As the world faces an economic downturn, many corporations have not yet aligned globalization initiatives to economic reality. I believe that corporate adjustments to economic challenges will also introduce the next phase of maturation in services globalization. Economic challenges will drive leading companies to systemically develop and optimize globalization enterprisewide, leading to a new phase of maturity for global services.
Corporate functions can be located anywhere around the globe, and operating units are likely to be located in distant countries. The combination of technology and globally optimized processes makes the distance transparent. A corporation that leverages this can become flexible, capable of adapting to changing business processes, legal or regulatory requirements, labor requirements, and, most importantly, economic cycles. I call these “futurized corporations.” I have observed that during an economic downturn, smart companies take actions that position them as leaders when the economy recovers. Within each market, a company is either positioned to improve or to fall farther behind. Taking no action is the worst possible choice.
Unlike the last economic downturn, customers and service providers have a deeper understanding about leveraging the global model. The environment is ideal for further evolution and reaching the next level of services globalization. Specifically, companies should be considering the following to prepare for and successfully navigate through upcoming economic challenges.
In an economic downturn or during actions such as budget cuts or spending freezes, a company must reevaluate spending priorities, but in the context of leveraging global operations. Perhaps the most difficult part of any portfolio assessment is establishing a prioritized list of projects. Each business unit will feel that its projects (whether IT, HR, F&A, or other) are the most critical and that the lack of corporate support is impeding its ability to perform. Global leverage and ROI should drive these decisions.
During an economic downturn, the alignment with business should also determine whether the needs are immediate or significant. Some business requirements that seemed critical during times of plenty may become superfluous when facing economic uncertainty. With fewer dollars to fund business support services, the company has less tolerance for waste.
Managing the supply of global services is usually the most complex factor in a portfolio assessment. The supply of services is usually derived from a complex array of internal capabilities, global operations centers, and outsourcing providers. Whether the services are information technology, human resources, financial services, or any other core or contextual service, the supply chain is usually focused on results. Business units usually take corporate services for granted, caring very little for the source or supply chain, but remain focused on results. It is paramount that operations managers continue to manage the entire supply chain to ensure consistent results and optimize the cost of delivery. Managing supply is useless unless demand is understood.
Beginning with demand, executives should benchmark internal operations against industry-leading practices. With a comparison of the overall delivery, executives can determine the root cause of any inefficiency. Whether the service requires reengineering processes, changing organizational structure, renegotiating outsourcing contracts, or bringing services back in-house, executives can begin changing the supply chain. As noted earlier, it is difficult to realize near-term benefits (in the same fiscal year) from strategic changes to the supply chain. Companies should begin immediately to avoid excess expense or change during economically challenged times.
While evaluating the supply chain is usually a transformational solution, improving governance provides incremental benefit to existing services. Just as changes to the supply chain are difficult to realize in the current fiscal year, changes in governance can often yield benefits within weeks. Throughout a portfolio assessment, executives must remain mindful of risks. Some risks can be tolerated and others mitigated, but none should be ignored or overlooked. Portfolio risk should be considered through the process.
As we enter a period of economic uncertainty, it is imperative for companies to reassess their globalization initiatives, re-balance their portfolios and ensure that these initiatives are aligned with current market realities. Organizations that neglect to do so or delay will face mounting financial and operational pressures in the next several years. Those organizations that can manage this transformation effectively, optimize their operational costs, build flexibility into their global services supply chain and fully realize their return on globalization will position themselves to weather the current storm and emerge as stronger competitors.