Posts Tagged ‘companies’

I’ve spent many years as a consultant helping companies analyze their business to improve performance and reduce costs, Clients large and small often ask questions regarding outsourcing/managed-sourcing. They’ve often read case study after case study showing how companies of their size/in their industry have shown real cost savings from their IT outsourcing programs, but their own initiative seems to be lacking in some fashion, often experiencing cost overruns and sub-par service levels.

I always come back with the same answer – A question:  Did you have the right information to make this business changing decision, and did you enter into your agreement from a position of strength?  The prospective client’s answer is usually slightly defensive, wondering why I’m questioning that company’s decision-making ability.  Which essentially I am – clearly something is amiss. At this point, the wheels are in motion and a serious conversation about how the agreement was entered into can take place.  This conversation is meant to figure out what has gone wrong and how it can be fixed.

Here are the main points where an outsourcing agreement can go wrong:

  1. Is the true cost of IT known and understood?
  2. Was proper due diligence performed and a business case developed?
  3. Did you open negotiations to multiple companies so as to get the best deal for your enterprise?
  4. Are you enforcing the contract?
  5. Has your company had any changes that would affect your agreement.

If these five questions can be answered, your company will be well ahead of the game and can facilitate changes that will help resolve the issues you may be experiencing. Lets look at these a bit more:

Understanding the true cost of IT

Many companies think they understand the true cost of IT, but most don’t.  It’s not just what is in the budget, it’s what isn’t as well.  Since every employee is part of the larger family, things are often done in a way that wouldn’t necessarily be the case with an outsource company.  For example, IT support staff would likely service a broken computer while they happen to be in that particular location to fix something else; an outsource company won’t (and unless on-site, can’t) do that.  There are hundreds of other “off book” examples (an ad-hoc server repair in the datacenter without a ticket being called into the help desk, perhaps) that, once outsourced, will no longer occur.  These are true costs of doing business that are challenging to foresee and don’t always get accounted for internally, however with an outsourced vendor these types of activities become chargeable events. In a large organization, this can lead to millions of dollars in additional outsourcing costs.

Performing Due Diligence to get the best deal possible

Knowing the true cost is the first step in the due diligence process.  Other things need to occur, including:

  • Prioritizing which functions should be run internally and which should be run by experts that can drive costs out of the equation
  • An understanding of which parts of the labor force will be affected either by being re-tasked to the outsourced vendor running the operations or being relieved of their positions entirely
  • Service levels need to be agreed to internally; and
  • Building a business case that supports the initiative, this includes noting all assumptions so as to be able to go back and audit.  By doing this, the company knows what is expected and then study the agreement forensically to uncover why the initiative is not proceeding as planned.

Handling Negotiations to Secure the “best” deal possible

Each company has their own process by which they procure goods and services.  The key questions to ask here are:

  • Were your company’s policies and procedures followed?
  • Were RFI’s and RFP’s constructed properly and submitted to all viable vendors?
  • Did your company negotiate purely on price, and were factors such as the Service Levels (mentioned above) taken into consideration?
  • Did you do research on the providers, talk to their current clients, etc to make sure they were the right fit for your needs?

All of these questions need to be given consideration up front, or you’ll risk the likelihood of compromised service down the road.

Enforcing the agreement with the selected vendor

This is key. Your company, when entering an outsource agreement, must establish a structure to allow for monitoring of the agreement and related SLAs. Is the vendor living up to their end of the agreement? If no, are steps being taken to alleviate the issues?  If you are not monitoring your agreement, you are as much at fault as the vendor for any perceived failures.  The agreement and the activity associated with it need to be continually monitored, and analyzed.

Knowing the changes in business conditions that might affect your outsourcing agreement

These business conditions can take many forms, and some affect all business – the current downturn in the economy, for example.  Perhaps your company may not have grown at the rate assumed in your business case and therefore in your negotiations with your chosen outsource vendor.  Other condition changes to consider include mergers and acquisitions, perhaps you are using more computing power then you estimated and did not take into consideration when purchasing another company.  Have you come out with an incredible new product that has driven growth within your organization? This is a good affect, but one that may not have been included in the portion of the new products business case that deals with internal costs such as IT, manufacturing and supply chain management.  All of these reasons and many others can affect the actual agreement, therefore it’s a must that your agreement be continually monitored as I noted earlier.

