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January 26, 2007
Book Review: Smartsourcing
I just finished Tom Koulopoulos's book Smartsourcing - Driving Innovation and Growth Through Outsourcing. I first met Tom when he spoke at a conference I attended and I blogged about his sessions - The Road to Agra and Smartsourcing. He also writes a blog .
The book takes a slightly different tack on how outsourcing should be viewed and how companies should use it. The overall effect is a little like that described by Hagel and Seely-Brown in The Only Sustainable Edge, but Tom writes a very readable book covering three key trends, all described cogently and without too much MBA-speak. In particular he does a good job contrasting outsourcing and smartsourcing - there is a focus on differentiation over commoditization and on strategic excellence combined with agility (one of my favorite topics). Anyway, the book outlines three themes:
- Movement to external economies of scale
- Shift from ownership to strategy
- The evolution of the placeless job
The overall approach can best be summarized by one quote from the book where he says that an "organization's intellectual resources are maximized because they are not distracted by nonessential work". Now this quote resonates with me, of course, because a big part of Enterprise Decision Management or EDM is about avoiding distracting people with nonessential work through automation. But let's consider each area in turn.
Firstly, the movement to external economies of scale. Describing this as an economy of scope, the book outlines how this requires a shared service that performs many business functions and uses ADP as an example. Later in the book he talks about Business Service Providers as a class of company that this trend will cause to come into being. Clearly these kinds of companies need to expose decisioning so that their clients can be engaged. This ability of outsourcers to expose the decision points within their processes for their clients to customize is key to the kind of highly differentiated yet still economical services Tom foresees.
Secondly he describes this "shift from ownership to strategy" in which you control the strategy while lots of partners own the pieces. To impose a strategy on a diverse and complex ecosystem such as the one Tom describes requires EDM. I have blogged before about how EDM gives you strategic control while optimizing high-volume operational decisions. No matter how strong the bonds of trust are, something Tom discusses at length, the speed of modern business requires that many of the decisions that are needed day-to-day be automated. Only EDM gives you strategic control and real-time decisioning.
Thirdly he discusses he evolution of the placeless job and it is here that EDM seems particularly important. Tom says "The movement of work requires us to transport not only the raw materials, ..., but also the rules, judgments and intellect that are necessary". Well perhaps, but only if we assume that all the rules, judgment and intellect are peopleware. To the extent that we can make systems "smart enough" we may be able to move the decision-making rules around as easily as data. This idea of moving rules and knowledge is key. Indeed in one of the few places I disagree with Tom, he argues that absent a Star Trek-like transporter that let's us beam people around this moving of rules and knowledge will remain impossible. To the extent that this knowledge can be embedded in EDM systems, clearly this is not so.
The book also outlined a capability curve, dividing up processes into 5 categories:
-
Dangerous Danglers
Get rid of these processes at once -
Marginal Minority
Often a problem as they require time to develop expertise. Staff turnover exacerbates this but decision automation can help. -
Mass of Mediocrity
The majority of your processes -
Edge of Excellence
The ones you are good at -
Peak Performance
Core competencies (you hope)
I liked this and I believe that EDM can help with all but the first - even then it can help the companies you outsource your dangerous danglers to :-)
A number of other useful points came up as I read the book:
- Tom talked about the flattening of the world (global communications, bandwidth, economic infrastructure) and how this means that an integrated value chain is not so useful. Tom talked about a more dynamic, digital value network.
- Tom discussed the importance of uncertainty especially as the economics of speed replace the economics of scale. He points out that uncertainty chews up bandwidth and slows decision-making. Indeed, in the face of uncertainty people want to slow down but they cannot - in fact they likely must decide faster. One of the key values of predictive analytics is to resolve uncertainty into probabilities and so make decisioning more systematic without causing this kind of delay.
- Smartsoucring requires much closer bonds, esp for accountability. This reminded me that decisions made by the companies you smartsource to will come back to haunt you if they are illegal, annoy customers etc. EDM gives you more control over this.
- Transparency is important so don't just automate, automate in a transparent way where the business and IT can share understanding of what is going on.
-
"For any given process it is likely that 90 percent of the time it takes to perform is attributable to either queue time (wait time) or transfer time"
Wow. Think how much faster your processes would go if they did not have to wait for manual decisions... - Tom asserts that less than 2% of companies said they have "a complete and up-to-date ...description of your organization's...process rules". Like Tom I find this terrifying. How can you improve or guarantee compliance of stuff you don't understand and cannot document? While his GE story illustrates the importance of defining process and rules it was no clear to me why I would then transfer these to other people - why not use a BPMS and BRMS to automate this stuff?
- Newly agile supply chains make possible mass customization "creating an expectation in consdumers that they can have nearly endless variety and products customized to their every need" While this is complicated it is finding its way into lots of consumer products - these products contain high levels of information and content and so are malleable (see my post on Hits and Niches and read "The Long Tail" if this interests you).
- Tom talks about imagining a world with no response gap that is predictive and on-demand/real-time. This is not easy but increasingly it is doable for information products and services and EDM is part of how you make it work.
- As the world generates more and more data, his comment that "Uncertainty increases as the volume of information increases" struck home. That said, I am not sure I buy that "Uncertainty requires that we have rapid access to tacit rather than explicit knowledge". As I have said before, lots of tacit knowledge is only considered tacit because no-one has made a proper effort to make it explicit.
I really liked his analogy of a modern fighter for a modern business - "the more nimble it is in its maneuverability, the more unpredictable it comes". EDM is the control systems of this kind of business. Or, to use one of his other analogies, if "Most automation is the equivalent of a published paper road map. Orchestration is the equivalent of real-time, always up-to-date GPS" and EDM combines traffic predictions and obstacle avoidance/routing rules to drive the car for you.
Finally a great Mark Twain quote "It ain't what you don't know that gets you in trouble. It's what you know for sure that just ain't so". Remember, many analytically-driven decisions are counter-intuitive. Your data tells what "ain't so".
You can buy the book here.
Posted by James Taylor at January 26, 2007 2:06 PM
