India recently launched a satellite to Mars. This is a great accomplishment for any country to have a successful launch in its maiden effort. I was curious to hear my ten year old daughter’s views about it. I framed my question awkwardly and asked her “how do you breathe on Mars?” She looked at me curiously and answered – you need an oxygen tank! We discussed and realized that if one has to live on Mars and not visit Mars; one can’t continue to bring the Earth’s environment to Mars. We have to adapt and find a way to use the resources there. Of course, my daughter and I couldn’t solve the problem; scientists are still figuring it out. One thing was clear, though, given differences in gravity, closeness to the Sun and arid environment, we will have to do many things differently that we unconsciously do on Earth, to breathe and survive on Mars.
Where do you find “Mars” in business?
Think of companies such as Apple, Nike, Starbucks, Google, and others. You will find these companies have a culture of excellence driven by their business strategies. On one hand, the focus on excellence allows these companies to set themselves apart from their competition and capture higher profits. On the other hand, it provides a challenge as traditional business approaches may not work well in their culture.
For example, to maintain their competitive edge, they demand buying highly customized solutions instead of standard solutions available in the market. Starbucks had to develop a supply base for its coffee blends in several developing countries to support its unique offering instead of buying coffee beans that were readily available in the market. Traditional competitive sourcing approaches are not suitable to buy these customized solutions effectively. To be successful, Sourcing teams have to identify what’s valued in a company’s culture and then tailor their approaches to those values, to drive right business outcomes.
[The challenges mentioned above are not unique to Sourcing organizations. In this post, I am focusing on what a Sourcing organization can do to be successful in these companies. The same concepts can be utilized for other functions as well.]
How do you source excellence?
Excellence in my mind is like utopia; everyone wants it, but no one knows how to get it. Sourcing in this environment is tough because of the lingering question as to whether the solution being sourced is truly excellent. I spent significant time on my first project with a client team in multiple iterative cycles to source a solution they would consider excellent. Every time we came up with a solution someone invariably challenged if it was truly excellent. Eventually, we came up with the right solution through a process of elimination, but it was painfully inefficient.
After reflecting on the experience, I realized that there is a better way of executing this type of sourcing projects. Instead of using a structured Strategic Sourcing approach, we adapted our approach to suit what’s valued in the client’s culture.
Described below is the approach we used at a highly successful financial services firm that value excellence in every aspect of its business.
Approach for Sourcing Excellence
- Define Excellence: The first step is to define what the client would consider an excellent solution. It requires strong collaboration between the business and sourcing teams. There are multiple ways to arrive at this – voice of customers, expert opinions (in-house and external), research, select supplier interviews, etc. Also, it requires triangulation with different stakeholder teams to ensure the solution being developed is truly excellent from different perspectives.
- Validate: The Sourcing team then validates the solution with external providers through an RFI followed by in-depth supplier interviews. The objective is to learn whether such solution already exists in the market and if not, how to arrive at it through a combination of suppliers and in-house resources. Cost is looked at from an aggregate level to ensure the solution being developed is practical.
- Source: After validation, the next step is to select the right supplier and supplier team. Learning from previous sourcing efforts, selecting the right vendor is not sufficient. To achieve excellent outcomes, we have to select the right supplier lead and team. A different approach than just selecting a supplier in the traditional approach. The sub-steps are:
- Identify right suppliers – Assess capabilities of different suppliers and select the ones who are capable of operating in client’s culture.
- Select team – This is the most time consuming and critical part of the process. Initially, when we started selecting the supplier team, we would interview them. We soon realized that we are encountering interview bias i.e. we are selecting team members who reflect the interview team instead of the team required to perform the job. To avoid interview bias, we have started selecting supplier team through personality tests. This approach has been successful, and we are still refining it.
- Negotiate pricing and service level agreements – In parallel with the supplier team selection, we negotiate price and service levels. The technique of “should cost” modeling is particularly useful here as buying customized solutions makes a financial comparison and negotiation with suppliers that much more difficult.
We have successfully used the above approach to different source types of products and services that the client would consider excellent while significantly reducing time to source.
Can we breathe on Mars?
Yes, breathing on Mars is not as difficult as it sounds particularly in a business culture of excellence – of course, more difficult on the real planet Mars. It requires keeping an open mind to work within an organization’s culture. Tailoring the sourcing approach and creating a team that can work in this environment will evolve Sourcing’s value proposition. It will help in transforming Sourcing organizations from a cost center to a business partner – an evolution I am calling Sourcing 3.0.
In my subsequent post, I plan to discuss how Sourcing organizations can develop a long-term collaborative relationship with strategic suppliers – a key element of Sourcing 3.0.