Posted , in Business model
Are you answering the right make-buy questions for your clients?
Everything old is eventually new again—and right now, make-buy decisions are back on clients’ agendas. It wasn’t that long ago that outsourcing was the flavour of the month: Many businesses spent much of the 90s and early 00s taking advantage of an increasingly globalised economy by ruthlessly offshoring anything they saw as falling outside of their core business functions. And more often than not, they enlisted the help of consultants in helping them do so.
But the situation today is markedly different. Labour costs in offshoring centres like India, Mexico, and South East Asia are increasing rapidly, meaning that the savings to be found through outsourcing are nowhere near as great as they once were. And advancements in automation have further complicated outsourcing questions: More and more, clients are having to ask not just: “Which service provider should carry out this work?”, but “Does this work need to be done by humans at all?”
The upshot of this confluence of factors is that clients are having to re-evaluate the lines separating out the core and non-core parts of their business. And as periods of uncertainty and re-evaluation so often do, this will inevitably create work for consulting firms. However, firms that want to win this work will need to recognise that the old frameworks governing how clients think about make-buy questions no longer apply. This time around, clients are approaching these problems through a framework of “ecosystems”; they recognise that instead of evaluating each of their vendor relationships in isolation, they need to think holistically about their total network of partners and suppliers. They recognise that they have to constantly nourish and prune their ecosystem. And they appreciate that they will only be able to access the latest technological innovations if they are willing to forge relationships with a much broader set of partners—everyone from Microsoft and Amazon to Mike and Amanda in a WeWork in Shoreditch.
But this means there is not the same need for high-level strategic advice about sourcing decisions that there once was. An ecosystem, by definition, has to be in a state of constant evolution and iteration. Previously, clients often approached make-buy decisions in a highly procedural way—defining core and non-core business functions, identifying outsourcing opportunities, drawing up a new operating model and, finally, implementing it. That type of approach simply does not work anymore.
The main advantage of adopting an ecosystem mindset is the ability to respond in real-time to innovation; technologies that didn’t exist a month ago can all of a sudden become absolutely essential to your products and services or to your back-office functions. Laying out a roadmap and then blindly following it is a surefire way to miss opportunities to make your ecosystem truly cutting-edge.
No; instead of solving big strategic questions about what they can afford to outsource, clients are more likely these days to bring in consultants to help address lower-level tactical issues that crop up within their ecosystems. Questions like, “How do I find the best provider of this new technology?”; “How do I know if this start-up will still be around in 6 months’ time?”; and “How do I know which of my partner relationships are really creating value?”. Clients still need help navigating the complex landscape of technology vendors and service providers; it’s just that the thorniest questions have moved downstream.
As we discuss in our recent report on The Make-Buy Decision, consulting firms need to adapt to this new paradigm. When it comes to make-buy decisions, they need to start thinking of themselves less as architects and more as gardeners. Instead of designing organisational structures, they need to show their clients that they can help them constantly tend to and nurture their ecosystems—and that they can address client needs by tapping in their own technology partners where necessary. If anything, the ecosystem revolution may lead clients to rely more heavily on consulting firms than ever before—provided, that is, that those firms are answering the right questions.