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Written by Jennifer Read   
Wednesday, 01 April 2009 17:40

Global Sourcing

In outsourcing, Envy – or imitation – is neither fun nor useful.

The fourth of the Seven Deadly Sins is one of our favorites. In fact, it was the inspiration for this series of columns. Envy is unique in that it is the only sin that lacks a pleasurable angle. It is in no way fun – just mean-spirited and sad. Envy can be summed up by this quip from H.L. Mencken: “Happiness is making $10/hour more than your brother-in-law.” When you rejoice in another’s misery, you are at the bottom of the barrel.

Envy’s Latin derivative is Invidia. In outsourcing terms, we call it “imitation.” In the outsourcing relationship, we see the effects of Envy in a corporate culture that fails to innovate, and falls into the trap of imitating competitors rather than taking risks with truly new products and services.

While many consultants, us included, encourage the right kind of benchmarking, when Envy is in charge of an organization, the concept can be self-defeating. Why only study successful companies? Success is time and market-sensitive. It is by definition subjective because things change with time, and studying a company at one point in time is akin to viewing a snapshot, not the whole picture. For a while, Dell was a benchmarker’s dream because of a business model that seemed to enable them to spin gold out of straw: It invoiced customers before paying suppliers. Its supply chain was the answer. For years, every business conference included a speaker from Dell so the rest of the industry could “benchmark” its success. But maybe the company was just in the right place at the right time. It has since fallen out of favor. Studying something as subjective as success is a type of philosophy, not business analysis.

By studying failures, there is more to be learned and applied to future business. Failures are the result of fundamental errors. We should now all be carefully studying Bernie Madoff and his Ponzi scheme. How could all those smart people have been so stupid? Shouldn’t they have known it wasn’t real, that no investment manager can deliver those returns? What exactly did he say to make people believe the unbelievable? When you study failure, you can find the root cause. They failed because of some objective mistakes. Why is GM teetering on complete failure? It is possible to retrace the history of the organization and see in hindsight what went wrong. Sometimes failure is the result of bad decision-making, misguided strategy, greed, incompetence, bad luck, and/or bad timing. It is usually a lot more obvious in retrospect. There is really not a lot of ambiguity about failure: It is objective and actionable. It is much more difficult to attribute specific causes to successful strategies.

Envy is the engine of the marketing world: “Don’t hate me because I’m beautiful” (but really, I’m fine if you do). When the electronics industry outsourced manufacturing, it was to focus on core competencies of marketing and product development. But true innovation is a lot riskier, and now it seems that in many electronics organizations, marketing is king.

Take, for example, the iPhone. Every cellphone introduced in the past few years is an iPhone knockoff. Is it really the perfect cellphone? Some people don’t like it. In many arenas of electronics, arguably the greatest innovation of all time, products quickly become commodities because of the flood of knockoffs. True innovation, and the necessary accountability that goes along with it, is rare.

Let’s do some math. Fortune 500 companies generate about $26 trillion in annual revenue, if you add it all up. If they spend 5 to 6% on R&D, that’s an investment of $1 trillion to $2 trillion a year. Over 10 years, that’s $10 trillion to $12 trillion. Forget the stimulus package – corporations have been spending trillions on research and development for a long time. What is the result? The innovation curve of the first few decades of electronics was steeper than today, especially in hardware. Is outsourcing the cause? Is it more difficult to develop innovative electronics products when manufacturing is divorced from design? Watching films like The Right Stuff and Apollo 13 reminds us of the courage and engineering prowess of the early space pioneers, who left our planet in spacecraft that had the computing power of a calculator. Today, we seem focused on advertising innovation: inspiring commercials for endless consumer knockoffs fueled by Envy.

Who said necessity is the mother of invention? That’s the gift from this financial meltdown: the chance to start over again. We can perhaps rethink what is necessary and focus our innovation engine on leveraging the power of the electronics revolution for good. We won’t think only about what we could sell, but develop innovative products and services that address important challenges like energy and the environment. Even in the consumer space, let’s get serious. New ringtones are not innovation. Why must we have a cellphone and a Bluetooth earpiece? We should have one device that fits comfortably in the ear, or on a pair of sunglasses. How about a practical home robot?

The good news is, if you accept the premise that you can learn more from failure than success, it’s a great time to be a student! Much of what we believed to be true has been proven wrong. So it’s time to forget about benchmarking. It’s time to stop copying and start innovating. Rather than following the lemmings to sub-Saharan Africa for lowest labor cost, there are better ways.

Jennifer Read is cofounder of Charlie Barnhart and Associates (charliebarnhart.com); This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

Last Updated on Wednesday, 01 April 2009 11:49
 

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