To survive the pandemic, enterprises need to disrupt themselves to adapt to a disruptive environment

As many countries gradually inch back to some form of normalcy after the Covid-19 lockdown, there might be a temptation to just gloss over the systemic threats that appeared at the outbreak of the pandemic. I covered some of those threats in a previous blog post, namely that economic systems shirk responsibility, as was seen in the dramatic surge of unemployment in the US and the millions of Indian day laborers left to their own devices scrambling to get home during the lockdown. Similarly, that organizational models need rethinking. The restrictions on free movement and shut down of production and economic activities means traditional management structures and chains of commands need re-evaluation and we may see more de-centralized organizational models starting to emerge. And lastly, that Global Sourcing is being challenged by populist overtones, as was seen with as Japan’s call for a decoupling of Japanese companies from China.

Organizations can neither influence the public health responses to the pandemic nor can they change societal structures by themselves. But they can prepare for the restart of the economy and, what appears to be even more important, for any potential second wave of Covid-19 or other pandemic threats. Suffice it to say, the implications of all this are immense. Much boils down to the question of whether we need new playbooks for sourcing to prepare for the unknown. To help me work through some of those issues, I sat down with Srinivas Krishna, Partner at management consulting and sourcing advisory firm Avasant. Srini is the type of personality that you need in times of crisis. His calming mannerisms coupled with outstanding analytical skills really help you to cut through the noise of the market commentary. But probably more importantly, his insights are underpinned by the experience of managing the complexity of Microsoft’s back-offices. Put another way, he has fought many transformation battles.

Srinivas Krishna

Avasant’s Srini Krishna deconstructs the sourcing challenges in the wake of Covid-19

Srini, you have been through many turbulent times in your career. How are the discussions with your clients during the Covid-19 pandemic different given that the industry has not faced anything comparable?

Over my professional career, I have witnessed a few business crises that were not confined to a country, region, or industry segment. Rather, these were globally pervasive and were not particularly selective of the industry or societies they impacted. One can think of events like 9/11, the financial crisis of 2008, SARS, Ebola, and so on. These adversely impacted businesses and to some extent shaped our social lives. What makes the current pandemic caused by the COVID-19 virus so egregious and epochal in human history? For the first time in peacetime human memory, governments, businesses, and societies out of their volition brought the economy and normal social functioning to a standstill. Literally overnight the economy ground to a shuddering halt, shops and businesses were closed and people were banned, in some cases with serious repercussions for non-compliance, from meeting one another and forced to live in isolation. Families were torn asunder as the elderly could not meet their children and grandchildren; they could not bid farewell to their dead, traditional forms of greeting were banned. And all of these were not restricted to one or two regions in a country, or a few countries, but every country in the world irrespective of political orientation and ideology, democracy, or dictatorships, developed or developing shut down. Business continuity and disaster recovery plans of corporations, crisis management plans of governments drawn up over years of thought and planning seemed irrelevant and of no use. Was this near apocalypse situation one of the scenarios factored into the plans?

The pandemic per se should not change the core vision of your organisation. Short-term exigencies will for sure influence immediate actions. For example, cost optimisation is crucial given an uncertain recovery period. However, one cannot merely be an optimist and assume that current problems will tide over, and the sun will shine in a year or 18 months, it may, or it may not.  Nor can one afford to be unduly pessimistic, that will amount to losing faith.

Further leaders need to desist from looking for “easy or quick short-term solutions” to get through the current problem or frame long-term solutions based on events of the recent past. Even as scientists grind away in labs trying to understand the virus there is no let-up in the easy and fast acting “solutions” or medicines that spring ever so frequently. In the same way, there have been as many solutions being offered to business problems, “move from just-in-time to just-in-case”, “reduce office-space and have most employees working from home” and so on. American journalist and satirist, H L Mencken is supposed to have said “For every complex problem there is an answer that is clear, simple, and wrong”. He could well be spot on in today’s environment.

