephants are very closely related in terms of their DNA, but I will start with implications for the political environment. I will write here largely with reference to the UK, but the broad implications hold, I will argue, for most developed economies – including large swathes of Europe.

Some interesting research has been published here in the UK during the past few months that strongly indicates growing political ambivalence[11] on the part of the general public. In other words, a lack of faith or confidence in the established political parties.

Other observers[12] argue that the financial crisis has dealt a final death blow to the liberal views that have under-pinned both the western political establishment and the rush to globalization over the past decade or so[13].

There is already some evidence that support for new political groups is emerging.[14]. Some even say that communism could fill the space left by capitalism[15].

Without doubt a vacuum is forming. If nature abhors vacuums, we must ask what will fill it. Here in the UK we now face the real prospect of either a hung parliament or, at best a winner with the slimmest of majorities. Both outcomes would return us to a period of short-lived governments and provide, probably in two – three years time, an opportunity for new voices to fill the vacuum and punch above their weights.

But be under no illusion, this is not just a problem for the UK. As I have noted in an earlier posting, the developed economies are fragmenting into two groups – those that have weathered the storm in a reasonable shape (US, Canada and Germany for example) and those that emerged with higher levels of debt and a reduced level of public support for the necessary corrective measures[16], [17], [18] The so-called PIIGS (Portugal, Italy, Ireland, Greece and Spain) come to mind, with the real risk of sovereign debt default[19].

But there could be other nations queuing up to join this club too.

It is in these developed countries, the real losers in the Great Recession, that the most fundamental of changes could be witnessed.

Rather than producing a united world, in this scenario, the Great Recession will have produced very much a divided world with the developed economies split into two distinct groups.

So, the ground is set for some major changes in the political environment in elements of the developed world. As an example, the long-awaited May election here in the UK could be the last to be dominated by three long-established parties. The landscape for the post-2010 election could be far different, with new entrants taking influential positions and, potentially, the place of one of the traditional “big three” parties.

Elephant #2: The Socio-Demographic Scene
All this brings me directly to the second elephant, which shares much of the DNA of the first.

In the final analysis, the shape of the post “Great Recession” world will be decided by the public, not economists’ projections, and the going will be challenging for the consumer during the L-Shaped Recovery:

• There is the prospect of a jobless or a near jobless recovery as developed economies face the challenges of industrial re-orientation and competitive employment pressures from those emerging economies that continue to power ahead[20].

• Getting credit will be difficult (as it will for businesses in this scenario). This applies especially in the UK where doubts have been raised regarding capital availability to fund a recovery[21].

• Social bifurcation becomes an increasingly significant issue in developed economies. In short, the gap between the “haves and the have nots”. This is again a notable problem in the UK where some areas have not yet recovered from the late 1970s recession, let alone the current challenge[22]. Some argue that the demise of industry and the rise of financial and professional services have only added to this divide[23],[24].

Again, we are faced with an emerging vacuum. The L-Shaped Recovery signs the death warrant for debt fuelled consumerism and everything that went with it. In the eyes of many, free markets and globalization will have failed to deliver. So again we have a question, this time “What will replace consumerism?”

When faced with the task of visualising the effects of a potential seismic shift, it is often helpful to look at a position that is the exact opposite of the one that we have enjoyed. So where could the pendulum swing towards? John Quelch of Harvard Business School[25] got part of the way there when he talked of the importance of experiences and personal contact replacing material purchases, but the real opposite of consumerism is valuism, a term that I will loosely define as an environment where individuals focus upon and gather around guiding moral principles and standards of behaviour. Perhaps Adam Smith had a glimpse of this writing some 200 years ago when he referred to the solid virtues of “prudence, restraint, industry, frugality, sobriety, honesty, civility, and reliability”[26].

A concern for values and moral standards replaces a concern for material displays of wealth and assumptions of unbounded growth.

Some implications
The product of the Great Recession could be significant changes in the political landscape and consumer behaviour in parts of the developed world. So what are the implication of the L-Shaped Recovery scenario for businesses in these economies? Well, here are some thoughts for starters, contrasting what we have been used to what an L-Shaped Recovery presents:

If “consumerism” and “debt” were the words of the last decade, “values” and “security” will be the words of the next.

But this is just one view
To conclude, it is important to note that it is impossible to predict the exact course that the global business environment will follow. We are still in uncharted waters.

In times of change it is best to consider several views, or scenarios.

