Success Driver 2: Building and Evolving Effective Partnerships
Outsourced partnerships are defined by their underlying integration activities—a holistic set of interrelated roles, processes and management of upstream supply chain activities. During ideation, these activities include defining consumer-centric platform features and design. During development, they include activities like sub-system prototyping and testing manufacturability. One defining capability of leading orchestrators is their ability to both establish the right partnership structure and then evolve it through changing objectives and market dynamics when outsourcing critical integration activities across the value chain and innovation lifecycle.
Building the right partnership—Leading orchestrators establish effective outsourcing partnership by defining correct spans of control in coordinating and managing upstream value chain activities with key partners and injecting the appropriate level of competition. Maintaining excessive span of control forces orchestrators to operate in areas beyond their core competency and leads to unfocused execution. Giving up too much control to suppliers can threaten intellectual property (IP) and promotes development of undifferentiated solutions.
Defining the appropriate level of control requires systematic assessment of the underlying risk versus opportunity considerations as depicted in Figure 4. The orchestrator must objectively decide if it has the necessary in-house expertise to actively manage upstream sub-contractors and integration activities or if it should delegate to its key partner. Also, the degree of contractual and incentive mechanisms protecting against IP risks is also a consideration on the degree of retained control vs. delegating to partners of upstream value chain activities.
To illustrate, Apple consistently employs a tight span of control of its outsourcing activities even in “non-core” production logistics activities. Rather than relying on external manufacturing partners to turn-key coordinate new product activities, Apple manages key upstream supply chain activity points such as factory-to-port logistics to guarantee end-to-end IP security and zero product leakage. As illustrated on the vertical axis on Figure 4, Apple’s need for IP security and launch secrecy demanded a tight span of control across most of its outsourced activities for the iPhone platform.
Establishing the right level of competition is the second skill in defining right partnerships. Best-in-class orchestrators systematically manage their key development and integration efforts to enable increased competition across the lifecycle. As depicted along the horizontal axis in Figure 4, orchestrators enable competition through ensuring modular design and minimizing asset specificity, or dependency on external partner for specific capital and/or technology know-how.
Increased competition not only ensures optimal costing but also increases capacity flexibility and risk redundancy. Cisco is an example of a leading orchestrator who systematically guides platform development trajectory to enable competition. While early stage prototyping may rely on a key technology partner with specific know-how or capital assets, Cisco aggressively pursues rapid iterations of redesign enabling a more modular design as well as increase sub-component substitutes in moving from prototyping to production. Cisco also employs different strategies to secure critical IP rights—such as paying an upfront premium to secure all IP ownership; or splitting IP ownership by market application and software versus hardware with its key partners to protect core commercial IP.
Evolving the right partnership—Savvy orchestrators evolve partnership structures to ensure sustained outsourcing performance since changes in the organization strategy and external industry dynamics necessitate redefining span of control and level of competition.