Organisations need to spend time to dispassionately assess themselves against the reality of the events of the pandemic. This cannot be a political finger-pointing exercise rather a root-cause analysis of every aspect of the organisation against the backdrop of its longer-term vision ranging from the operating model, go-to-market channels, service delivery models and channels, economic structure, decision-making, not just the process per se, but also the diversity and inclusiveness of data and opinions, the organisational mindset, skills and competencies and so on.

Do we need new playbooks for sourcing? In my view we must help clients to prepare for the unknown. Thus, service delivery must be elastic and able to adapt to change.

COVID-19 has thrust us deeply and rapidly into perhaps one of the greatest unknowns we have experienced in recent times. The egregious nature of the impact combined with its ubiquity have led organisations to significantly change the way they work. The key here is the rapidity with which the events unfolded, and the affects spread through different parts of the organisation. Using an analogy to the human body, every part of the organisation had to respond instantaneously to the onslaught of the virus! Organisations with the requisite immunity and variety within themselves to manage the environment have come out better.

This has been apparent in the sourcing models that most organisations have deployed. Over the past two decades, businesses have outsourced and offshored swathes of functions ranging from manufacturing, customer facing operations to back-office functions like Finance, HR, and IT. A key feature of this trend has been the concentration of outsourcing to a handful of geographies. As economies went into lockdown, outsourced operations offshored were under pressure to keep their lights on. The problem was not just that the outsourcers’ economies and societies shut down the outsourcing and offshore destinations too closed. Thousands of people in India, China, Philippines, Eastern Europe, and other favourite outsourcing destinations who manufactured, processed, and spoke to customers could not go to their production and delivery sites. Outsourcing service providers scrambled to enable their employees work from home. But this was not possible where manufacturing had been outsourced. Wuhan, the provenance of the Covid-19 virus, accounts for a lion’s share of laptop manufacturing whilst cities in South Korea that supply 70-80% of the demand for laptop and smartphone screens were amongst the first to close.

Lean supply chains and sourcing contracts designed for cost efficiency could not cope with the panic fuelled demand surge for groceries, toilet paper, hand sanitisers, laptops, Wi-Fi dongles, etc, Organisations reliant on outsourced services to engage with their customer found themselves closed to their own customers.

This has, and rightly so, ignited a debate on relooking at supply chain and sourcing model design and revisiting sourcing contracts; clients are starting to talk to us with the conversation centring around two themes. First, creating a sourcing model, whether products or services, that is elastic and flexible to effectively respond to the unknown. From a “just-in-time” model which has characterised business model design for the past four decades, thinking is leaning to “just-in-case”. In the business process and IT outsourcing space, there have been discussions on increased offshoring or reassessing service provider obligations and commitments in the event of disaster recovery like the ongoing pandemic.

The second theme shaping these conversations is on supplier obligations in response to such extreme operating conditions. Services contracts typically set out performance standards to be met by providers under normal business conditions. These include exceptions and caveats to these standards under extreme situations triggered by disasters. The current pandemic has taken business continuity and disaster recovery plans beyond the realm of the expected. With every city and town in the world in forced shut down mode, the notion of alternate sites or business continuity were rendered irrelevant.

These issues about whether we should look for new playbooks for sourcing, increased supplier obligations, or greater offshore work and so on, in my view need to be treated with caution. These are complex and nuanced and cannot and should be subject to linear causal relationships. As I mention above, you run the risk of arriving at entirely incorrect conclusions.

The fundamental question at hand, Covid-19 or otherwise, is the one on the adaptability and flexibility of organisation models. To me, this is a sine qua non, there cannot be any debate on this basic requirement. Organisational adaptability is a holistic concept that spans the “hard-bits” and the “soft-parts” of the organisation ranging from its systems, processes, technology, partner ecosystem to mindset, decision-making styles, ability to manage diversity of views and opinions. These adaptability features appropriately orchestrated determine its ability to prepare for the unknown and adapt to changing operating environments. Further, in the emerging digital world, where an organisation cannot be expected to possess all the requisite skills and capabilities, success will be determined by the ability to manage an ecosystem of partners. In such a federated ecosystem, it is essential that each partner feels valued and is willing to go the extra mile to make the ecosystem a success.

