IBM arguably made more money than anyone by selling proprietary computing technology. But one executive at the company is now offering advice on how to get ahead in a world of interchangeable parts.
Linda Sanford is the senior vice president who runs IBM's on-demand transformation business. In English, that means it's her job to advise IBM and its clients about what parts of the business are worth keeping and what should be handed off to a specialist. It's a timely subject: General Motors last week announced it's handing $15 billion worth of business to IBM, Hewlett-Packard, Wipro and others so it doesn't have to run its own computer systems.
In Sanford's view, the increased use of interchangeable commodity components--whether call centers in India or memory chips for PCs--is a trend to be embraced, not rejected. Outsourcing lets a company whittle away nonessential work.
But the handoff to an outside partner isn't easy. "Of the biggest inhibitors, the hardest element is really around culture," Sanford said: It's tough for companies to let others handle essential work they're used to running. But she argues in her new book, "Let Go to Grow," that not relinquishing control makes companies terminally slow to adapt.
A metaphor for Sanford's approach comes from her own past. When she took over IBM's mainframe business in the dark days of the 1990s, the high-end server line was widely assumed to be headed for extinction. Among the changes she implemented was to support standards from the rest of the computing world rather than being an isolated island of IBM-controlled technology. Some measure of mainframe relevance was restored.
Sanford discussed her ideas with CNET News.com's Stephen Shankland.
Q: To start, could you distill the essence of the book?
Sanford: The way I would describe it is that there have been certain trends here--the Internet, globalization, deregulation--that have fueled a lot of competition and therefore are driving a lot more commoditization in businesses and industries around the world.
As Thomas Friedman says, the world is certainly flat because of that, and so my point of view here is that in order to compete and grow in this world, you need to let go of the old command-and-control paradigm of running businesses and doing it all yourself, because it will only slow you down, and today's world is ever changing on us in very unpredictable ways. So the answer to the world is flat is let go to grow.
So the answer to the new competitive environment that you describe is what you call "value webs." What is it and how does it differ from the old-school "value chain"?
Sanford: Value webs are partnerships driven by what I would call economies of expertise. So you're looking for partners who happen to have expertise in a particular piece of a process that you might normally do, and you might say, "Gee, why am I doing it? Others have better expertise and economies of scale than I do," and so you form a partnership. The company who is forming the partnership wins, the new partner wins and the customer ends up winning at the end of the day.
Why can't you do that under a value chain?
Sanford: A value chain tends to be more within a business. Your value chain is made up of some of your suppliers and your customers and your employees. Value webs really are dealing with whole new businesses, and the expertise that they bring to freeing your resources to focus on your core. For example, you might choose to say, "Why am I doing logistics at all, why don't I go to somebody who has an economy of expertise in this space like a FedEx or UPS and have them do all of my logistics for me?" It's a much bigger piece than just a supplier who would pick up my packages and track them for me as I'm shipping my product.
More and more companies are farming out various tasks within the compnay. The major problem with consumers of their products is that the responsibility for the quality of the end product is diluted. While the bottom line may profit from lower cost, in the end, if the consumer finds the product infedrior and moves on to another provider, the company will lose money due to lower sales. I have not heard anyone claim the outsoursing has increased the quality of a product, and my personal experience indicates that the opposite is actually true.
I believe some customers said something similar in 50īs when GE starts do change metals to plastics. Nowadays nobody will ask for a metal toaster and nothing can argue that something was lost. Of course we need always suffer a development cycle that on IT offshore outsourcing is just now quite complete. Thats no doubt that this trend is strong. GM is proving that.Companies that not can satisfy these changes will close. Customers need ask for better SLA conditions, better quality/price ratio and improved information. For sure thats no other way& Even here in Brazil with much low cost of people work we need to outsource IT Services to INDIA&
I find Ms. Sanford's viewpoints very refreshing besides being bold and "non-intuitive". This seems like a new paradigm that has tremendous potential and advantages over the old command-and-control paradigm. The dynamics of business has changed and the leaders should heed Ms. Sandford's advice very seriously. Working in a consulting world I have a suggestion however - there should be a strategy of outsourcing/ partnering. Thus, just because another company is doing something a lot well, I think, we should not partner with this company blindly. Instead, we should ask how strategically important is this skill in my field? If this is a mundane and already commoditized item like HR it is ok to outsource it and gain efficiency and cost savings in return. But otherwise I would rather fix my shortcomings and try to be a market leader. Now I can partner with other companies who can help me realize this but I would never let a third party take control. Because then the other company will accumulate the valuable intellectual capital that I need on my money. I then lose a valuable control point that I can leverage in my marketplace. I think Ms. Sanford actually provides an example of this in her IBM Microelectronics example.