Remember that the L-Shaped recovery is just one picture. Others are more hopeful, pointing towards the prospect of a sound recovery[27] and resilient political systems that can weather all storms[28].

So plan for a minimum of two worlds, not just one.

References
[1] E. Butler, “The boom and bust,” Adam Smith Institute, Mar. 2010.
[2] S. Johnson, P. Boone, and J. Kwak, “Get Ready for an L-Shaped Slump,” Peterson Institute: Real Time Economic Issues Watch, Dec. 2008.
[3] M. Wolf, “The world economy has no easy way out of the mire,” FT.com, Feb. 2010.
[4] U. Dadush, “The Future of Europe and the Euro,” Carnegie Endowment, Mar. 2010.
[5] A. Posen, “The Path of True Recovery Is Never Smooth,” Peterson Institute, Oct. 2009.
[6] C. Reinhardt and K. Rogoff, “The Aftermath of Financial Crises,” The National Bureau of Economic Research, Mar. 2010.
[7] H. Shierholz, “A massive jobs gap,” Economic Policy Institute, Mar. 2010.
[8] S. Hayes, “The Economic Outlook and the Risks of a Sterling Crisis,” Feb. 2010.
[9] U. Dadush and B. Stancil, The World Order in 2050, Carnegie Endowment for International Peace, .
[10] B. Masters, “Turner orders tougher bank stress tests,” FT.com, Mar. 2010.
[11] S. Wilks-Heeg and D. Ellis, “The state of a politically ambivalent nation,” OurKingdom, Mar. 2010.
[12] S. Zizek, First as Tragedy then as Farce, Verso, 2009.
[13] Y. Hatoyama, “A New Path for Japan,” The New York Times, Aug. 2009.
[14] P. Giddy, “MPs WANTED: FOR CRIMES AGAINST DEMOCRACY,” OurKingdom, Mar. 2010.
[15] N. Lezard, “First As Tragedy, Then As Farce by Slavoj Žižek,” guardian.co.uk, Oct. 2009.
[16] C. Caldwell, “The Weekly Standard,” The Weekly Standard, Apr. 2010.
[17] G. Andrews, “Italy still unable to see beyond Berlusconi,” FT.com, Apr. 2010.
[18] “Greeks take to the street over austerity plans,” FT.com, Feb. 2010.
[19] W. Munchau, “Greece will default, but not this year,” FT.com, Apr. 2010.
[20] R. Freeman, “What Really Ails Europe (and America): The Doubling of the Global Workforce,” The Globalist, Mar. 2010.
[21] D. Smith, “Honey, I’d shrink the banks,” TimesOnline, Oct. 2009.
[22] Cities Outlook 2010, London: Centre for Cities, 2010.
[23] J. Manzi, “Keeping America’s Edge,” National Affairs, Feb. 2010.
[24] M. Brewer, A. Muriel, and L. Wren-Lewis, “More unequal – but why?,” Institute for Fiscal Studies, Dec. 2009.
[25] J. Quelch, “The Next Marketing Challenge: Selling to ‘Simplifiers’ — HBS Working Knowledge.”
[26] Y. Levin, “Recovering the Case for Capitalism,” National Affairs, Jan. 2010.
[27] D. Bowers, “Corporate recovery could take investors by surprise,” FT.com, Mar. 2010.
[28] Z. Davis and T. Carothers, “The Economic Crisis and Democracy: A Year Later,” Carnegie Endowment, Mar. 2010.

Tags: consumer behaviour, developed economies, emerging economies

10 Feb 10 Giving customers a treat

An article in the Financial Times “Customers more cautious and choosy” [1] provides some interesting pointers for businesses in the developed world facing the prospect of either a painfully slow economic recovery or the dreaded “W” double dip.  The lessons, which come specifically from consumer markets are:

(1) In times where sources of capital are difficult to find, focus on organic growth. This means brushing off marketing, sales and importantly innovation skills. We are talking here about external innovation capabilities (new products, new services, new customer experiences and new markets) not innovation in reducing the cost of internal processes where there has been so much focus over the last decade.

(2) Maintain a broad choice of products and services.

(3) Give your customers a treat. Remember that consumers like a treat even in the worst of times. The cosmetics brand Revlon was, after all, conceived in the Great Depression of the 1930s.

(4) Think very strongly about how you can extend existing offerings (products and services) to other markets. This applies importantly to your core competences as well (the skills, knowledge and experience that makes your business different).

