10 May 10 Strategy Past, Strategy Future

A bacon sandwich, toast, marmalade and coffee.  The perfect start to a Sunday morning.  Then the business section of The Sunday Times flipped open to reveal, in two separate articles, a possible picture of strategy past and strategy in the future.

Tom Bowers’ article Browne’s legacy of cost cutting stored up barrels of trouble[1] paints a sorry picture of the potential long-term effects of cost-cutting and outsourcing (in this case, the use of contractors). To many, cost reduction and the associated use of outsourcing have been essential (in some cases arguably the only) elements of corporate strategy. Certainly, the 1990s and the first decade of the 21st century wear these now indelible strategic hallmarks.

In the same section, another article, Andrew Davidson’s interview with Vineet Nayar[2], reveals a different approach to strategy-making. Nayar points to the real “value zone” as being the point where employees and customers meet. Using this observation, Nayar’s approach is to build advantage through the competences of employees. Indeed, Nayar goes as far as to say “Employee First, Customer Second” – breaking that long-held rule that “the customer comes first”.

Two different perspectives on the source of competitive advantage. One marking the past – one marking the future?

References
[1] Bower, Tom Browne’s legacy of cost cutting stored up barrels of trouble. Sunday Times. May 9, 2010.
[2] Davidson, Andrew The Andrew Davidson Interview: Vineet Nayar. Sunday Times. May 9, 2010.

Tags: competences, competitive advantage, outsourcing issues, outsourcing problems, strategy

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