Thursday, 8.11pm
Sheffield, U.K.
When a person with money meets a person with experience, the person with the experience gets the money and the person with the money ends up with the experience – Various
You come across many businesses that offer a service to other businesses – so when should the latter take the former up on their offer, and under what terms?
For example, let’s say you are a marketing agency looking to grow your client base – why and how should someone work with you?
I was rummaging through my files and came across an adaptation of the Outsourcing Decision Matrix shown in the picture above.
This is from Maurice Greaver’s 1999 book Strategic outsourcing and in the introduction Greaver writes that “the essence of capitalism is the free flow of resources to those who can most effectively manage those resources.”
This is an interesting model because it gives you a way to think about what’s the best way to do something – but at the same time see how such ideas can conflict with the fears and hopes of the people involved.
Take our marketing company, for example.
How important, would you say, is marketing to an organisation?
In strategic terms, that is.
If you go with Peter Drucker’s perspective the only things that add value in a business are marketing and innovation – everything else is a cost.
So, looking at the matrix you’d rank marketing as having high strategic impact.
Looking at the other axis, what’s the operational impact of marketing?
From one point of view marketing exists on the periphery of the business – it’s only purpose being to drive “leads” to where they can be corralled and filtered and sorted and nagged until they press the button marked “buy”.
From another point of view marketing is everything the business does operationally – every contact a customer has with the business – every “touchpoint” is a marketing opportunity.
The way you’re treated by the people who serve you sets your view of the company – the view that marketing is trying to influence.
If you’re a business that thinks from the first point of view then it makes sense for you to partner with someone for whom marketing is the core of what they do.
If you think from the other point of view, then marketing has a high operational impact on your business and you should retain and enhance your in-house capability to do what is needed.
The point is that you may not have the skills and experience needed in-house and so you have to spend time and money recruiting and building a team and be willing to see low or no returns and ongoing costs until the team starts producing.
And people don’t like doing that in some businesses – they can’t get their heads around doing anything that doesn’t pay off immediately or meet their return on investment criteria.
Such businesses have a problem and should remember the saying, “If you’re sitting in the shade of a tree right now, it’s because someone else, a long time ago, planted a seed.”
If you don’t invest in your future it will probably end sooner than you expect.
Many organisations, because they don’t want to spend up-front money, go down the partnership route.
This can make a lot of sense, especially when there are good agreements in place but it will only work as long as the partners are roughly equal in power.
Otherwise you could end up in the embrace of an anaconda, as companies that trusted their marketing to Amazon and Google and Apple have found out.
Do you remember those connectors iPhones used to have – the big, flat ones?
They were made by a company that I can’t remember the name of, but I looked into its stock because the price had crashed off so much – and it turned out that was because Apple had decided to stop using those connectors and build these smaller ones instead.
That was the end of that business…
The thing to remember is that when you work with someone else you need to have a fundamentally sound model – because legals won’t protect you.
There are two other boxes in the matrix that we haven’t talked about.
At the bottom left are things that have low strategic value and have little impact operationally.
Stop doing them.
And at the bottom right you have things that have a high operational impact but low strategic value.
This category includes pretty much everything that is a support service – from buying stationery to buying energy and insurance.
Get someone else to do that for you and simply make sure you’re getting the most cost-effective advice.
Back to our marketing firm – so how should you sell to a company that should really do this themselves?
Why not try two things.
Either create an open-source version of what you do – tell your customer that they’ll get all the tools and methods and processes to do this themselves if they want to – but while they don’t they can pay you to do it for them.
And if you part company they’ve still got everything they need to go forward.
Or offer to partner with them using a structure that means they can buy you out.
You might build and recruit a team and capability dedicated to that organisation – one that you will set up for them and that they can buy off you at some point.
The thing with these two approaches is that you’re playing in the top half of the matrix – because you don’t really want to be in the bottom half.
Unless what you do doesn’t matter too much – and then it’s the right place to be.
Whatever you do stay away from the bottom left.
And keep your eye on what’s best for your customer.
Cheers,
Karthik Suresh
Handcrafted insight 