I would like to return to point (3) – Give your customers a treat. You may say that in consumer markets this is all very good, but how can this be applied in the business to business marketplace? Well, treats for commercial customers may come in enabling them to:

(a) Innovate to enable organic growth (the importance of which we have noted above).
(b) Reduce costs in their value chain
(c) Enhance the skills of their staff when training budgets are tight.

Try this exercise. Draw out your business’s value chain (basically a flow chart showing how each function – including “overhead” functions – add value). Now draw out your customer’s value chain. Think how your value chain can add to your customer’s value chain by answering these questions:

(i) How can we help them achieve organic growth?
(ii) How can we help reduce costs?
(iii) How can we help to increase their skills?

The result may be some interesting ideas for “treats”.

References
[1] Groom, B. Customers more cautious and choosy. Financial Times February 8, 2010

Tags: double dip, economic recovery, innovation capabilities

17 Oct 09 Letter to The Times – Business Negatives

You can view here a letter published in The Times 17 October 2009 that I wrote with my very good colleague Stuart McAdam of 365 Coaching.

Whilst it is popular in many circles to accentuate the positive, this approach can have dangerous downsides.  Firstly, we can end up seeing only the future we want to see rather than the rather nastier underlying issues that may pop up to confront us either in the near or longer terms.

The second downside is that looking at negative issues constructively forces us to challenge our underlying assumptions about how the business world operates.  And this process can stimulate, I argue,  some really creative thought.

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01 Sep 09 HR should do more in a recession?

I read this morning, with some interest, a web page[1] summarising a recent survey by the Economist Intelligence Unit[2].

Broadly, this survey looks at the perceived role of HR in a recession taking the perspectives of both business executives and HR executives.  The survey points to a number of issues including a perception gap between HR and business executives.

But the key findings can be summarised as follows:

(1) HR possesses  “An inadequate understanding of the relationship between workforce reduction and business goals”.

(2) Quantitative performance measurement is seen as a key priority – with over 90% of organisations either having or planning implementation of such systems.

(3) Boosting productivity without increasing employee costs is another major priority – with a focus on training, more stringent performance appraisal and process innovation.

One could conclude that the emphasis is upon cost reduction and increasing productivity.  Understandable in these interesting times, but the question must be: “Are there other elephants in the room?”

I would suggest that there are two that deserve more attention.

The first is the psychological trauma induced by a sudden and unexpected recession.  My research, conducted with colleagues, indicates that getting to grips with an unseen sea of psychological trauma should be top of the list – from the perspectives of both business efficiency and staff well-being. This research revealed some alarming statistics – for example over 80% of respondents noted multiple symptoms of stress among their workplace colleagues and over 70% of respondents said that they had themselves experienced multiple symptoms of stress.  In this survey, only 8% of respondents did not report experiencing symptoms of stress.

And do not think that that recession induced stress is going to go away.  The recovery is fragile and it looks as if we are entering a period of lower growth especially in the advanced economies[3], [4].  So uncertainty induced stress will be with us for the medium term.  The implications for productivity are obvious.  Stress management should be at or near the top of HR’s agenda and too should figure strongly in any organisation’s business planning process for 2010-2012.

But there is a second elephant in the room.  The world is not going to look the same after the recession.  We are seeing quite fundamental shifts in consumer behaviour[5] coupled with an emerging view that, in at least the advanced economies, macro economic restructuring may be needed with a reducing emphasis upon the banking sector [6], [7].  The stuff of creative destruction  – but with plenty of opportunity for externally based not internally based innovation.  Developing exploratory skills should also figure strongly in HR’s agenda – we don’t want organisations that just excel in reducing their expense bases.

We are, after all, moving towards a world where there is more to strategy making than cost reduction.  And getting to that world will take time, new externally based exploratory skills – and of course motivated staff.

