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Raising Organizational Status

August 17, 2008

I have long been an admirer of the quiet, yet effective, way that Procter & Gamble have weathered the challenges of their markets. They seem to be one of those organizations that establishes good practices, but does not become boastful about their success. Perhaps they understand how temporary success can be.

Those charged with contracting and sourcing are among the groups I admire, so I was interested to discover an article in McKinsey Quarterly that recorded an interview with the worldwide head of Global Business Services, Filippo Passerini. Having read it, I believe there is much that members of our community can learn from the approach.

The article focused on the process that P&G had followed to develop the Global Services organization and then to move it from the role of ‘service provider’ to that of ‘strategic partner’. It is a status to which many in our community aspire, but relatively few reach.

So what can we learn from P&G? Passerini set out a number of areas that he believes fundamental to success. Perhaps unsurprisingly in a global organization in the networked age, number one on his list was to establish a common IT platform – to make sure the various groups can talk to each other, share data, ensure seamless process support. It was this that enabled ‘the eleimination of duplication’ – locally based services teams were replaced by global centers that offered 24/7 support.

He also attacked the traditional functional model -Passerini understood the need to destroy silos. So he was delighted to integrate functions and achieve economies of scale through improved integration. The move here was to create process-based operations – so for example, a single group handling procure-to-pay, rather than the original split between procurement, accounting and finance. Without handovers, conflicting measurements and incentives, complexity could be reduced and cycle times improved.

Passerini did not immediately start a process of outsourcing (though he did move quite rapidly to offshoring to captive centers). He is convinced that cost-based outsourcing will often fail – because the process won’t work. Therefore his philosophy is to get the process right before you outsource (and in the case of Procurement, they actually decided not to outsource at all). The result is that, when outsourcing occured, the provider was delighted to receive the P&G staff – and rapidly used them as a source of competitive advantage.

“‘By outsurcing the the more repetitive commodity work … we could in effect de-commoditiize our shared service business and allow it to focus on innovation and developing new business capabilities”, commented Passerini.  This approach has ensured that the relationship with outsourcing providers remains collaborative and strategic. And it has led to the shared services organization not only being highly valued as a source of competitive advantage, but also viewed as a positive career opportunity.

To protect this vaue-add, P&G have separated the resources focused on continuing cost reduction from those focused on innovation. Passerini recognized the danger that ‘a one-sided focus on costs could undermine the building of business capabilities’.

There is so much in this message that is relevant for our community. The approach and model aligns directly with the service delivery model promoted by IACCM. And the challenges that Passerini outlines are precisely those that we find inhibiting progress by many in our community. The benchmarking we offer through the Capability Maturity Model has demonstrated the constraints that many face as a result of inadequate technology solutions and the weaknesses of process, as opposed to transactional, perspectives. This traps many or our members in transactionally-focused groups that are limited in the value they can deliver or demonstrate to the business.

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