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Global Sourcing of Design                                    Paul Henderson                      Managing Director – Clari...
Today’s topics How can we decide what to outsource?   • Framing the decisions and alternatives How do we organize to suppo...
Making Global Sourcing Decisions12/31/2010                3             © Clarify LLC, 2009 All Rights Reserved
Conventional Wisdom:“Outsource everything   that isn’t core”                © Clarify LLC, 2009 All Rights Reserved
In-Source   Outsource               © Clarify LLC, 2009 All Rights Reserved
Not Core Core           © Clarify LLC, 2009 All Rights Reserved
How upper management wants to think aboutoutsourcing:       Specs,       money,                          That thing those ...
But the choices are more complicated:Control sensitive IP                                                Mature technology...
The move to outsourcing follows a predictable path:    Step            Motivation               Characteristics    1. Capa...
Typical reasons for outsourcing design:• Faster time-to-market• Lower capital requirements• Utilize headcount for higher-v...
The biggest reason to outsource:      Because you can                                   © Clarify LLC, 2009 All Rights Res...
A Framework For Making SourcingDecisions            12            © Clarify LLC, 2009 All Rights Reserved
What to outsource?                                                                First, break the problem down           ...
Interfaces are everywhereSoftware  • APIs (Application Program Interfaces)Hardware  • GEMS (Geometry, Energy, Material, Si...
Whole subsystems                   Product                                                                         Example...
Lifecycle phase / activity                          Product                      Large                      format        ...
Whole product                         Product                     Large                     format                      Ai...
Evaluate each sourceable element:For each candidate element, we ask the following questions:   1. Is this important to the...
Choose a plan of action for each element                1           2                 3                 4                 ...
Key points to address using this framework Defining ‘source-able elements’ is about deciding which     interfaces you want...
Interfaces are not free Metcalfe’s law:      nConversations  (nStakeholders)                         2 Basic question: “W...
Structural Options For Managing             Outsourced Design12/31/2010                22            © Clarify LLC, 2009 A...
Some alternative structures for managing outsourceddesign:Coupled structure (warm bodies)  • The outside engineering team ...
Decoupled structure at HP: roles of internal,outsourced and offshore design groups                         Questions about...
Thoughts on selecting an outsourced design modelNature of the design context - maturity and separability:  • Platform vs. ...
Design out the failure modes Result                          Because: 33% Went well                   Modular design and/o...
PCs are easy, right?HP’s 441 ODM program                 27    © Clarify LLC, 2009 All Rights Reserved
PCs are easy, right?                  1               2                3                 4                                ...
441 Linux PC for developing countries New ODM PG processes needed for creating products to reach  developing countries The...
Doing due diligence: domain competencyLook really closely at what they have done in the past:• Is it really relevant?• Are...
The second biggest reason to outsource:    Because you must                                          © Clarify LLC, 2009 A...
Some examplesHospital beds with more technology than your carCars with more technology than consumer electronicsNew combin...
New capabilities – make or buy?             D.com12/31/2010                  33                 © Clarify LLC, 2009 All Ri...
Background: D.comSuccessful reference sitePrimary revenue from display   advertisingNeeded to develop new  products to esc...
Had been outsourcing from early onDevelopment processes including a change management system  (JIRA) to manage ticketing, ...
Some Caveats12/31/2010                  36   © Clarify LLC, 2009 All Rights Reserved
Implications for cross-generational evolution ofplatforms & architecturesOutsourced provider development•   Takes several ...
Outsourcing and startupsLots of pressure from VCs to use offshore developmentCan accelerate TTM if you have the right in-h...
Discussion12/31/2010                39   © Clarify LLC, 2009 All Rights Reserved
Cheaper labor is always better, right?             Kodak and digital cameras12/31/2010                   40               ...
“This isn’t working…”‘Before state’:   • No meaningful market share in digital     cameras   • Products are too expensive ...