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References
[1] Churchard, C “HR should do more in recession, executives say”. People Management. August 2009
[2] The role of HR in uncertain times. Economist Intelligence Unit. 2009
[3] N. Roubini, “The risk of a double-dip recession is rising,” FT.com, Aug. 2009
[4] W. Galson, “The ‘New Normal’ For the U.S. Economy: What Will It Be?” Brookings, Sep. 2009
[5] U. Haque, “The Generation M Manifesto,” Harvard Business Publishing, Jul. 2009.
[6] N. Cohen, “British outlook trailing other G7 nations,” FT.com, Sep. 2009.
[7] S. Sassen, “A global financial detox,” Open Democracy, Sep. 2009

Tags: downturn, hr executives, HR management, Human Resource Management, psychological trauma, recession

27 Mar 09 Navigating the Recession: The waves of change

A clear point emanating from my earlier posts and, importantly, discussions with business managers and leaders is that we cannot afford just to “sit this one out” and expect the business world (and in fact the world in general) to be in exactly the same shape as it was before when this recession comes to an end.  It is becoming clear now that we are at the threshold of a new world and things will be very different.  The recession scenarios provide us with a mechanism to see what the new worlds could look like, but in this post I would like to start to explore what the process of transition to the new world itself might look like.  When looking at the transition process, I will adopt the perspective of your businesses customers and clients, in other words the phases of change that your clients and customers will go through.

In this post I am going to put forward a proposition for debate that as we go through this journey from recession to recovery there will be multiple behavioural and structural shifts to look out for.  Each will provide challenges but also, and more importantly, will provide new opportunities for your business.  I will describe 5 of these waves of change in this post.  Remember that some will run sequentially and that some will run concurrently.

Phase 1:  Shock and Horror.

Whilst there was some talk about 24 months ago of an impending economic “blipage”, nobody thought it would ever be this bad.  The accepted thinking appeared to be at worst that we would have say a slowdown period of 12 months and then we would get back to growing in a predictable world.  Nobody thought that capitalism might be brought to its knees.  Therefore, when the news broke last year – particularly when Lehman Brothers went down on 15 September – we were all thrown into a state of shock.  It was as if the bottom of our worlds had been pulled away.  A good way of looking at this is to think about that old, but classic, motivation model Maslow’s Hierarchy of Needs.  It was as if the bottom layers, the foundations, had been stolen.  For this reason, people and organisations act a little irrationally during this first phase.  As security is threatened, we need to do something to protect ourselves and this usually means making immediate cost-cutting decisions many of which might not be in the long-term interest of either the individual or the business.  In shock there is the over-riding desire to do just something.  An example is that 74% of Americans intend to cut back on eating out and entertainment [1].

So this is where we are now. In an irrational period.  From a business perspective, it is a period to make temporary adjustments to match these new behavioural patterns.  But it certainly is not the time to make long-term irreversible decisions.  As I try to show in the first illustration below, this is a temporary phase.

And my guess is that we will come to the end of this phase in late 2009.

Phase 2:  Acceptance

Phase 2 is important for three reasons.

1. It represents almost certainly a longer period than the first phase.
2. It is the period when customers adjust to accept the fact that we are (probably) in for the long haul.  Expect therefore more reasoned decision making that will hold for the medium term.
3. During this period the behaviours of Generation Y (the children of the “baby boomers”, Generation X) will be shaped permanently.  Remember that in the last real downturn, Generation Y would have been in nappies (diapers).  What they see and feel during this period will have a permanent impact.  It is the first time that their world will have been shaken and their beliefs and assumptions challenged.  Long-term behavioural changes will appear, such as a move away from external, tangible displays of wealth.

At the time of writing this entry I would say that we are just about to enter this phase – a phase that may last for 3 or more years, but as I show in this second illustration, the impact is far more permanent.

Phase 3:  Emergence

At some point the stimulus packages and measures that are now being put in place will bear fruit.  Confidence will be restored.  Demand will increase.  New demands and needs will appear, but these will have been materially shaped by experiences (that are now largely unknown) that will have occurred during phase 2 – Acceptance.  New customer segments will appear. But the effect may not be so dramatic in the long-term in terms of customer needs.

Phase 4:  Restructuring

I opened this post by saying that we can’t just sit this one out.  One of my propositions is that certain developed economies need to undergo second order macro economic changes.  The UK is a good case in point as I have observed earlier with its near 22% of employment in financial services.  These macro economic changes should produce new opportunities and needs to meet as new employment champions appear – just as financial services did in the early 1980s when manufacturing went into decline, at least here in the UK.  This phase, as new employment sectors appear, will be more permanent in its impact.

The first 4 waves of change are all shown with a subjective view of their period of influence in the illustration below:

Phase 5:  New Influencers

Here we go out into the medium to long-term, beyond the illustration above.  And I have in mind 3 to 10 years out from now.  During this period the winning BRICs (the emerging economies of Brazil, Russia, India and China – if any of them do make it) will really have the position to reshape both the business world and capitalism itself.  The mechanism to do this (G20) is already being put in place and remember that by 2019 China could control 13% of the world’s banking system and 16% of the global stock markets[2].

