Should US manufacturing jobs be pulled back home?

A recent debate at Deloitte looks at the gap in structural costs between the US and offshore manufacturing operations. The profit margins that were once the darling of the offshore industry are quickly eroding. The debate asks, to regain competitive advantage should manufacturing jobs be pulled back to the US?

We recommend checking out all the counter points their article has generated but to summarize the take from Deloitte Partner Dmitri Shiry;

Some companies in some industries are looking hard at jumping on the repatriation bandwagon. This is especially true for those where the intellectual property and quality risks of offshore operations aren’t worth the benefits of lower manufacturing costs. If the U.S. is going to reestablish manufacturing as a catalyst for growth during the next cycle of economic recovery, that trend will need to continue and expand.

And from Principle Tom Morrison;

As companies consider and shift production to U.S. sites, they will face growing challenges in finding and keeping the right set of employees. Skilled technicians, plant operators, and engineers may be hard to find. Innovative approaches to training, development, and retention can help improve the availability of workers with the right skills and the incentive to stay. Relative to many countries around the world, the U.S. and many states do not offer the types of training programs and incentives that can be found in other countries to assist in developing the right skills, exacerbating the shortage. Companies should consider investments and partnerships with local technical schools, community colleges and universities as a means of building talent pools and pipelines. We believe these training and development partnerships will be critical for new skilled workers and ongoing training to keep the workforce up to date. Companies and communities with plans and a commitment to skills development and retention will likely have a leg up.

How Innovators are Changing Offshoring

Keeping with what seems to be a theme this week, a recent article from McKinsey looks at how innovators are changing IT offshoring. If you’ve been watching our previous posts about innovation, you’ve learned that organizations no longer have a choice about innovation, that innovation is a new must to survive.
In this paper from McKinsey, the basic fact that outsourcing has not gone away through the recession, it has instead continued to grow.

This comes down to two key points;

1. Managed-services makes customers more satisfied.
2. Using best practices can reduce employee attrition rates.

What’s more, our results show that this new group of IT service providers is developing the broader and deeper pools of talent that global clients increasingly demand and using progressive techniques to manage and retain these workers. Perhaps that’s why such companies had the highest rankings for overall client satisfaction and employee retention in our survey, logging high scores across their entire client base and showing a consistent year-on-year improvement. By contrast, clients thought that most of the other established Tier-1 and Tier-2 companies were just doing an “average job,” and their performance isn’t improving. In another major shift, they can no longer win bids solely by differentiating on price, since almost all suppliers are now cost competitive.

Which is Better: Outsourcing or Shared Services?

The recent Deloitte Debate addresses the pros and cons of outsourcing vs. shared services. Every executive today should know how to speak to both sides of this debate as it underpins the first discussion around reducing costs and increasing agility.

Choosing between outsourcing and shared services does not have to be an either/or decision. Many organizations are best served by a combination of outsourcing and shared services — even within a single business function. Also, many activities can be managed effectively either way. Ultimately, success is not just determined by the approach you choose, but how well you execute it.

Transitioning enterprise organizations to successful structure

Accenture’s paper on reorganizing for the new market order we are about to enter puts forward not only a powerful model but also asks the key questions that too many business are still in denial about and have not yet asked themselves.

“Are we properly organized and aligned to execute our strategy across geographic borders?”

“Do we have we the right mix of global scale and local responsiveness?”

A well-chosen global operating model is critical to growth in today’s markets. What a model emphasizes, however, is likely to vary with a company’s goals, experience and home-country origins. Here’s how two successful emerging-market multinationals are executing their global strategies, with important insights for both developing- and developed-market companies.

More recently, however, the playing field has changed. Developed-market multinationals now find themselves competing with upstarts from emerging economies. Competition in many industries is now truly global. Emerging-market multinationals in automotive, IT and energy have gained a significant presence in developed economies. Established multinationals struggle to outfox nimble local competitors in the consumer products sectors of emerging economies.