Key strategic decision:“Where do we put the ocean?”                  Marketing    Design                                  ...
What do we do where? STRENGTHS:                    STRENGTHS:                 STRENGTHS: •95% of customers             •Hi...
Choose a plan of action for each element                  1               2                3                 4            ...
Solution: Source the best talentwherever you can find it.                          Acquire                          Chinon...
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Global Sourcing Of Design Santa Clara 10 12 2009

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Frameworks for choosing what kinds of design activities to consider outsourcing

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Transcript of "Global Sourcing Of Design Santa Clara 10 12 2009"

  1. 1. Global Sourcing of Design Paul Henderson Managing Director – Clarify, LLC October 12th, 2009 paul.henderson@ClarifyLLC.com12/31/2010 1 © Clarify LLC, 2009 All Rights Reserved
  2. 2. Today’s topics How can we decide what to outsource? • Framing the decisions and alternatives How do we organize to support outsourcing? • Integral vs. ‘modular’ • ‘Outsourcing’ internally Case example – Linux PC for developing countries Case example – D.com: bringing in new capabilities © Clarify LLC, 2009 All Rights Reserved
  3. 3. Making Global Sourcing Decisions12/31/2010 3 © Clarify LLC, 2009 All Rights Reserved
  4. 4. Conventional Wisdom:“Outsource everything that isn’t core” © Clarify LLC, 2009 All Rights Reserved
  5. 5. In-Source Outsource © Clarify LLC, 2009 All Rights Reserved
  6. 6. Not Core Core © Clarify LLC, 2009 All Rights Reserved
  7. 7. How upper management wants to think aboutoutsourcing: Specs, money, That thing those other require- people do ments plop! Perfect Result © Clarify LLC, 2009 All Rights Reserved
  8. 8. But the choices are more complicated:Control sensitive IP Mature technologyStable process Offshore Many can do itLower cost & time Meet country ofzone proximity origin requirements In-source Near-shore OutsourceLow-volume, high mix Onshore Relative advantageNo one else wants it Proximity matters See also: http://www.ventureoutsource.com/ © Clarify LLC, 2009 All Rights Reserved
  9. 9. The move to outsourcing follows a predictable path: Step Motivation Characteristics 1. Capacity Supplement internal Moving the simplest, lowest risk work to augmentation capacity to overcome partners (often with a lot of oversight and constraints driven by hands-on help from internal resources) peak demands 2. Pursuit of Safety valve for Belief that an outsourced model will be lower cost pricing/cost pressures cheaper (often not the case, especially at first) 3. Leverage Get more done with Onshore staff moves from a hands-on to a internal owned /onshore staff project or program management role, resources supervising the work of others outside 4. Reduce Reduce overall cost Formal adoption of an operating model US/EU structure that maximizes the use of offshore footprint resources and reduces or eliminates onshore resources © Clarify LLC, 2009 All Rights Reserved
  10. 10. Typical reasons for outsourcing design:• Faster time-to-market• Lower capital requirements• Utilize headcount for higher-value activities• Change fixed expenses to variable• Increase presence in a target geography• Access a new technology or unfamiliar market © Clarify LLC, 2009 All Rights Reserved
  11. 11. The biggest reason to outsource: Because you can © Clarify LLC, 2009 All Rights Reserved
  12. 12. A Framework For Making SourcingDecisions 12 © Clarify LLC, 2009 All Rights Reserved
  13. 13. What to outsource? First, break the problem down Product into “sourceable” elements. Large Each face of this cube is format an interface that must be managed AiO A Source- Photo able Element Low-end A size Pen Paper path ASIC Power Supply Service Station W/S Driver SW Subsystem Function or lifecycle stage Based on the work of Charlie Fine at MIT © Clarify LLC, 2009 All Rights Reserved