Conclusion

So now is not a time to sit back and wait – it is a time to sense, inter-act with customers and learn.  I propose that our customers will go through 4 – 5 waves or phases of change.  Of these 2 will probably have a permanent impact.  The first of these is the “Generation Y” effect within  Phase 2:  Acceptance. Here, attitudes and behaviours could be shaped for a lifetime.  Finally, the second phase to have a permanent impact is Phase 4: Restructuring when new (as yet unidentified) employment sectors emerge.

So now is the time to sense and explore these proposed waves of change.  Before your competitors do.

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[1] The Daily Stat. Harvard Business Publishing. April 1, 2009

[2] DB Research (2009) China’s financial markets: A future global force? March 16

Tags: business strategy, capitalism, customer strategy, economic recession, lehman brothers, marketing strategy, recession, scenarios

23 Jul 08 Recession – A business survival guide (Part 2 – The “Aldi Effect”)

In earlier blogs I have argued that in a recession one must not “shoot the usual suspects”. By “shooting the usual suspects” I mean across the board cost cutting in areas such as sales, marketing and new product development.

My point is that during a recession a firm that wishes to survive and grow needs a greater capacity for innovation than in the times of economic buoyancy. The fact is that your customers’ needs and/or buying habits will change during an economic downturn.

One of the central challenges for business leaders during a recession is to at least retain customers. Getting new customers is usually an expensive process. One scenario to avoid is the loss of hard-won customers to competitors that can keep up with changing demand patterns better than you can – winning back those lost customers after a recession has ended may be a harder job than you imagine.

In the UK we already have several examples of this shift in customers’ needs and buying habits. The retailer Marks and Spencer has been hit with a fall in demand for food products.  One of its core offerings are luxury ready cooked chilled meals.  The problem is that customers are re-evaluating their spending patterns and substituting cheaper, more basic ready meals or even doing the cooking themselves form raw ingredients!  The problem for Marks and Spencer is that their competitors are probably better placed to meet this demand shift.  Customers are now spending 20% more at Aldi and Aldi aims to retain its newly found customers.  A similar story can be found in the takeaway meals sector where Domino’s – the pizza chain – has noticed that whilst sales to established customers are falling, sales to new customers have risen by around 20% as consumers opt for a takeaway instead of that expensive restaurant meal.

The central message is that the “Aldi Effect” – customers’ changing needs and buying behaviours – will take place during a recession – and not just in the consumer sector.  Innovation and astute marketing may be needed more than ever during a recession to avoid the loss of customers that may never be won back again when the economic clouds have lifted.

Tags: business survival, economic downturn, recession, Recession Survival & Growth

08 Apr 08 Financial Services, outsourcing, strategy and innovation: Time to rue past decisions?

Frequent visitors to my website will be familiar with my long-running concerns with outsourcing or BPO – especially in the financial services industry and the insurance sector in particular. I have dealt with outsourcing issues in some detail in two briefings – most notably Outsourcing Problems and Disadvantages Revisited.

My concerns have centred around the accepted trend to outsource two functions in particular –customer contact and Human Resource Management. The rush to outsource these areas is may be surprising if one discounts immediate cost savings.

The offerings or products of insurance companies, for example, are by their very nature intangible. Most of the value, and therefore the source of competitive differentiation, comes from human interaction. And the quality of that interaction is determined by the values and attitudes of employees – in other words the organisation’s culture – a difficult dimension of quality to measure and control at the best of times. So why outsource (a) one of the few sources of differentiation in what has historically been seen as a commodity sector and (b) an area where ‘quality control’ is so difficult?

And then we have the Human Resource Function. Research tells us that it is more than a cost function. It has a central role to play in stimulating change in service organisations that wish to break out of a cost reduction mindset. But it also has another key role and that is building, shaping and maintaining those behaviours, values and attitudes that together make up an organisation’s culture. As I have said earlier, culture is an intrinsic part of a service organisation’s ‘product’ and arguably the only true differentiator. So should we be outsourcing this function in insurance and other professional services firms?

An interesting topic to debate I believe.

Tags: bpo, Human Resource Management, outsource, Outsourcing, outsourcing issues, outsourcing problems, professional services firms, service organisation