Conclusion

Several reasons can result in your company essentially leaving dollars and services on the table with respect to outsourcing.  There’s no such thing as too much thought when evaluating an outsourcing initiative.  If you need help, there are many experts available to you who can provide guidance and help develop a sound strategy tailored to your organization. Whatever your size or complexity of project, we’re here to help.

Matthew Carmen launched Datacenter Trust along with Marc Watley in February, 2010 and serves as Co-Founder & COO as well as Managing Partner of their Financial Intelligence practice. Datacenter Trust is a recently-launched consulting and services delivery firm, providing outsourced server hosting, bandwidth, cloud services, and IT financial intelligence and analysis services to growing businesses. Follow Datacenter Trust on Twitter @datacentertrust
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The most recent post discussed the structure of a Stock Appreciation Rights Program as part of your ongoing effort to retain and motivate key employees, and as alternative to issuing equity.  The principal advantages of the SAR program are:

  1. It provides a clear connection between financial reward and the success of the company.
  2. It encourages cooperation among individuals and groups, because everyone will benefit financially if the company prospers.
  3. The vesting schedule encourages and directly rewards longevity.
  4. The company repurchases non-vested shares for zero dollars.
  5. When the company repurchases vested shares, 100% of the repurchase price is tax deductible.

As we indicated in the last post, an SAR program provides little in the way of immediate reward.  For some individuals, such as “hunter” salespeople, the lack of short-term feedback can be a demotivator.  This shortcoming can be remedied by an effective cash bonus program.

There is one cardinal rule for designing any cash compensation program; namely, reward the employee for success in areas in which s/he has a significant amount of control or, at least, considerable influence.  Financial accountability is critical, and that means the capacity to carve out in numbers the results of your employee’s efforts.

Let’s say, for example, that your company manufactures a number of products which carry a wide range of Gross Margin as a percent of sales.  Among those product lines that generate comparable unit volume, your sales force should emphasize sales of the high Gross Margin products, and you should reward those who are successful in this effort.  Specifically, the bonus plan must reward both Gross Margin dollars and Gross Margin percentages.

We have designed a number of sales compensation programs over the past 40 years, with particular emphasis on this very principle.  The beauty of this idea is that, if the salesperson increases the proportion of high Gross Margin business, while maintaining constant sales volume, s/he will benefit twice. First, Gross Margin dollars will increase because the Gross Margin percentage is higher on constant sales.  Second, s/he will get a bigger slice of those Gross Margin dollars.   So, the salesperson will get a bigger slice of a bigger pie.  Now, that’s motivation!

Stock Appreciation Rights programs and cash bonus programs are not mutually exclusive.  Quite the contrary, they can be companions that address the need to motivate the employee in the short run and encourage both strategic thinking and longevity.

Good luck!


PhotoPopell This article has been contributed by Steven D. Popell. Steve has been a general management consultant since 1970. Steve is a Certified Management Consultant, business valuation expert, and inventor of ExiTrak®– a process designed to assist the privately-held company owner/manager to build an attractive strategic acquisition candidate

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Quality #1: Quality is a long term differentiator

by Tanmay Vora on November 9, 2009

This is the first part of a 12-part series titled ‘#QUALITYtweet – 12 Ideas to Build a Quality Culture’. This series will provide 12 relevant insights on how organizations can improve their quality culture through people, processes and leadership.

Introduction to #QUALITYtweet – 12 Ideas to Build a Quality Culture

Relentless focus on quality helps you build a sustainable organization that delivers value – to customers and people working with the organization. Quality is a long-term strategic differentiator.

Yet, most quality models heavily focus on methodologies, metrics and complex processes. This series is a collection of 12 chosen tweets from my upcoming book #QUALITYtweet – 140 Bite-Sized Ideas to Deliver Quality in Every Project” and ideas that expand 12 tweets from the book. These insights will help you frame your quality strategy by effectively leveraging processes, people and leadership to build a customer-centric organization.

Moving on to the first QUALITYtweet…

#QUALITYtweet Quality is never a

short-term goal. It is a long-term

differentiator

Quality is not a goal – it is a differentiator that can transform an organization into a remarkable one. If we study the anatomy of any process improvement or change initiative, it involves short term and long term objectives. Long term objectives generally map with organization’s vision and values while short term objectives are steps that lead to those long-term objectives. Yet, many organizations fall in a trap of setting short term improvement objectives that don’t map to any long term goals.

