How do we recognize the things we don't know exist? Some processes are hurting our productivity and we don't even know it!
Of all the reasons to strategically outsource, this can be one of the toughest one to identify as a real opportunity to innovate. We’ve all heard the expression “You do not know, what you do not know.” And when a company does not have the expertise in house, it’s often difficult to recognize that there’s a better way. Without expertise and a strong data feedback loop, companies tend to blanket issues with preventative measures, never really connecting true root cause and effect. Decisions are based solely on intuition, tribal knowledge or principles that changed so many years ago, they are no longer valid. And the problem is we don’t even know we are doing it.
The example I am going to offer to illustrate this point is an old one, but I love this story and if you are a car person at all I think you will find it interesting if you don’t already know it. It also illustrates the importance of sticking with your Core purpose, and why clarity around that purpose is so important.
Following the Second World War, Henry Ford II was looking to navigate a very tough transition following the death of his father and then grandfather. At the time, Ford Motor Company was using some pretty antiquated accounting practices to manage the business. Workers were paid in cash, theft of company property was common place and cash flow was managed using a Weigh Scale! Losing money on cost-plus projects, batches of invoices were estimated by weight, their systems were a mess. The existing establishment defended the status quo, offering historically justifiable reasons for each. "At one time, Henry Ford knew the price of every part on a Model T down to a fraction of a penny. After World War II, they were lucky to know the cost of a car. Their systems were a mess."
Losing more that $60 Million in the first eight months of 1946, the young Henry Ford II was looking to bring statistical rigor and modern accounting principles to Ford. He knew time was running out and at that monthly deficit he needed to make changes fast. Ford had slipped to third place behind General Motors and Chrysler, so Henry Ford II decided to open his check book, and bring a group of 10 Air Force Officers who had managed material logistics through the Second World War on board. With no back ground in Automotive, this group dubbed the “Whiz Kids” were behind the implementation of the financial systems, processes and measurables necessary to bring Ford back from the brink. In fact Ford’s explosive growth through the 50’s and 60’s created a lasting dynasty studied by Business and MBA’s to this day. Now many argue that this single minded focus on management-by-numbers led to the eventual decline of the North American Automotive Industry. Believing that all decisions could be made by numbers, the Whiz kids were unable to assign costs or build models to quantify quality, customer loyalty, new manufacturing equipment etc, and decisions made in the short term ended up hurting them long term. Ford became so enamored with costs and ROI’s that many argue they lost their passion for building beautiful cars. As a company their core expertise started shifting from making cars the public wanted, to managing costs, opening the door to competition who were more focused on the customer.
Many consider the Whiz Kids to be the 1st real business consultants in history. Bringing their specialized expertise to an aspect of the business that was not tied to the company’s core vision, they were able to quickly determine the KPI’s and measurables necessary to get control of this aspect of the business. Where no business today discounts the importance of financial diligence and process, at the time it was seen as a big risk to put the financial future of the company into the hands of 10 non-automotive Air Force Officers.
The challenge for any company is to know where their practices have become antiquated and no longer serve the best interest of the firm. Without the input of external expertise (often from different industries), it’s very hard to know when that time has come. Outsourcing, or at least investigating the opportunity to outsource non-core aspects gives your team exposure to new wells of knowledge, systems and processes allowing them to assess whether a change will in fact deliver a step-change in productivity or cost related to this aspect.
We do not know what we do not know, but we do know that in today’s rapidly changing environment, we need to keep testing the limits of our systems and knowledge, since new trans-formative technologies and global competition continues to move the needle. Strategic Outsourcing is one resource available to keep testing current assumptions.