The question is not if an organisation should think of a new sourcing playbook. Rather, it is about having a playbook appropriate for them that enables the organisation meets its objectives, in this instance, flexible and elastic operational capability. Organisations should be focussed on the constituents of their sourcing playbook; what are the essential organisational attributes it should help deliver? The specific situation caused by the pandemic is one scenario amongst a whole spectrum of scenarios that should be considered.

How do you guide your clients on Intelligent Automation and Digital Labour in these pandemic times? RPA was immensely helpful for productivity gains, but how do we progress to end-to-end automation and truly “digital” labour?

The RPA story was always an incomplete story, constructed and told imperfectly. RPA has been presented as a set of discrete tools deployed in parts of a process to drive transactional efficiency. Over the past five years companies have deployed RPA in droves that seemed to reminiscent of the dot-com times. In some respects, the comparison is not too dissimilar.

After years of technology transformations, business process reengineering, focus on core competencies, outsourcing and offshoring, corporations were faced with a dilemma. Organisational productivity, even country productivity was plateauing. There was a growing resistance to investing in large transformation programmes. There was growing dissatisfaction and frustration within business and market-facing teams with IT function’s involvement in transformation initiatives, bureaucracy and cumbersome being the favourite themes.

Against this backdrop, RPA was the warm zephyr blowing across the corporate firmament after a long cold winter. It was the panacea businesses were looking for to solve the productivity conundrum. RPA’s proposition was in its low invasive and quick return deployment. Unlike other technology deployments, RPA could be implemented rapidly without the investment of large resources, both people and financial and involving substantial invasive interventions into existing technology stack; the icing on the cake was the short payback. For market-facing and business groups, its attraction lay in not having to involve IT function to deploy, its structure meant that more often than not, it did not sit on top of the underlying enterprise technology stack, hence did not require internal approvals from the CIO prior to deployment.

Business teams across organisations raced to deploy RPA in their areas claiming productivity gains. A senior executive at one of my clients, a FTSE 100 global corporation, talked to me about nearly 30+ teams across the company’s corporate office designing and implementing RPA expecting more than 1,500 bots in 12 months. Another London headquartered financial services firm was working towards deploying 100+ bots in their P2P, Banking and Treasury functions, in 9 months.  At first sight, these and many more reported in the media, pointed to the promised land, and righty so reflected in the RPA company valuations.

The head of my London-based Financial Services client, who approved the RPA programme, mentioned to me that upon reflection points to the problem with RPA and the incompleteness of its story. He spoke about islands of bots strewn around his business, disjointed parts of business processes automated, team leads asking for additional budgets for enhancing their individual automation programmes, “digital” labour sitting alongside human labour, inability to scale automation, micro-level gains not adding up to organisational value, RPA not fundamentally reimagining the business model, what happens to the enterprise’s technology architecture if there was a proliferation of automation, and so on.

Our conversations with our clients have and continue to be focussed on the broader organisation transformation agenda. We help them to focus on rearchitecting their business, rethinking their value chains, transforming business processes end-to-end, not tactical automation to drive short-term isolated gains rather view automation as part of a holistic palette of digital technology to configure appropriate to create the enterprise that can adapt to the digital future. The focus of this transformation is not just about attempting to drip-squeeze short-term transactional productivity, rather sustained end-to-end operational efficiency and effectiveness that delivers economic value. The focus is not creating islands of productivity isolated from one another, rather creating an end-to-end intelligent platform that delivers productivity across the organisation.

This holistic construct to architect the digital enterprise allows for a debate on the human side of the organisation. How does the organisation prepare and skill its human resources to prepare for and operate in a digital environment? What is the role of the human in a world where many hitherto “people-run” activities are now performed by bots? How do organisations construct their delivery chains, captive or outsourced, on-shore, near-shore, or off-shore? Do these constitute a genuine trade-off to be decided by business leaders or are they merely a red herring? Like driverless cars can we imagine “human-less” processes where such categorisation of “labour” is possibly irrelevant? In a post-pandemic world where remote working has become acceptable and “business as usual”, how will it shape our views on labour and process resourcing? How would this square up with automation and digital technology?

