In the Forbes article, Seven Lessons Every CEO Must Learn, on the Boeing debacle today, author Steve Denning identifies a number of problems contributing to the recent grounding of the Dreamliner.
A major theme seems to be the failure of outsourcing / off-shoring of components of the aeroplane. The article assumes this is a part of problem, but doesn’t give any information on why it makes the assumption.
It then goes on to bemoan the off shoring of critical components as part of the project and the loss of manufacturing capability to the USA, and proposes some solutions in terms of tougher metrics, reviewing past outsourcing decisions, bringing critical components “home”, doing more to assess the risk factors of offshoring and a great innovation. It’s really a recipe for not doing offshoring.
Leaving aside (1) the impossibility of a global organization with such a complex product making everything themselves, or even in one country, and (2) the fact that their major competitor Airbus is an entirely distributed organization with the different national organizations making major components, the article doesn’t talk about the management challenges of successfully integrating external organizations into your supply chain, whether domestic or international.
It would be almost impossible NOT to outsource.
Of course this comes with challenges. Many organizations are attracted to offshoring by the undeniable cost advantage, but underestimate the scope of the management challenge. Integrated supply chains are highly interdependent and sharing information and metrics is not enough.
We need to create a common way of working, common ethics and values and a management structure that enables us to be comfortable with managing people across distance, cultures, time zones and working through technology in complex organization structures.
In any external relationship, one of the key challenges is maintaining the balance of control and trust. It is simply not possible – or desirable – to micromanage international operations that work 24 hours a day on different time zones, so we need to build the trust and the shared way of working that means we know what we are getting, even when we are asleep. We can fool ourselves into thinking we are mitigating the risks with more analysis, spreadsheets and checks, but as repeated examples in a range of industries have shown this is no guarantee of compliance – whether within the USA or internationally.
In addition to sensible controls, we need to build capability in our people and the resilience of our extended teams that include suppliers, partners and customers. Managing external relationships is always more challenging – particularly when we add in the commercial aspects of the relationship. If these are not mutual there will also be a temptation to maximise the returns for one of the partners at the possible expense of the whole chain.
Some level of outsourcing/offshoring will always be necessary for any multinational corporation.Effective efforts don’t just look at the process and the costs. They consider the ethics and the management system that is required to make these more complex relationships work. It’s the management that will be the biggest factor in making it work, not the spreadsheets.
See more: our thoughts on managing external relationships.