  14. 14. Interfaces are everywhereSoftware • APIs (Application Program Interfaces)Hardware • GEMS (Geometry, Energy, Material, Signal)Services • Exchanges of information & commitments © Clarify LLC, 2009 All Rights Reserved
  15. 15. Whole subsystems Product Example: outsourcing a whole Large format subsystem AiO (e.g.- power supply) Photo Low-end A size Pen Paper path ASIC Power Supply Service Station W/S Driver SW Based on the work of Charlie Fine at MIT © Clarify LLC, 2009 All Rights Reserved
  16. 16. Lifecycle phase / activity Product Large format AiO Example: outsourcing all Photo of one lifecycle phase Low-end A size (e.g.- assembly) Pen Pen Paper path ASIC Power Supply Service Station W/S Driver SW Subsystem Function or lifecycle stage Based on the work of Charlie Fine at MIT © Clarify LLC, 2009 All Rights Reserved
  17. 17. Whole product Product Large format AiO Example: outsourcing a whole product Photo Low-end A size Pen Paper path ASIC Power Supply Service Station W/S Driver SW Subsystem Function or lifecycle stage Based on the work of Charlie Fine at MIT © Clarify LLC, 2009 All Rights Reserved
  18. 18. Evaluate each sourceable element:For each candidate element, we ask the following questions: 1. Is this important to the customer (CAV)? Does it affect their sensory experience of the product? Are its specs purchase criteria? 2. What is this element’s clockspeed relative to the rest of the system or industry? Does it drive the evolution of the rest of the system? 3. What is our competitive position? 4. What is the architecture of this element? How clean are the interfaces? 5. How many suppliers are truly capable of delivering this element? Based on the work of Charlie Fine at MIT © Clarify LLC, 2009 All Rights Reserved
  19. 19. Choose a plan of action for each element 1 2 3 4 5 Customer Component Competitive Architecture? Capable Suppliers? Value? Clockspeed? Position? None Few Many Strong Any Invest to maintain leadership Acquire and consolidate Integral Fast Invest Acquire/Take Equity strategic alliance Weak Invest Acquire/Take Equity Buy off the shelf Modular High Divest or exit Strong maintain parity Maintain capability Slow Integral Directed Invest Joint development Development Weak develop suppliers outsource / multiple- outsource 0. Start source Modular Here spin out divest Strong Fast Integral change architecture Weak develop suppliers outsource Low Modular spin out divest divest or exit Strong change architecture Slow Integral Weak Any outsource © Clarify LLC, 2009 All Rights Reserved Adapted from unpublished work by Charley Fine, www.clockspeed.com
  20. 20. Key points to address using this framework Defining ‘source-able elements’ is about deciding which interfaces you want to manage: • Relationships between subsystems • Relationships between lifecycle steps • Relationships between products / product families If the impact on customer experience is not clear, model the result • Savings vs. lost sales or increase in warranty cost © Clarify LLC, 2009 All Rights Reserved
  21. 21. Interfaces are not free Metcalfe’s law: nConversations  (nStakeholders) 2 Basic question: “What kinds of problems do you want to manage?” © Clarify LLC, 2009 All Rights Reserved
  22. 22. Structural Options For Managing Outsourced Design12/31/2010 22 © Clarify LLC, 2009 All Rights Reserved
  23. 23. Some alternative structures for managing outsourceddesign:Coupled structure (warm bodies) • The outside engineering team actually becomes an integrated part of the internal team. • They are effectively the junior members of the team and their work is closely supervised by members of the internal team. • Communication is about the task.Decoupled structure (out-tasking) • The inside design team parcels out either parts of the system for the external teams to design or specifies tasks or parts of the process for the outside people to do. • The communication is at and about the interfaces.Co-sourcing • True collaborative development, leveraging the best of both • Communication is about the outcomes and interfaces © Clarify LLC, 2009 All Rights Reserved
