Crouching Tigers Clear Pathways to Growth


Organizations use outsourcing to make dramatic improvements in under- performing functions and processes that are roadblocks to growth. These companies have big strategic aspirations that are being stymied by a deficiency in some key capability. It could be manufacturing or information systems, the ability to integrate acquisitions, or the capability to develop new products. Whatever the arena, executives recognize it as a critical roadblock, and they remove it through outsourcing.

For example, in 1992, Family Christian Stores, then named Family Bookstores, was an under-the-radar subsidiary within publishing giant News Corporation. (Family Bookstores was owned by Zondervan, which was owned by HarperCollins, which was part of News Corporation.) Les Dietzman, a retailing veteran with experience at WalMart and Dayton Hudson, joined the organization to pursue a ‘‘higher mission.’’ When he arrived he saw an unexpectedly compelling opportunity for transformation. He believed that the small Christian retailer could grow substantially under his leadership. By 1994, he had developed an overall vision for company growth, and he led a management buyout to get the authority to make it happen. At the time, Family Bookstores had 120 stores and $130 million in sales.

Dietzman believed that information technology was standing in his way. In his mind, it was the foundation for everything he had to do: site selection, store management, supply chain, pricing, and management reporting. But Family Bookstores’s systems had been run by its parent company, and these were designed to meet the needs of a publishing company, not a retailer. To replace his publishing systems with a topdrawer, retail-oriented information technology capability that would support the company’s growth would take an investment of $7 million— resources FCS did not have. So Dietzman turned to outsourcing.

He worked with Accenture to structure an innovative deal to get FCS the systems, the expertise, and the operational capability it needed at a price it could afford. Accenture hired FCS’s existing information technology staff and recruited some new employees to take over IT. The unit replaced every piece of hardware and software in the company over an 18-month period. It then operated, scaled up, and improved IT support as the company expanded. Its leader sat on Les Dietzman’s executive staff and functioned as the company’s CIO.

Accenture helped FCS pay for the IT transformation by bringing a financial partner into the deal—GE Capital. GE Capital paid Accenture for the upfront project work, the software, and the IT infrastructure. In turn, FCS paid off the $7 million investment with interest over the seven years of the agreement. In addition, as FCS reached its sales targets, its outsourcing fees to Accenture increased accordingly. That way, the company used its own growth to pay for the IT capability it needed to support the growth. In the words of one executive, it was a ‘‘Cadillac deal for a reasonable price.’’

How did Family Christian Stores fare? Today, it is the nation’s largest Christian retailer. It has grown from 120 to 330 stores, and its sales have tripled.

Crouching tigers want fast implementation just as out-of-nowhere start-ups do, but they want expertise even more. The missing ingredient for these companies can be anything from marketing or product development to supply chain management or information technology, and they need it fixed in order to grow. These companies do not necessarily want to reduce overall costs in their roadblocked function. But they do want to siphon spending out of tactical activities and direct it toward programs that will contribute to the strategy. They usually need access to new capital as well—either directly from the outsourcing provider or from a third- party financial partner that likes outsourcing’s risk profile.

Because the new capability must be tightly integrated into the tiger’s operation, these companies often prefer cosourcing rather than strict outsourcing. In other words, the provider takes over responsibility for the roadblocked function or process, but the retained employees remain on the tiger’s payroll. This puts the tiger in a better position to upgrade its internal capabilities and ultimately bring the operation back under its own control.

We often think of crouching tigers as small companies that rely on larger and more mature outsourcing providers for the skills they lack. It can work the other way around as well. In the pharmaceutical industry, many of the large companies that are facing empty product-development pipelines are turning to small biotech companies for drug discovery. For the most part, these large companies manage the relationships contractually, but leaders are moving toward a cosourcing approach.[3]

[3]Ibid.




Outsourcing for Radical Change(c) A Bold Approach to Enterprise Transformation
Outsourcing for Radical Change: A Bold Approach to Enterprise Transformation
ISBN: 0814472184
EAN: 2147483647
Year: 2006
Pages: 135

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