Based on changes we’re observing in the market, along with direct experience working with clients, we initiated survey research to explore the premise that outsourcing motivations have shifted, and therefore, so should sourcing execution. Traditional outsourcing was focused on cost savings – now we’re seeing a shift to sourcing for skills and expertise – cost is still important, but organizations are indicating that they’re looking for higher business value outcomes as well.
To better understand sourcing motivations and execution, we started this research with three objectives:
To understand how sourcing motivations are changing
To determine how sourcing strategies impact financial performance
For those clients who embrace a new sourcing strategy, do they have different expectations? And, how do they structure and manage their sourcing relationships?
The rise in social, mobile, cloud computing and big data is creating tremendous potential for innovation. But it’s also forcing C-suite leaders to reconsider whether their organizations have the necessary expertise to capitalize on these opportunities. Of the number of factors impacting their organizations such as market factors, regulatory concerns, globalization, environmental issues, etc, CEOs reported technology as the most important factor impacting their organizations over the next three to five years. This is forcing organizations to rethink how they operate - creating new challenges and opportunities.
Across the C-suite, we’re seeing a pattern of partnering to get the right skills and expertise to innovate faster and move the business forward.
69% of CEOs are looking to partner extensively
53% of CEOs are partnering for innovation
92% of CMOs will increase use of external partnerships for customer and data analytics
65% of growth-focused CIOs are partnering extensively to change the mix of skills, expertise and capabilities
Sources: 2012 IBM Global CEO Study, 2011 IBM Global CMO Study, 2011 IBM Global CIO Study
We’re seeing a focus on looking to partner extensively, partner for innovation, and gain new skills that they haven’t had before. This shift in mindset – bringing strategic capabilities in, versus sending work out – is one reason enterprises are balking at the word “outsourcing” to describe these sourcing relationships.
To better understand the changing dynamics in business and IT services sourcing, we surveyed 1,351 sourcing decision makers from around the world. Our findings suggest that sourcing motivations are evolving beyond cost savings to include higher-order business outcomes like competitive advantage and innovation.
This sample was intentionally designed to be robust and diverse and included:
Growth and major markets
Business and IT leaders
C-level and key decision makers. Respondents had to indicate they played a key role in sourcing decisions for their organization to participate.
When we looked at breadth of outsourcing and primary motivation, this 2x2 segmentation model emerged:
Four partnering strategies:
Enterprise Innovators are looking to outsource broadly, and indicate a primary motivation of innovation.
Focused Optimizers are motivated to innovate, but are more narrow in their approach.
Enterprise Optimizers indicate they partner extensively, but they do outsource primarily for efficiency. They indicate they’re not yet looking to incorporate innovation in their overarching sourcing strategy.
Focused Optimizers, the largest population, partner narrowly for efficiency and effectiveness.
The y-axis explores primary motivation for outsourcing. We presented a range of options from traditional motivations focused on staff augmentation, IT or business process cost reduction, to productivity improvements achieved through standardization, automation, centralization, to innovation. We defined innovation to be aspirational - changing the way your industry works, changing the way you monetize value and redefining your company’s role in the value chain, including how you collaborate and how you operate.
For the x-axis, we looked at respondents’ current extent of outsourcing. We asked respondents whether they outsource across 80 different business processes, applications and IT functions. Using a trimmed mean analysis approach, the midpoint is 14. Those below the midpoint were categorized as sourcing in a more narrow fashion, those at or above the midpoint were categorized as sourcing broadly.
For those below the horizontal line, their primary motivation is operational efficiency or effectiveness. This includes traditional outsourcing objectives like short-term resource augmentation, cost reduction and traditional productivity improvements. Only 7% of surveyed decision makers said cost reduction and efficiency was the sole reason they outsourced IT infrastructure, applications and business processes. So while we’ll see in a future blog post that cost savings is a key business priority across the sample, it is not the sole reason for outsourcing for the majority of our respondents.
It is not enough to outsource broadly or just for innovation within a discrete process or function. It’s the combination of sourcing broadly across the enterprise for innovation that drives financial outperformance.
My next post explores the link between partnership strategy and financial performance. Log in and leave a comment!
In my previous post, I emphasized the importance of consumer focus for CPG companies. We, at the IBM Center for Applied Insights, have been working on a comprehensive global study* to gain more quantitative and qualitative insights about the increasing consumer focus of these CPG companies.