  24. 24. Decoupled structure at HP: roles of internal,outsourced and offshore design groups Questions about specs and intent Escalations that can’t Questions that relate be resolved locally to system performance Onshore Offshore Offshore Internal 20% design 80% outsourced design design Subsystem responsibility, Answers to simple coaching system questions Specs, guidelines, coaching, answers to complex system performance questions © Clarify LLC, 2009 All Rights Reserved
  25. 25. Thoughts on selecting an outsourced design modelNature of the design context - maturity and separability: • Platform vs. product − Is this the first instance or a derivative? − How much new technology? − How complex the integration task? • Modular vs. integral − How well can the subsystems be decoupled? • Explicit vs. implicit − How well defined are the requirements & specs? − How consistent are the processes? − How well documented?Organizational culture – need for control © Clarify LLC, 2009 All Rights Reserved
  26. 26. Design out the failure modes Result Because: 33% Went well Modular design and/or effective management 67% Failed or 1) Misaligned objectives between teams went poorly -> use contingent contracts to anticipate renegotiation 2) Rivalry between partners who don’t want to source from each other -> use incentives for short term collaboration, award future business based on collaboration 3) Inadequate version control – lose the ability to rebalance inventory, leverage designs across products -> Watch ‘tweaks’ that can torpedo your objectives 4) Cultural barriers to transparency -> Insist on getting bad news early & reward candorStudy of 100 outsourced design projects at Fortune 1000 companies From: Disasters in Design Outsourcing – Amaral & Parker HBR Sep. 2008 © Clarify LLC, 2009 All Rights Reserved
  27. 27. PCs are easy, right?HP’s 441 ODM program 27 © Clarify LLC, 2009 All Rights Reserved
  28. 28. PCs are easy, right? 1 2 3 4 5 Customer Component Competitive Architecture? Capable Suppliers? Value? Clockspeed? Position? None Few Many Strong Any Invest to maintain leadership Acquire and consolidate Integral Fast Invest Acquire/Take Equity strategic alliance Weak Invest Acquire/Take Equity Buy off the shelf Modular High Divest or exit Strong maintain parity Maintain capability Slow Integral Directed Invest Joint development Development Weak develop suppliers outsource / multiple- outsource 0. Start source Modular Here spin out divest Strong Fast Integral change architecture Weak develop suppliers outsource Low Modular spin out divest divest or exit Strong change architecture Slow Integral Weak Any outsource Adapted from unpublished work by Charley Fine, www.clockspeed.com © Clarify LLC, 2009 All Rights Reserved
  29. 29. 441 Linux PC for developing countries New ODM PG processes needed for creating products to reach developing countries The HP Product team lacked basic PG & project management capabilities and had no experience managing development They had no way to evaluate the ODM’s progress and were at risk of missing their ship date and exposure to serious functionality & warranty issues Lessons learned: • Have some people on the team who had actually done product development before, including an architect & a QA person • Do due diligence on the partner’s true capabilities © Clarify LLC, 2009 All Rights Reserved
  30. 30. Doing due diligence: domain competencyLook really closely at what they have done in the past:• Is it really relevant?• Are the people who did it still there?Meet the people who did those projects• Get them on your design team & make sure they are taken care ofCheck for a deep understanding of your product’s context• Your application, target geography, target customerHow do they choose their partners?• If they outsource to others, how do they qualify their 3rd parties?• Look at: selection criteria, quality, IP management, etc. © Clarify LLC, 2009 All Rights Reserved
  31. 31. The second biggest reason to outsource: Because you must © Clarify LLC, 2009 All Rights Reserved
  32. 32. Some examplesHospital beds with more technology than your carCars with more technology than consumer electronicsNew combinations of technology• e.g.- GPS & GIS, sensors, database to find open parking spaces © Clarify LLC, 2009 All Rights Reserved