The essential point is that our conversations have at their kernel the principle that enterprises need to disrupt themselves to adapt to a disruptive environment. This requires a fundamentally different approach to transformation than merely hanging one’s hat on one lever. Enterprise disruption is about:

  • Reconfiguring the value-chain,
  • Business process transformation; and,
  • Creating competitive differentiation.

This requires a holistic and an end-to-end approach that addresses and answers each tenet of enterprise disruption. However, enterprise disruption by itself whilst critical is not going to be enough. The ability of the individual to accept, adapt and succeed in the digital environment is going to be key.

What is the end goal clients should prepare their operations for? We at Arago focus a lot on helping the established economy to withstand digital disruptors and transition to the knowledge economy. What is your thinking and advice to clients?

Disruption is core to the natural way of life and business. Over the course of history, humankind has witnessed to much upheaval many of which caused epochal changes to agreed ways of living and commerce. Essayist, Nassim Nicholas Taleb in his 2007 book The Black Swan argued that “a small number of Black Swans [i.e. rare and unpredictable outlier events] explains almost everything in our world, from the success of ideas and religions, to the dynamics of historical events, to elements of our own personal lives.

Taleb sets three criteria to identify a Black Swan event. In the first place, the event is a surprise (to the observer), it is an outlier. Second, the event has a major effect. Lastly, after the first recorded instance of the event, it is rationalised by hindsight, as if it could have been expected; that is, the relevant data were available but unaccounted for in risk mitigation programs. The same is true for the personal perception by individuals. According to Taleb, the COVID-19 pandemic is not a black swan, but is considered to be a white swan; such an event has a major effect, but is compatible with statistical properties.

Our belief is that disruption is inexorable, can occur in any number of ways, emerge anytime with the ability to upend markets, strategies, processes and people, and can manifest itself along a range of vectors making for complex causal relationships. Through conversations with our clients, we focus their attention to building the essential adaptive capabilities to disruption. Our emphasis is on helping organisations architect the requisite adaptive variety in themselves to be ahead of the curve, to have the skills, expertise and technologies to leverage the crest of the disruptive wave whilst possessing the necessary resilience to withstand and mitigate the negative effects and core continual learning ability for the organisation to self-heal, correct and renew from the disruption. Adaptability, resilience, and learning are the three key pivots of the future-state organisation to architect itself to ride through and withstand disruption.

Adaptability: it is the ability of an organisation to adjust itself, organisation model, market engagement channels, business processes, delivery operations, behaviours amongst others to changing circumstances. This includes an ability to track and understand discrete trends in the environment to prognosticate potential movements across different vectors e.g., economic, political, market, technology, amongst others to build potential future-state scenarios to assess impact(s) and identify alternate strategies to be ahead of the curve. Organisational adaptability also includes softer aspects like culture, decision-making capabilities, leadership capabilities etc.

Resilience: it the degree of elasticity of the organisation to withstand disruptive shocks and rebound to the original state. Whether it relates to the business model, channels, business operations, technology architecture, resilience reflects the organisation’s ability to withstand stress. For example, the elasticity of the supply chain when a key input supplier fails or cannot perform.

Learning: Organisational learning is its ability and that of its members to continually learn and transform itself.

We guide our clients towards developing a future-state model that reflects these key pivots. It reflects a state of preparedness and elasticity to withstand systemic shocks.

Human progress has been periodically punctuated by disruptive events causing upheaval and turbulence in the systems. Whether caused by nature or created by mankind, they have shaped the course of civilisations, nations, republics, societies, corporations, and businesses. Systems that have demonstrated greater anticipatory abilities, capability to track, analyse and interpret environment and organisational metrics, enhanced adaptive capabilities, built resilience, and demonstrated continual learning have survived and emerged stronger from the disruption. This is the end-state the organisations need to strive to achieve.

Srini, you have provided the perfect antidote to the noise in the market. Your vast experience of fighting in the trenches of many back-office transformation projects is clearly shining through. And great minds think alike – my colleagues have called our Business Continuity and Digital Labor solutions that are meant to mitigate the challenges of Covid-19, Black Swan!

 


Tom Reuner

Tom Reuner

Head of Strategy