For the purpose of this study, we have segmented the market in terms of the degree of consumer focus and the use of analytics by the survey respondents. In this post, I would like to point out towards the most notable finding of the lot: existence of a “Leader” group amongst the survey respondents which enjoys much more clout with the retailers. In fact, they are nearly three times less concerned about needing a retailer’s approval to execute their plans, and 1.4 times less concerned about seeing their planning processes extended as a result of delays. They also exhibit superior financial performance over the rest. Between 2009 and 2012, the leading publicly quoted consumer products companies in our sample saw their stock prices rise 1.6 times faster than the rest (16 percent cumulative annual growth rate for Leaders compared to 10 percent cumulative annual growth rate for Others).
The companies in the Leader group use advanced analytics and collaborate extensively (both internally between functions and externally with retailers) to develop a high degree of consumer focus.
As shown in the figure 1 below, they comprise of about 15 percent of the total respondents.
The executive presentation will be delivered at the IBM Smarter Commerce event at Nashville this week.
For more details and insights on what exactly are these leaders doing differently than the rest and what steps can be taken to become one, revisit this space in a month. The Center and IBM DemandTec are authoring a complete paper on this topic, due out by the end of June.
I look forward to your comments and observations. Please click “Add a Comment” below or “More Actions” to share this with others.
Note - For the purpose of this study, we conducted telephone interviews with 356 senior sales executives at consumer products companies in Australia, Canada, India, the United Kingdom and United States, between February, 2013 to March, 2013. These respondents cover 10 product categories. Forty-six percent of them work for large enterprises (employing 1,000 or more people), while 54 percent work for medium-sized enterprises (employing 100-999 people).
Yesterday, we hosted a virtual livestream launch of our new Sourcing research. We’re live with exciting new research that explores how business and IT services sourcing are shifting – and the link between these shifting motivations and better business performance.
The sourcing market is changing. Clients are looking for sourcing relationships that offer higher value business outcomes in addition to cost savings. From our direct experience working with clients and general market observations, we've recognized technology shifts are accelerating the need for capabilities organizations don't have in-house.
To explore the extent of this shift – and how it is impacting organizations' sourcing motivations and strategies – we initiated a large-scale research project. Through this research, we saw distinct differences in the way that clients view outsourcing, and we uncovered a link between innovative sourcing practices and better business performance.
To better understand sourcing motivations and execution, we had three objectives for this study:
To understand how sourcing motivations are changing
To determine how sourcing strategies impact financial performance of the business
For those customers who embrace a new sourcing strategy, do they have different expectations? And, how do they structure and manage their sourcing relationships?
For the virtual panel, Rich Lechner, IBM VP of Services Marketing, served as moderator. I kicked off the discussion with an overview of study methodology and key findings. Then we were joined by the following experts:
Phil Fersht, CEO & Founder, HfS Research
Pat Kerin, General Manager, Strategic Outsourcing, Global Technology Services
Stan Sutula, Vice President, Finance and Planning, Global Technology Services
Joanne Collins-Smee, General Manager, Globally Integrated Capabilities, Global Business Services
Sometimes time and space conspire to create an opportunity that you weren’t expecting. That was the case for me last week. Near where I live, the University of Rhode Island (URI) hosted their third Cybersecurity Symposiumon education and workforce development. Speakers included the entire Rhode Island Congressional delegation, the director of the U.S. Defense Intelligence Agency, the CIO for the U.S. Department of Defense and a number of industry practitioners, including IBM’s VP for Cyber Security Innovation Marisa Viveros. Marisa was the co-author of the paper that we recently published on leading practices for cybersecurity education.
The symposium was open to the public and students, had over 400 attendees, and flew at a fairly high level. There were some excellent takeaways and parallels to IBM’s recent research with respect to cybersecurity skills and education. The Congressional delegation, which included Sen. Whitehouse, Sen. Reed, Rep. Langevin and Rep. Cicilline, each emphasized different areas of the cybersecurity challenge. This included improving public awareness, the national security implications of the rapidly changing cyber threat, the difficulties with law enforcement, and the need to protect our privacy, civil rights and liberties.