Just look at how this might change if instead of saying: "That's an interesting point. Recently (Sun Chief Executive) Scott McNealy has been on a tear complaining about the switching cost, the "barrier to exit," for companies trying to move off of Windows PCs and IBM mainframes"...the author had said: "That's an interesting point. Recently (Sun Chief Executive) Scott McNealy has been talking about a very similar topic, the "barrier to exit," for companies trying to move off of Windows PCs and IBM mainframes"
One sounds like a cranky CEO, the other sounds like someone who "gets it" - wonder what the author thinks of Scott?
If you start outsourcing your essential functions to increase profit, what happens when the new shop gains the core compentency and realizes that you are just the profiting taskmaster?
I don't think they are going to be satisfied with that arrangement for long.
Start shipping your strategic advantages elsewhere and see how long you last.
If we see IBM past history, we can conclude that they are changing profoundly their essential functions since Mainframe era. Do you know that they started adapting paper cards to clocks for workers control? Big Corps have information that we cant get, because their enormous size. It isnt coincidence that GM and now Volkswagen are taking same path. Survival requires adaptation since Darwin, noticed in nature, psychology and also in business...
Distributing or "sharing" core competency is a dangerous approach in the long-term, until global politics is still in its dark age (what really means China and India/Pakistan as the next Japan or Taiwan?). Also getting core business outsourced is diluting identity in a pure money-filtering exercise. See what happens to the clothing business. As with anything else, who's not adding (or controlling) *real* value into the production chain is going to fade.
End result: more weakening of the Western world and dissapereance of the middle-class in 30 years.
Possible fix: The Coke approach and regulation, i.e.: a) Corporations should control the key process while only sharing partial and different pieces with alien entities. b) Similarly as WMD, competitive edge should be a national security matter.
"Outsourcing lets a company whittle away >>nonessential<< work.
But the handoff to an outside partner isn't easy. "Of the biggest inhibitors, the hardest element is really around culture," Sanford said: It's tough for companies to let others handle >>essential<< work they're used to running"
This is the problem. Cultures that cant adapt themselves to this reality will perish. If this little self confidence that we see here, USA minds need to change...
Mark, I can understand that some customers could be with this same opinion than you. If its significant or not its a marketing research question, but isnt much more a feeling that a reality. Each dollar invested in offshore outsourcing returns 1.12. This is a fact all Corps knows, not a felling. Corps in US need stay making profits, with a lot of shareholders that will get money to spend and stay growing economy. Do you think better get break Corps like GM and IBM to new ones like hypothetical General China Motors and International Pequim Machines?
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Of course we need always suffer a development cycle that on IT offshore outsourcing is just now quite complete. Thats no doubt that this trend is strong. GM is proving that.Companies that not can satisfy these changes will close.
Customers need ask for better SLA conditions, better quality/price ratio and improved information.
For sure thats no other way&
Even here in Brazil with much low cost of people work we need to outsource IT Services to INDIA&
One sounds like a cranky CEO, the other sounds like someone who "gets it" - wonder what the author thinks of Scott?
I don't think they are going to be satisfied with that arrangement for long.
Start shipping your strategic advantages elsewhere and see how long you last.
End result: more weakening of the Western world and dissapereance of the middle-class in 30 years.
Possible fix: The Coke approach and regulation, i.e.:
a) Corporations should control the key process while only sharing partial and different pieces with alien entities.
b) Similarly as WMD, competitive edge should be a national security matter.
But the handoff to an outside partner isn't easy. "Of the biggest
inhibitors, the hardest element is really around culture," Sanford
said: It's tough for companies to let others handle >>essential<<
work they're used to running"