Here is a litmus test to identify if an organization’s quality goals are short term:

1)      Top management looks at processes as an overhead that can reduce overall efficiency of doing the “real stuff”.

2)      Quality Certification is seen purely as a tool to generate more sales, with no deliberation on how it can help improve efficiencies (and hence improve bottom-lines on a longer run).

3)      Quick and often unreasonable results are expected out of process improvement group.

4)      The question often asked is, “How can we correct this?” and not “How can we prevent this next time?”

5)      Process improvement exercise is triggered only when major problems are encountered.

It is said, “There are no shortcuts in life” – this adage aptly suits the quality improvement initiative as well. Process is a framework which people use to deliver quality products and services. Organization’s quality culture evolves when good people consistently follow a set of continually improving processes.

I have seen companies who perceive process implementation as a loss in immediate productivity because people will have to spend time in maintaining process artifacts. They miss a very important point that undefined and ad-hoc processes only lead to unpredictability of outcomes. It hurts organization’s brand. None of the process models including ISO 9001:2000 and CMM guarantees short term improvements. With a consistent effort and commitment from the top management, maturity of process happens gradually, just as we mature gradually as human beings.

Economists say that the best way to get good return from the stock market is to have an investment timeframe of a few years and not a few months. Short-term gains may be a stroke of luck – but luck is has never been a sustainable strategy! Same principles apply to your quality improvement initiative. Without a commitment to improve and long term thinking on processes, you may have successes based on individual heroism but never a sustainable model that delivers consistent quality.

Most successful organizations are built on a solid process framework. Companies that avoid power of processes soon hit the glass ceiling. People build the organizations and process helps organizations scale up smoothly.

Today’s marketplace demands that you consistently exceed customer’s expectations. You can run the organization on chaos or you can have systems that help you/your people become more effective. It is a choice that makes all the difference!

Tanmay VoraTanmay is a Software Quality Management professional based out of India. He hosts QAspire Blog and tweets as @tnvora. He is also an author of the book #QUALITYtweet – 140 Bite-Sized Ideas to Deliver Quality in Every Project
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Branding – What’s your brand promise?

by Laura Lowell on October 2, 2009

brand promiseIn research conducted for my upcoming book ’42 Rules to build Your Brand and Your Business’ respondents clearly indicated that what affected their perception of a brand were visibility, authenticity and honesty of the brand.  Ok, great…what does this mean to someone trying to build a business and establish their brand? Or what does it mean to a company with an established brand trying to break into a new market with little brand recognition?  You may be surprised to hear me say (or type) that it means the same thing in both situations.

Ultimately, the key is to have a defined brand promise – what is it that your brand stands for?  Based on this you can then begin to prioritize your strategies and define your tactics accordingly.  I have seen, over and over again, where companies jump into the tactics with out understanding how they fit, or don’t fit, into the bigger picture.  For example, I once worked on a brand re-design project with a major high-tech computer manufacturer.  We had a well established brand and were trying to reposition it within the confines of the overall product portfolio.  Plus, we wanted to target a new demographic audience.  Off we went to the branding agency who created several different graphic treatments.  We reviewed them and made changes and came up with what we thought was a brilliant idea – very “off the wall”, especially for this company – but the new demographic “would be drawn to it” we explained to senior management who were having heart palpitations at the very thought of it.  Picture this…a gorilla sitting on top of a PC. Something was definitely “off”, and it turned out… it was us!

This project never saw the light of day…why?  We completely forgot the established brand promise we had been making, and continued to make, to the market.  This design had nothing to do with the real world – it was graphically outstanding and visually compelling, but who cares?  It didn’t relate at all to our brand promise.

So how do you start defining your brand promise? Here’s a list of questions to ask:

  • What does the company stands for? 
  • What is the single most important thing that the organization promises to deliver to its customers?
  • How do you want customers to feel about your organization after interacting with you?
  • What is it that the organization wants its brand to be known for?
  • What unique value to you deliver to customers?

Make sure you have agreement across the company – whether it is large or small.  People should be excited about this.  They should be able to rally around this promise and use it to make appropriate business decisions.  If not, then you still have some work to do.  But, I guarantee you, it’s well worth it.

Laura Lowell PicThis article is contributed by Laura Lowell, Author of the Amazon bestseller ’42 Rules of Marketing’ and the upcoming ‘42 Rules to Build Your Brand and Your Business’. You can follow her on twitter at @42_rules.
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