Lieutenant General Flynn of the U.S. Defense Intelligence Agency (and URI alum) was a very engaging speaker and talked about the “invisible war” that is currently being waged in cyberspace. He highlighted the profound transition U.S. security is currently going through – caused by population, economic and technology shifts – which require new ways of thinking. To fight this invisible war, he said that for every person currently working in cybersecurity today, we need a staggering twenty-eight more. He also repeatedly talked about the generational issues involved in cybersecurity and that real rules and discipline have yet to emerge on the international stage. He advocated something akin to the “law of the sea”, but for the cyber domain.
The business and industry panel included speakers from Google, IBM, Dell SecureWorks, CVS and Fidelity Investments and was much more open and conversational. They all brought their perspectives – whether providing information security or managing it for their organizations. There was a lot of discussion about how to break into the field of cybersecurity, what skills to have, what courses to take, and career paths. Stephan Somogyi, from Google, talked about the need to educate everyone on digital hygiene and focusing education on the basics of computer science. He said that you have to have a passion for security, it is a calling. If you have that, you can come from any field. Jeff Shilling, from Dell, talked about the incredible need for security technicians, those with hands-on skills. He has enough security managers, what he needs are those that can do the work (he agreed with Lt. Gen. Flynn’s assessment).
A lot of the themes from the day echoed what we recommended through our research. Local and national collaboration was evident with the diversity of speakers and the support from the entire university, the Congressional delegation, the military and industry. The importance of awareness was highlighted over and over. URI is working on innovative ways to provide hands-on experience for students through a low-cost Open Cyber Challenge Platform they are developing. The need for improving non-technical cybersecurity academic programs for business and policy leaders was highlighted in a new study from the Pell Center for International Relations and Public Policy.
This was a very valuable event, and I hope that it continues on an annual basis. Even though it was to raise local awareness and promote URI and its computer science program, it could stand to have increased global participation in the next iteration – which was one of our key findings.
For a summary of our recent research check out and share the Prezi presentation below:
Let’s start with some startling facts about the consumer products and goods (CPG) industry. Failure rates of new product innovations are estimated to be higher than 70 percent globally. Still, more than 80 percent of traditional marketers make decisions based on gut feel and past experiences, instead of using scientific approaches that unlock new insights (for example, advanced analytics).
Today, CPG companies are wrestling with a host of market challenges related to market, retailer and technology. Some of the significant challenges faced by the CPG companies include:
Market – Volatile commodity prices and shifts in global supply and demand increasingly influence the gross profit margins of CPG companies. Large multi-national CPG companies have global supply chains and they sell globally, hence their profit margins are affected by the cyclical movements of currencies, economies and other macro-economic factors in a country.
Retailer – The increasing clout of retailers in the marketplace poses significant challenge to the CPG companies. The big retailers are getting even bigger and more powerful. CPG companies face pressure from the retailers to reduce prices. There is a lack of collaboration/partnership with the retailers as retailers continue to limit access to consumer data and insights. CPG companies increasingly find it challenging to obtain approval from retailers for executing their plans and strategies. Maintaining retailer’s loyalty also becomes a big ongoing challenge for the CPG companies.
Technology – Keeping pace with exponential increase in data and associated analysis and technological developments has always been a challenge for the CPG companies. Companies are struggling with integrating data across channels and functions, cleaning and standardizing it and churning it with the help of advanced analytics to produce actionable insights.
These are all important challenges worthy of attention for the market participants, in order to survive and compete in the marketplace. Still, the manufacturers should start focusing on the one thing that can inform their product development, improve their operational effectiveness, increase their competitiveness and boost their profits - the consumer.
The presence of today’s technology-enabled empowered, omni-channel consumer affects how CPG companies control costs, grow sales, coordinate a wide variety of trade activities, manage time and manage the customer (retailer) relationship. These consumers are empowered by an abundance of information, technology and choices. Their expectations from the companies have increased in terms of ongoing engagement and constant experience across channels. And they can champion or sully the reputation of a brand at the click of a mouse. Their constant online and offline engagement with companies and their products generate a lot of data about their shopping behavior and preferences. That is why, manufacturers should start taking their end consumers more seriously as this knowledge can inform various functions like sales, supply chain, IT etc. across the companies (and not just marketing) and help companies transform their entire value chain. This would help them to anticipate consumer need s and proactively plan for them. This can also help them collaborate with retailers and gain a seat at the decision maker’s desk.
