In Focus: Services Globalization — Helping Companies Manage in a Weakening Economy

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Eugene Kublanov, Chief Executive Officer , neoIT (Apr/May 08)

With economic uncertainty challenging the companies of the Global 2000, is now the right time to accelerate a services globalization strategy? The answer is yes — without a doubt. Forward-looking companies are viewing the global economic downturn as an opportunity to reduce costs and streamline operations by evolving their services globalization strategy. Rather than waiting until the economy recovers, these companies are taking steps today to optimize their global supply chain and locate operations in the most profitable and efficient locations in the United States and abroad.

The good news is that unlike the last economic downturn, customers and service providers have a deeper understanding and sophistication about the benefits of the global business model. Many are ready to act, but are without a clear roadmap. The current downturn is a unique opportunity to move beyond the ”staff augmentation” approach of recent years that reduces costs but does not take a strategic service level-driven approach to the relationship. An equally significant opportunity is to manage global services agreements across business units and geographies more strategically and profitably.

Companies seeking to maximize benefits from a services globalization strategy in today’s business environment should consider the following initiatives:

• Tailor globalization initiatives to the current economic slowdown to reduce costs immediately. Because market conditions have changed, companies need to determine if the programs already in place address the economic realities of today’s marketplace.
• Optimize efficiency between business units, IT infrastructure, and applications. A full audit of the Demand Management Process is one of the most effective ways to identify opportunities to reduce costs and eliminate waste.
• Update performance metrics to ensure that services globalization initiatives deliver on the promise. Many companies are initially thoughtful about performance measures, but never revisit those metrics in any meaningful way after the program has been put in place.
• Consider bargain-hunting for new lines of business or to restructure existing lines of business. Companies with optimized global services supply chains are better positioned to successfully integrate newly acquired or expanded business lines and generate the shareholder value that can be so elusive in merger and acquisition transactions.
• Go back to vendors to renegotiate dated contracts or those that are disadvantageous in the current environment. Slackening business conditions can be a powerful argument to secure more favorable terms with suppliers.

Companies that move aggressively to reassess their globalization initiatives, re-balance their portfolios, and ensure that these initiatives are well-aligned with business objectives will manage the current economic slowdown more effectively. Organizations that don’t act decisively will face mounting financial and operational pressures in the next few years.