Everyone is an outsourcer

I am an advocate of the outsourcing model. That does not mean I believe companies should send all of their jobs to another country. Rather companies should focus on their expertise not on "all the other stuff." If you look at outsourcing they way the typical middle class family does you would see that they have been outsourcing for some time. So much is outsourced that many people no longer what they are doing as outsourcing. Here are some examples of family outsourcing:

• Daycare or after school care
• Tax preparation services
• Dry cleaning
• Gardening
• House painting
• Plumbing
• Growing food
• Dining out or buy ready made meals
• Clothing (do you make your own?)
• Entertainment (movies, TV, sports)

This is not sending jobs overseas, rather it is freeing up time for higher value activities (ones you would rather be doing instead of these)

All of these things are forms of outsourcing and yes some of them are done overseas but a vast majority are local. Why do we outsource so much of our family work? Some would say because both partners are working and don't have time for these activities. I would argue that both partners are choosing to focus on higher value skills and outsourcing the items that can be performed with better expertise or for lower cost by someone else.

This is the most basic of arguments for the outsourcing model. What is your business and how does your business make money. Doing taxes is not about making money unless your are a tax accountant. Writing computer software is not about making money unless you are a computer software developer.

Most organizations need to be focused on product innovation not on how to complete their tax return, find the best office space, or the bookkeeping. When a company is small much of these activities are outsourced; what changes as an organization grows that requires these activities to be done in house? What activities are you as an individual still doing that should be sourced elsewhere to free up your time?

What the Heck is Namawashi

Want to get a decision made quickly and avoid countless debate in your next meeting? In Japan they have a term called Namawashi that essentially means do preliminary work to involve others before holding a meeting. In Japan there is the concept of not wanting to publicly embarrass someone you may think that you achieved agreement in a meeting only to find out later there may be even more dissension than before. What does this mean? In the US it is referred to as management by walking around; talk to your meeting attendees before pitching your proposal to the broader group.

Why would someone not doing business in Japan care about the concept of namawashi? Have you ever noticed that not everyone speaks up in meetings? Have you ever noticed that some attendees visibly do not agree with what is being discussed but say nothing? A Congressmen friend of mine once said, "don't call a vote unless you already know the outcome". This is good advice that applies outside of politics. Any amount of change whether personal or organizational starts with the individual, see my post book review: change management. One person can easily be pushed aside but a number of people united toward a common goal are much harder to push aside. Working one-on-one to build grass roots support will ensure that staff have a chance to air their ideas as well as concerns will provide insight into what others are thinking and enable you to tailor your presentation improving the opportunities for agreement.

In the west we expect to be invited to meetings to get the update or provide our opinion, in Japan it is namawashi that keeps people informed. If we, as western managers, adopted namawashi we would see much better staff engagement. Using namawashi you are selling your ideas one on one and allowing each individual to work through change in their own way allowing organizational change to be achieved. I have found that the team will be immensely more aggressive toward achieving the organizational goals when each individual has discussed her ideas, concerns and observations from their perspective. Meetings are more effective because all members are able to look around the room and see the level of engagement.

Share your thoughts about namawashi and how it might be effective in your organization.

Keep Your Measure of Project Success Simple

I was listening to the Accidental Creative Podcast where he was talking about setting aside personal creative time. What stood out in the podcast was the importance of defining success criteria even for personal projects. Why did that one piece resonate with me? As a business professional I have observed so many projects drag on to ultimate failure for any number of stated reasons; when in actuality there was no measure or definition of success before the project started. Now I know the technology professionals will tell you to look at their scope document it will state the success measures. I am going to argue that is not really the truth. the definition of project success needs to be so simple everyone can easily see that it was achieved.

Large projects should be broken down into smaller sub projects that can be measured with clear success. I think creative, technical, and operational professionals some times spend far to much time over complicating their projects and lose site of their objectives. Occam's Razor says if you are confronted with multiple solutions it is best to pick the simplest one. Warren Buffet is identified as saying, "if you can't explain what you do in easy to understand terms then you are either hiding something or have no clue what you are doing". Both are right. It is better to keep things simplistic to enable better operational control but also so you can apply your efforts effectively and to good result. It's no good if you give up because you just can't achieve "success" define it up front and you can succeed.

What are your thoughts about defining success up front in simple terms?