Many CPG companies, globally, have started to realize this need of strong consumer focus and are deploying dedicated resources and advanced analytics to develop consumer centric capabilities. For example, in its 2011 category leadership study by Kantar retail, when retailers were asked which manufacturers ranked among the top three in consumer/shopper insights and category management, Procter & Gamble (41.9%), Kraft Foods (37.1%) and PepsiCo (27.0%) came out on top, with General Mills a hair width behind (26.9%).
We, at the IBM Center for Applied Insights, have been working on a comprehensive global study of over 350 CPG senior executives to gain more quantitative and qualitative insights about the increasing consumer focus of these CPG companies. The focus of this study would be to understand market trends, the need for consumer orientation, who are the leaders, how they are doing it and the results achieved.
Watch out this space for more insights and information on the release of forthcoming executive presentation, info-graphic and white paper.
I look forward to your comments and observations. Please click “Add a Comment” below or “More Actions” to share this with others.
In a world of increasing and varying information security threats, academic initiatives focused on cybersecurity are proliferating - yet, there is still the danger of falling short in addressing the long-term threat. To avoid becoming too focused on near-term issues, programs must be more collaborative across their own institutions, with industry, government, and among the global academic community. Only by working in concert can we meet today’s demand while educating the next generation to create a more secure future.
There have been a lot of recent reports, blog posts and news articles discussing the cybersecurity skills gap. It has been an ongoing issue for a while, and will continue into the future. We wanted to tackle this problem, not from the demand side, but from the supply side. So, the IBM Center for Applied Insights and IBM’s Cyber Security Innovation team selected 15 academic programs in 6 different countries from the over 200 institutions we monitor and work with. We conducted interviews with faculty members, department chairs and others. This week, we released a synthesis of those interviews in our latest security insights paper,“Cybersecurity education for the next generation: Advancing a collaborative approach” .
Through our interviews it was confirmed that cybersecurity is top of mind for students, educators, industry and government. Industry and government are currently facing a significant skills gap and this is causing the programs we interviewed see extremely high demand for their students, both undergraduate and graduate.
But, not all is rosy with the increased demand and attention. Programs are expected to provide more of everything – courses, graduates, opportunities, research – which has caused programs to face a number of organizational and technology challenges. Stained programs are addressing these challenges in different ways, taking different approaches to cybersecurity education, but still sharing similar common principles.
The trends, challenges, issues and differing perspectives cannot be fully addressed by each academic program on its own; cybersecurity is a global problem and should have global solutions. A set of leading practices promoting a longer-term and more collaborative approach is needed. We identified three general areas that the leading programs we talked to excelled at, all dealing with collaboration and connection.
1. Collaborate within your own institution – Cybersecurity programs should embed security practices and principles in computer science and engineering courses and take a holistic technical approach. They should work with other disciplines and schools in the university (e.g., business, law, ethics, medicine, policy). They should offer diverse education options for students and professionals (graduate, undergraduate, professional development, etc.).
2. Co-evolve with industry and government – Academic programs should have deep ties with industry and government – partnering and collaborating on research, curriculum development, and opportunities for students. A hands-on, practical, approach is also extremely important. Laboratory work, projects, special-interest groups, and internships should all be cultivated.
3. Connect across the global academic community – A number of the programs we talked with discussed the need for building a “science of security” to anticipate security problems and a cross-discipline lingua franca among scientists, engineers and policy makers. Fundamental concepts and common vocabulary can only be developed with participation of the entire global cybersecurity community.
We recently put together a nice video that provides an overview of Marketing Science. What is Marketing Science exactly? Well you can either watch the video or take a look at our Whitepaper. But the short version is that it's a way for marketers to deal with the challenges that "Big Data" presents by using a more rigorous scientifically grounded approach to develop insights and then using those insights to impact the business.
The concept itself really isn't very complicated. We've boiled it down to 3 steps: Architect Data, Apply Science, and Influence Action. However, the application of these concepts isn't always easy or straightforward. So over the coming months, I'll be posting about some of our own internal examples of applying Marketing Science to give you a better feel for what it looks like in practice.
And if your company has been engaging in Marketing Science, we'd love to hear about it. Who knows, maybe your example could be the subject of a future blog post.
