Taking an "outside-in" approach

Recently, it dawned on me that the sourcing industry is pursuing a great game of navel gazing. We’re like a closed society—we think we have all the answers, yet I’m not sure we know what all the questions are. Isn’t it about time that we started to think of ourselves as a business tool or technique that is applied to business functions, or even better, start to listen to the guys on the outside of our industry? Maybe they have some different…or better…ideas. Not too long ago, I found Steven Pearlstein…or rather I started to read his columns in the Washington Post. In the October 28th edition, he wrote about an old Milwaukee company called Harnischfeger. Harnischfeger doesn’t do anything exotic, unless you are a miner. As a mining and extraction equipment provider, it also sells leasing and maintenance arrangements where pricing is set based upon the number of tons of minerals extracted. Under the arrangement, the company becomes a service provider and financier, turning a product sale into a long term relationship based upon a predictable operating cost. Harnischfeger in effect works on the performance principle. Now Pearlstein does not consider himself an outsourcing guru, or even profess to have much interest in it (I asked him). But it did ring a bell for me when, in the article, he speaks about performance-based contracts. Leading organizations are now veritable alchemists—turning fixed into variable cost or performance-based compensation, operating arrangements into financings, and manufacturers into service companies. So the question becomes: why is the outsourcing industry at its core a "time and materials" play? Sure, we talk about performance-based pricing – but too often it’s just nibbling at the edges of what is fundamentally a "cost-plus" arrangement that is institutionalized in huge provider organizations. Perhaps it’s time to stop looking for solutions inside the network and start looking at what the rest of the world does. Sort of an "outside-in" approach. Otherwise, we in the sourcing industry will be left behind.

Taking an "outside-in" approach

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Taking an "outside-in" approach

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