Negotiate for Time to Market Advantage

Negotiation is about knowing your limits, your opponents limits, and being willing to walk away without a deal. But what if you can't walk away? The two most often cited reasons for not being able to walk away are:

- The opportunity that you are working on is so great and the window so small that you have to have all components in place very quickly or miss it.
- The number of viable options in the marketplace is limited, essentially this is the only option

I have encountered both of these situations with one big project in late 2005. We had a unique opportunity to be a first mover in the marketplace and that the competition would be able to match us within a year of our start. Our initial assessment was to attempt to be up and running in 90 days from approval, a very optimistic goal. The first thing we did was address the market window, only to discover the challenge from our competitors would have been limited initially so we had a much larger window. We also new that given our superior position in the space and the pent up demand opportunity that a scalable organization was more important than rushing into the space. After several adjustments to the plan we knew our first customer should be acquired within ten months. So we set out to find a technology vendor that could deliver a complete solution in 6 months or less. unfortunately there wasn't any vendors in the space that had a viable product. So we set out to find a vendor with a similar product that we could work with to modify to meet the specific opportunity.

We identified a single vendor that had a flexible system and the talent to develop to our needs; given that there was only one vendor in available it appeared on the surface that our negotiation position was limited. However, we used the following techniques for great success:

- Leverage Quarter end and Year end targets to our advantage
- Let the vendor know you are willing to go without them (build internal if they won't play)
- Write a commercial as well as legal contract with tight service levels and compensation when not met
- Agreed to co-develop and co-own the intellectual property for reduced pricing
- Used cooling off periods and a "most favored nation" clause to ensure best pricing

The end result was the vendor believed that we could walk away without completing the deal, raising their fear of not completing the negotiation before year-end and potentially losing the sale. After several rounds and a forced cooling off period from our last negotiation we were able to get a solid contract that ensured we had the best pricing with the "most favored nation" clause. The vendor was able to work closely with our specialists and we delivered a successful business within 10 months and leveraging a window of opportunity well before our competition was able to enter the marketplace.

I would like to hear about other stories of negotiations, if you have some that you would like to share send me your comments.

Credit is tight Manage Your Capital

Much of what we are hearing in the press about the financial markets is beginning to spread beyond the finance industry. The cost of money (capital) has gotten very expensive and many capital providers are no longer issuing credit. Therefore as organization leaders, we should begin the process of capital preservation to manage through the economic downturn.

Maximizing profit is not your top priority in this environment, as this crisis continues there will be a negative impact to the overall economy and at this time, we should have a plan to address the worse case scenario. How quickly a business can ratchet down for the impending economic storm will be the difference between long-term survival or near term failure.

I have been talking with my colleagues and the common recommendation is a two-step plan to addressing an organization’s current capital position: Assess your current funding and then build your cash position

Assess Your Current Funding
Assessing the current funding is really looking at time, covenants, and lenders. The first, Can your organization survive on the funding from normal cash generating businesses or do you need regular working capital to manage the collections cycle? If you accelerate payment collection and receive no additional working capital infusions, can the organization remain solvent? Shorten credit terms with clients. For new business, ask for larger upfront payments. Second, ensure that these conservation activities will not place the organization at risk of a margin call and ask lenders with restrictive covenants for changes. Regularly check the status of the more difficult covenants working out limitations before they become an issue. Finally look at each lender, determine their viability in the marketplace. The lending community is rapidly adjusting its policies and target market daily therefore, many may no longer lend in the same business segments as before. To protect your organization, add credit lines with new working capital providers. Then, regularly talk to the lending community to gain insight into the availability of these funds. Applying these simple solutions will enable an organization to protect access to funding sources.

Build Your Cash Position
Cash is king and that means draw down your credit lines, delay payments, and control costs. After assessing funding it is time to draw on the credit lines and place the cash into your various bank accounts (be certain your bank is not at risk of failure). Remember the motto; “banks lend to those who do not need it”. Therefore, it is better to get the cash now. Second, review vendor payment terms and renegotiate; just like your bank loan covenants, tracking vendor payment terms will avoid issues later and contribute to the long-term reputation of your organization. Finally, and this is the most painful, start looking at your spending. There is significant overcapacity in the marketplace for almost all goods and services. Focus on the three most costly areas first: put expansion plans on hold, stop hiring, and reduce travel to “essential only”. These steps will allow you to stay liquid for longer period.

Recessions are part of the normal business cycle and the marketplace will have to work through the current overcapacity before a recovery can begin. Strategies for maximizing profit or market share can prove costly in this environment. However, a capable organization with proper working capital management and cost controls can come out the other side of this cycle positioned to take advantage of the next expansion.