The era of “Big Data” presents a variety of challenges and opportunities for marketers. With the increase in volume, velocity, and granularity of data, marketers can become much more precise in how they interact with both the marketplace and individual customers. But the same time, when you’re dealing with large volumes of data, it’s easy to over-fit your models and mistake “noise” for “signal”, to borrow a concept from Nate Silver’s excellent book, The Signal and the Noise.
This is something that we’ve been dealing with internally at IBM for a while now. In response, we’ve developed a framework internally that we think may help others refine their own approach to generating insights from data.
We call this framework “Marketing Science”. This is a 3-step framework consisting of “Architecting Data”, “Applying Science”, and “Influencing Action”. The fundamental idea is to apply the scientific method to developing insights within a business setting. This presents unique challenges in and of itself. But there are some basic concepts to keep in mind:
"Architecting" (or collecting and structuring) data is extremely important. The rest of the process depends on getting access to the right data from a variety of sources and if you haven’t done a good job of dealing with data across your enterprise, it’s like trying to run a 100m race with your shoes untied.
A hypothesis-test-refine approach to data analysis is central to the concept of Marketing Science. Developing and testing hypotheses is one of the main ways you limit your exposure to over-fitting data.
Within a business setting, insights are only valuable in so far as they’re able to inform decision-making and/or influence action. At the end of the day, driving business outcomes is the goal of Marketing Science. Keeping this in mind helps to keep you focused through the first two steps. And it means that once you’ve uncovered a nugget of insight, the real work may just be getting started as you take that insight back to the business.
Marketing Science is a fascinating topic that we’ll be talking about quite a bit more moving forward. We’ve conducted some market research that I think will be very enlightening and have started collecting some use-cases of how we’re applying these principles in a practical sense. In the meantime, if you have any comments or thoughts on developing insights from data, we’d love to hear from you.
I've previously written about our research of leading marketers, both their correlation with improved financial performance and what exactly they do differently than everybody else. We recently sat down with three leaders from our Enterprise Marketing Management team, Yuchun Lee, Elana Anderson, and Jay Henderson, and asked them to discuss our research and the implications of that research in more detail. Check out the video to get their take on why marketing matters, and how you can continue to engage with customers effectively and invest your marketing dollars intelligently.
Leave us a comment here or on YouTube to let us know if you're seeing similar trends in your enterprise.
This month is the 10th anniversary of London’s congestion charge. It was not quite the first such scheme (Singapore had been running theirs for almost 10 years) but it was certainly one of the earliest internationally visible Smarter City projects before the term had even been invented. So what can we learn 10 years on from their experience?
Prevailing opinion at the time was that it was an audacious experiment. Most people expected it not to work, & certainly not to be popular. But if it was a success, it would establish London as a pioneering city, with many others in the UK and elsewhere keen to emulate it.
How wrong that opinion was! Congestion charging has been a success with remarkably few technical problems and an acquiescent, if not wildly enthusiastic, public. It had an immediate impact on traffic volumes and congestion and London is a cleaner city as a result. Yet the follow on wave of implementations has not happened. Why not?
I think the reason is in how the benefits from congestion charging are delivered and communicated to the public. The economic case for congestion charging is hard to dispute – it is cheaper to implement than road building programmes and the benefits of reduced congestion, from fewer accidents, increased mobility and fewer emissions are considerable and proven. Yet these benefits are not clearly visible to the public, who only experience the inconvenience of adapting to a new way of paying for their commute. When proposed schemes are put to the public (as they were in Manchester, Edinburgh and West London) the public voted strongly against. It takes a particular brave mayor to risk upsetting public opinion, whatever the ultimate gain to the city as a whole.
So for significant smarter city projects like congestion charging to proceed as more than vanity projects of bold mayors, more work is needed to convince the public of its benefits. There are signs that this may be happening….As technology in related areas like telematics, car to car communications, automated parking systems etc progresses, the creation of a digital city road infrastructure can be seen as an enabler to drive innovation and new business opportunities. Many governments, including the US, UK, Germany, S Korea, Japan and Singapore have identified the potential of investing in traffic management and information services to drive business investment and jobs. There is a race to lead these industries of the future. But to join the race, let alone win it, cities will need first to convince their public that it’s worth it.