Building a Capability for Strategic Flexibility Through Outsourcing

To build a capability for fluid growth, you will need to broaden your portfolio of options by deliberately mastering and utilizing new mind- sets. Here’s where outsourcing comes in. As we have seen, outsourcing is the fastest and most effective way to implement a new way of working in your organization. In one neat package, it combines the four components that are critical for adopting and using a new mind-set:

• A competitively viable and valuable joint business model—the strategic bit

• The management know-how, accountability, and resources to build the essential capabilities that support it

• The urgency and focus that comes from aggressive goals combined with an entrepreneurial spark that ignites when individuals work at the face of the company

• The sustaining momentum that visible success creates

The need to move large numbers of people across impermeable corporate boundaries, however, keeps organizations from taking advantage of these benefits. The disruption and managerial effort involved stands in the way of fluid change. This outsourcing assumption is a holdover from the mechanical world of organizational blocks.

Companies that aspire to strategic fluidity will establish deep, committed partnerships across organizations and move leadership control, not employment contracts, across porous boundaries. They will combine characteristics of strategic partnering with outsourcing in a new approach: fluid sourcing. Here’s how it works. Deep strategic partnerships will provide an umbrella organization—perhaps crossing several companies. Entrepreneurs at all levels will lead initiatives and manage work that pulls in resources and expertise from the extended enterprise. They’ll call cross-organizational plays. For example, in the late 1990s, a UK grocery retailer worked ‘‘mechanically’’ with a leading technology company to develop and implement new self-service technologies for shoppers. The grocery CIO contributed his knowledge of the industry and his stores as a test bed. The technology company assigned product developers to create the solutions. The initiative was successful as far as it went: The grocery chain put a few customer-pleasing innovations in place, and the technology company got a start on some new products it could potentially sell to others. The CIO left the grocery company shortly afterward, and all progress stopped.

If these two companies had adopted fluid sourcing, however, things might have been different. Driven by a provocative joint-business model, they would have established a deep partnership. The grocery company CIO would have led the technology development initiative in a virtual joint venture that called on the resources and expertise of both organizations. In addition to improving the retailer’s business with innovative technologies, the venture could have explored growth opportunities on both sides of the relationship. The CIO, for one, envisioned a profitable solutions business in providing these technologies to other retailers.

Whether this particular venture would have panned out or not isn’t really important. The point is that fluid sourcing is a way of exploring new avenues to growth that seem to be eluding the players in this and many other industries.

How will companies manage their people in an environment of fluid sourcing? Leading companies will recognize their key employees as flexible resources rather than branding them with their current organizational identity. They will acknowledge that business models reside in people, not the other way around. Just as they learn to establish deep, committed relationships with other companies, they will grant employees dual citizenship that enables them to move across porous organizational boundaries easily.

These companies will also rid themselves of the creaky organizational machinery that stands in the way of fluid change. They will establish broad roles, goals, and incentive systems that span multiple models and reach into partnered companies. Fidelity Investments, a U.S.–based fi-nancial services firm, for example, currently gives its office staff the latitude to handle customer-service calls when the stock market melts down or the call volume peaks. These people are instantly added to the service center without any disruptive organizational change, simply by routing calls to them in nearby conference rooms commandeered for the emergency.

In the future, fluid companies will extend this latitude across their boundaries and into partner organizations. When Zing wants to try its hand at digital music distribution, it will call on a sister company to contribute technology expertise. Companies will use cross-partner employee stock ownership to encourage employees to consider the goals of their extended organization first and change roles as needed.

At a broader, corporate level, companies will need new, more flexible legal entities that more closely match the spirit and timing of fluid sourcing. For example, companies could use virtual joint ventures, as in the grocery chain, to house cross-company initiatives. It would provide focus and identity, expert management, and motivating risk/reward structures without forcing individuals to leave one company and join another to contribute. Unlike some partnerships, however, it would have clear lead- ership based on where the know-how resides.

For companies to use this kind of fluid sourcing, they will have to dramatically improve organizational navigation. Individuals on both sides of every partnership will need ways to find the right organizational touch points quickly to call cross-boundary plays. For example, how would the fluid-sourcing partner responsible for market research in a newly deregulated utility identify the individuals who should be involved in a big, time- sensitive decision? The right group would be pulled from the utility’s senior staff, the partner’s cadre of experts, and perhaps even the organization from which the intellectual property was sourced. Today we are at sea without a compass when it comes to navigating across organizational boundaries.

Despite its importance, transformational outsourcing is certainly not the right answer to every strategic change management question. It is one alternative. Effective executives will master the ability to use it and will know when it applies. They will start up new companies, drive growth, consolidate mature industries, and execute stunning strategic turnarounds. In addition, executives who learn to use fluid sourcing to manage mind- sets will gain competitive resilience and a remarkable ability to adapt in an uncertain environment.