We have a tiger by the tail. Global sourcing has taken off in the last decade as the demand and capacity for talent have spiked. Like most tigers, this one is roaring, tugging violently at its captor to escape. But if we let it go without the tools to control it, our quandary is clear. So here we are holding onto its enormous potential, keeping it tethered, as we wonder what to do next!
Sourcing relationships that rely on distributed global teams have been increasing in every industry. Yet, according to many estimates, nearly half of these relationships sour, falling far short of expectations. How can a multibillion dollar industry have such an abysmal rate of success? The answer lies in the brute force methods used to-date to try both to estimate and measure the process of global sourcing.
Today’s approaches not only rely primarily on antiquated methods to scope out projects, but also fail to put into place sophisticated real-time metrics to assess the productivity of future efforts. Service-level Agreements (SLAs), retrospective account and project-management systems, and seat-of-the-pants management had their place in the first generation of sourcing, but they are as out of place in today’s sourcing environment as an 18th century craftsman in a modern day manufacturing plant.
Moving to the next generation of sourcing requires moving from art
to science.
The Global Village, 50-years Old and Counting
Although the idea of Marshall McLuhan’s global village goes back nearly 50 years, it is not until recently that we have started to realize the true potential of moving work electronically across the globe to have it done in whatever location and by whatever talent it is best suited for. This trend to move work to wherever it can be most economically accomplished is undoubtedly the single greatest innovation of our generation.
Yet, we are still in the early stages of global sourcing, using old tools and metrics, and slowly coming to the realization that we need to build a more sophisticated infrastructure of tools and methods to manage the complexity of global work.
One of the biggest breakthroughs that will take shape in the next era of global sourcing has to do with the fundamental motivators to do it in the first place. Today most companies still see globalization strictly as a way to drive massive savings due to the dramatic differences in wages and shortened cycles due to the availability of talent in India, Russia, Eastern Europe, and the Pacific Rim.
That hasn’t changed much throughout the growth of the globalization phenomenon. Delphi’s research shows that today cost is still the single greatest factor in making a sourcing decision.
However, while the immediate savings continue to play a vital role in the attraction to global sourcing, there is a growing realization that these benefits are fleeting at best and an outright illusion at worst.
Tackling complexity of sourcing
Global teams create levels of complexity in management, metrics and productivity that come with a high price, sometimes offsetting the savings predicted. Recent studies Delphi has conducted show that this hidden cost can eat up more than half of the cost savings in offshore efforts.
The challenge in both the cases, offshore and onshore, lies in the growing complexity of sourcing. We have, in many ways, exceeded the capacity of the frameworks we use to manage sourcing at its current scale.
But that’s not all. Delphi research also shows that two other factors, in addition to cost, are fast approaching top tier status as driving forces in a sourcing decision: Faster time-to-market and access to global innovation networks. This is where the greatest shift in attitudes and drivers of sourcing will occur in the next decade.