At the heart of our research are the leadership teams from two companies regarded as exemplars of a new wave of emerging-market multinationals. One is an energy and chemicals company that has grown rapidly through successful joint ventures. The other is a telecommunications company that has expanded through a strategy focused on value-added services and international diversification. (At the request of both companies, we have changed their names for the purpose of this article.)

Customer Acquisition and Retention: Front-Office Cost Management

When confronted with the prospect of an extended period of economic uncertainty, hard choices are put to business owners and leaders.

Should you reduce front-office costs while remaining responsive to changing customer needs, or explore new competitive risks and growth opportunities?

A paper from Accenture argues that organizations seeking to achieve high performance still have opportunities to expand their markets while remaining cost-competitive and profitable.

When companies focus on front-office costs, their attention tends to be drawn by size: the functional areas with the highest volume of customer transactions, the largest workforces or the biggest operating budgets. Accenture recommends that companies seeking to reduce costs and optimize efficiency in the front office address high-profile programs and operations—but also consider activities and assets that lie between and across marketing, sales and service functions.

These areas often yield significant opportunities that more conventional approaches tend to overlook—such as optimizing use of lower-cost service channels, for example, or reducing the complexity of the product set.

A rigorous, comprehensive approach to identifying opportunities for rapid and sustained cost management in the front office begins with an “outside-in” analysis of the customer base to reveal the voice of the customer. This analysis should combine insight into customer needs and values—identified through robust customer segmentation—with traditional customer and market research and behavioral data gleaned from multiple customer touchpoints.

The Right Set-Up for Going Global

A fourth power-paper out of Accenture argues that a majority of businesses, US and foreign, are no longer equipped for the markets they currently or will have to compete in by using the WRONG operating models.

Even with international operations, many companies lack the focus on critical aspects such as processes, centralization, performance metrics, and structures required to support global growth.

How is your organization currently setup to excel in the global marketplace?

Is your company caught in an IT alignment trap?

Last year the Financial Times and Bain Consulting published an interesting article on IT alignment in relation to costs. We’re putting this up as the principles still apply and the recession appears to be ending, it’s a lesson as to what should have been done ages ago but so many corporations fell into the trap.

1. Simplify. Simplifying the IT function may mean delaying incremental spending to upgrade customised legacy systems and committing instead to a standardised new infrastructure. Such an approach requires a greater investment of time and money up front, as standard systems are rolled out across the enterprise, but will lead to lower costs later.
2. “Rightsource” capabilities. Effective IT requires capabilities ranging from help desks to creating innovative business applications. Today, nearly all are available from low-cost IT specialists offshore. One useful way to guide sourcing choices is to decide what needs to be proprietary. In-house development makes sense for applications that are strategic or critical to competitive differentiation.
3. Focus on value delivery. To be highly effective, IT must complete projects on-time, on-budget, and with functionality that the business needs. To meet these challenges, IT must be equipped with the right objectives, processes, and resources. For example, without a business case and key performance indicators for IT projects, it is difficult to measure and improve the value IT delivers.

Harnessing the Power of Volunteers

Columbia Business School professor Marieke Van der Lans gave an update on the Public Offering page yesterday.

Her recent client Qaulitas of Life offers community-based financial education workshops for low income earners. It was her job to pull together a plan to engage and retain volunteers who facilitate the workshops.

With a framework and guidelines complete, it all came together. In the end, it led to six types of recommendations: raising awareness; identifying and recruiting volunteers; welcoming new volunteers; organizing and allocating tasks to volunteers; measuring and rewarding volunteers, and communicating effectively with volunteers.

Video – Harvard, Finance: What Managers Need to Know

It is frightening that managers may not have this basic understanding but it is a great starting point. Excellent differentiation between finance and accounting. As a prioritization of focus for future entrepreneurs this is useful but I hope anyone with P&L access has a deeper understanding and not just getting away with skimping on homework.