Leveraging Outside Help

Steve Rosenstock

7/1/2007

Procter & Gamble Chairman and CEO A.G. Lafley has said, "You do what you do best and can do world-class." Similar thinking throughout the consumer goods (CG) industry has led more companies to outsource noncore business functions . This month,CGT sat down with Raj Mamodia, who heads the consumer goods practice at Cognizant Technology Solutions. Mamodia taps more than 14 years of experience working in the manufacturing, IT services and consulting industries to discuss the factors driving this shift and the processes that are most being outsourced.

What factors drive a CG company's strategic decision to outsource?
MAMODIA: Outsourcing is not new to the CG industry; however, there has been a recent shift in thinking toward using outsourcing as a strategy to gain competitive edge rather than as a measure to merely gain efficiencies. For example:
>Leverage "best-in-class" competence: Leveraging the outsourcer's experience to ensure every business and support function is "best-in-class." A mix of strong domain skills and proven technology expertise drives this.

>Drive innovation: As outsourcing decisions become more strategic and partners take on end-to-end ownership of key business functions, outsourcing has become a key source for innovation. Rather than leveraging labor arbitrage to lower delivery costs, CG companies now look at maximizing returns from intellectual arbitrage (for example, access to the best and brightest minds within the outsourcing partner's global talent pool) to spawn more innovative uses of IT and drive competitive advantage. CG companies are increasingly looking at outsourcing providers as partners and not just vendors. By building domain expertise in the client's business area, outsourcing firms are now seen as transformational agents that can help enable business process innovation.

>Focus on core competency: Once the company identifies its core competency, it focuses all of its energy and resources on developing it further, creating a unique value proposition. It then looks to a partner to assume responsibility for other non-core areas -- companies that have demonstrated competence in those areas.

>Continuous (24x7) global delivery model: Many outsourcing partners are spread across geographies and time zones. CG companies can make the most of a continuous delivery model or "follow-the-sun" approach.

>Partnering for local markets and increasing overall market reach: Customerfacing roles, like field sales force, field sales data gathering, etc., are best done by those who understand that market best. Outsourcing partners have created specialized competence in such fields to help a foreign player set shop in no time. Time-to-market is greatly reduced.

>Resolve ambiguity and increase control: Contrary to the popular belief that outsourcing adversely impacts control over business functions, clearly defined governance elements and a sound program management office ensure greater visibility and control over targeted initiatives such as yearon- year process improvements and cost savings. Leading outsourcing providers have comprehensive processes and tools to facilitate collaboration and transparency.

What new areas are companies beginning to outsource, beyond IT?
MAMODIA: Though synonymous with outsourcing, there's more to outsourcing than just IT. The idea is not just to cut costs, but also to gain from the specialist domain knowledge of the outsourcing partner who brings in the best-in-class competence to the table.

>Gathering consumer insights/insights as a service: Outsourcing partnerships are occurring increasingly in the areas of gathering data from the field and from syndicated sources, like ACNielsen and IRI. What is even more interesting is the trend toward outsourcing the entire insights generation and sharing function wherein the outsourcing partner collects and collates data from various sources (including your organization data) and delivers insights to your desk. Technologies like hand-held devices that plug data into the backbone system are revolutionizing the data collection process.

> Logistics: The "best-man-for-the-job" adage has evolved into the best company for the business function. A dedicated logistics company is more inclined to adopt cutting-edge optimizing solutions, like a transport management solution or RFID-based tracking mechanism, as it is their core business. Such an investment may not make sense for a core CG company.

> Manufacturing outsourcing: Companies now collaborate rather than compete on every front. The majority of components in any one brand of consumer durables today are outsourced to vendors that provide desired production quality at the most competitive cost.
> Outsourcing transactional processes: CG companies are partnering with service providers for outsourcing transactional work such as accounting/payroll processing, HR systems, customer care and facilities management.

> Product development/R&D: Once considered to be a sacrosanct internal initiative, companies are now slowly considering alternatives to spending millions on in-house R&D. R&D by nature is a highly iterative process with huge amounts of data being generated at each and every stage; an efficient data management system enables faster time-to-market.

How should CG companies tackle the challenge of building an integrated marketing platform?
MAMODIA: The demands of transparency and quantifiable measurement facing CG marketers can be overcome with information technology solutions that facilitate truly integrated, closed-loop marketing programs. These solutions are termed "marketing resource management" (MRM) or "enterprise marketing management" solutions. They provide marketing organizations tools to more effectively collect and manage marketing assets, optimize marketing spends and establish best practices and standardized marketing processes and frameworks.

MRM improves marketing efficiency by creating a single system of record for managing marketing operations. MRM also streamlines the marketing process, enabling distributed marketing teams to work in a collaborative, yet centralized, fashion through the use of templates, asset libraries and portal interfaces that support coordination of global marketing initiatives. MRM also drives marketing accountability by helping marketers initiate and coordinate programs, monitor spending, allocate resources, and manage review and approval processes.

Such solutions allow companies to benchmark campaign performances across geographies with historical data for continuous evaluation and improvements. They feed customer insights into relevant processes to maximize impact. They also measure and improve marketing ROI by providing the tools and techniques for effective data gathering, and generate meaningful metrics that correlate directly to the organization's revenues and profits.

When CG companies make the move to deploy integrated, end-to-end marketing solutions, it's important that they choose vendors that combine the most up-to-date technology with strong industry knowledge.

The outsourcing partner's functional capability should allow it to offer the entire range of enterprise marketing solutions, including those best suited to the organization's marketing needs. Its approach must take into account the company's existing marketing systems architecture and optimizes the change required to provide the end-to-end functionality needed to achieve significant benefits. In addition, the partner's strong technology capabilities and process maturity must be in place to give it the ability to perform a needs analysis and to handle deployment, testing, training and change management, the entire length and breadth of the technology and domain space. CG

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