  33. 33. New capabilities – make or buy? D.com12/31/2010 33 © Clarify LLC, 2009 All Rights Reserved
  34. 34. Background: D.comSuccessful reference sitePrimary revenue from display advertisingNeeded to develop new products to escape commoditization (e.g.- games, mobile apps, etc.)Choice: hire in-house talent or outsource development of new products? © Clarify LLC, 2009 All Rights Reserved
  35. 35. Had been outsourcing from early onDevelopment processes including a change management system (JIRA) to manage ticketing, attaching all docs and requirementsThis forced the discipline of being explicit about requirements and expectations and the use of clear mechanisms for exchanging requests and agreements © Clarify LLC, 2009 All Rights Reserved
  36. 36. Some Caveats12/31/2010 36 © Clarify LLC, 2009 All Rights Reserved
  37. 37. Implications for cross-generational evolution ofplatforms & architecturesOutsourced provider development• Takes several generations to get them up to speed• Progression is from commodity design to subsystem design to entire cost reduced products to whole products Design + responsibility to suppliers SupplierBut… R1 success + + Internal• Erosion of internal capability support Ability to provided• Switching costs + switch - B1 + Internal capability © Clarify LLC, 2009 All Rights Reserved
  38. 38. Outsourcing and startupsLots of pressure from VCs to use offshore developmentCan accelerate TTM if you have the right in-house architecture team and manage the outside team wellCan incentivize the partner w/warrants in lieu of (some) cashButIt can affect valuation in M&A exitsAny uncertainty about IP can kill the deal © Clarify LLC, 2009 All Rights Reserved
  39. 39. Discussion12/31/2010 39 © Clarify LLC, 2009 All Rights Reserved
  40. 40. Cheaper labor is always better, right? Kodak and digital cameras12/31/2010 40 © Clarify LLC, 2009 All Rights Reserved
  41. 41. “This isn’t working…”‘Before state’: • No meaningful market share in digital cameras • Products are too expensive and unappealing • Customers, R&D + marketing in Rochester, manufacturing in US Marketing Custome • Having a credible camera offering was rs deemed critical to the company’s future credibility in the digital photo space Design Manu- facturingKey question: How do we configure ourselves to be competitive? © Clarify LLC, 2009 All Rights Reserved
  42. 42. Key strategic decision:“Where do we put the ocean?” Marketing Design Manu- Customer facturing s © Clarify LLC, 2009 All Rights Reserved
  43. 43. What do we do where? STRENGTHS: STRENGTHS: STRENGTHS: •95% of customers •Highly capable •Growing capability in •Existing R&D team manufacturing base manufacturing base •Deep understanding of US •Strong camera industry •No camera industry market & customers •Near comp. suppliers •Talent is 10% of US cost BUT: BUT: BUT: •Can’t design their way out •No customers •No customers of a paper bag •No R&D team •No R&D team •Talent is expensive •Talent costs 125% of US •IP protection is iffy •Weak manufacturing rate © Clarify LLC, 2009 All Rights Reserved
  44. 44. Choose a plan of action for each element 1 2 3 4 5 Customer Component Competitive Architecture? Capable Suppliers? Value? Clockspeed? Position? None Few Many Strong Any Invest to maintain leadership Acquire and consolidate Integral Fast Invest Acquire/Take Equity strategic alliance Weak Invest Acquire/Take Equity Buy off the shelf Modular High Divest or exit Strong maintain parity Maintain capability Slow Integral Directed Invest Joint development Development Weak develop suppliers outsource / multiple- outsource 0. Start source Modular Here spin out divest Strong Fast Integral change architecture Weak develop suppliers outsource Low Modular spin out divest divest or exit Strong change architecture Slow Integral Weak Any outsource Adapted from unpublished work by Charley Fine, www.clockspeed.com © Clarify LLC, 2009 All Rights Reserved
  45. 45. Solution: Source the best talentwherever you can find it. Acquire Chinon Manu- Market- Design Manu- Low-end facturin facturin Custom ing g only g ers © Clarify LLC, 2009 All Rights Reserved

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