Another short article about a theme related to the cultural/organizational side of Business 4.0

As you can see on robertolofaro.com/cv, the longest-running customer that I had was a banking outsourcing/BPO company in Italy, 1990-2006 (various projects and initiatives).

Actually, I had activities and experiences in that domain before that, and my most recent experiences with outsourced service management were in 2018.

Now, what has this to do with Business 4.0?

A lot.


Actually, many companies actually still do outsource processes using just "formal" information on structure, processes, systems: then, they pay the consequences- at best, in terms of increased costs vs. their expectations.

Moreover, you have to integrate with the processes of an organization whose evolution patterns might not be those that you adopted for your own organization.

The purpose of this article is, as the previous ones, to share few "knowledge signposts" that will be further developed within BusinessFitnessMagazine, in the issue that will be available from end September 2018.

So, what did I learn (and shared already in 2013- you can visit BFM2013, the 2013 updated reprint of the magazine issues published between 2003 and 2005)?

Actually, in 2013 I also expanded on a specific section, talent management, as trends that I had observed around Europe since the late 1980s but limited to few companies were gradually becoming widespread- as a recent research from a Big-4 reported, a large (actually, a prevailing) chunk of many companies workforce is... outside their payroll (see SYNSPEC).

In Italy as in other countries, on the customer side I was more than once told the same story- if you do not have your own "in house" knowledge-retention policy (and staff), outsourcing is useful but can generate a loss of knowledge.

In some cases, this is what was planned, e.g. when a company that had adopted the "whole supply chain internal" model decided to go the other way around, i.e. to externalize what has been identified as not being anymore a "core" process.

It is just plain vanilla, but the difference is, as usual, in details.

You might be interested in retaining the ability to evolve a proces that differentiates what your organization, its products, its services is about.

And you might be interested in sharing development costs, or deriving benefits by using something off-the-shelf developed for both you and, maybe, your competitors.

But the key point is that, in bot cases, you have to understand how to deal with the "boundaries", i.e. knowledge that is used by one and needed by the other.

If you don't, as I was told by many customers in the past, it takes just few years to lose the ability to evolve mission-critical processes.

And turn you into a "captive" market when you would need it less, i.e. at critical junctures when you are trying to evolve your own organization.

Net result: way too many companies adopt "best practices" that are at best stale, and often originating from business culture that are not compatible with their own.

Are you familiar with the concept of "Critical National Infrastructure" (CNI), e.g. the telco, energy, main road networks, i.e. what could be called the "backbone" of our complex societies?

I could refer you to a book that I read long ago ("Black Ice"), but I rather send you to an OECD report on what does CNI mean, in different jurisdictions, and crises are prevented- it is just 11 pages long.

In my latest mission, the original role was that of PMO within a specific domain (Purchasing), a role that traditionally interfaces with all the other business units- no matter what product or service you deliver.

Routinely, as a kind of tongue-in-cheek joke, I received messages offering "keyman insurance".

Alternated with "burial insurance".

I know that sounds paranoid, but at first took it as a joke, then my natural instinct of looking for patterns ended up with a collection of those threads and a linkup with events: since I was a teenager and studied Eccles, Brazier, and others to understand how the "wet neural network" worked (before having the tools to understand a bit of 1950s information theory), already at 14 in politics discovered how listening is more useful than talking, even criticism.

It is a kind of "unpaid Devil's advocate" (I was often paid to be one)- obviously, a biased one, so you have to "filter" a bit.

Anyway, I frankly think that too many managers surround themselves with people that are just confirming what they want to hear- a recipe for tunnel vision.

The defence adopted by some senior and top managers is simple: reading and insulating themselves from their own structure, but that too carries its own risks.

My concept is slightly different: we need to know where our "critical human infrastructure" is, titles are irrelevant.

Therefore, I combined both element and selected the title of this post.

Personally, I do not consider "keyman" (or "keyperson") something necessarily associated with Cxx-level managers.

In organizations where products and services aren't just commodities, there might be "key people" scattered across multiple levels and business functions.

Those people are you "degrees of freedom" that could smooth change and enable continuous change with an increase, not a decrease of your "knowledge stock".

Actually, keeping track of them is even more critical today than in the past: as discussed in previous articles, our decision-making timeframe is getting continuously shorter.

If you do not have (and keep up-to-date) a clear "critical knowledge map", you might discover after another round of outsourcing or automation or retirements that you lost the ability to evolve your own products or services.

And this brings about another element that we are slowly adding to the picture.

Across the latest 20 years, I saw often outsourcing from humans to humans used sometimes just as a temporary expedient to - the issue was often just reducing costs but being unable to intervene directly: externalization (i.e. putting a bit of your organization outside your perimeter), more than outsourcing (i.e. removing something of your own and replacing it with something offered to you and others by an external supplier, often specialized in few processes or systems or services).

Sometimes "externalization" was a practical method to streamline activities, by transferring processes, systems, people to a third party.

Then, this third party, for a price, would optimize and (if feasible) find way to "scale up" the service (e.g. by finding other customers)- while leaving outputs initially unaffected (be they product or services).

Then, you could either wait few "rounds of evolution", and choose to keep the process/system outside, or decide to reverse your choice- often, at least with an optimization of resources, if not outright improvements.

Why? It is not just an issue of corporate politics.

Sometimes, it is quite complex to improve a product or service whose delivery is interconnected with all the other processes in your organization- you are mixing purpose and context, and anything seems to be intertwined within a Gordian knot.

When moved outside, moreover if it has to be delivered also to third parties, the product or service has to clarify its compulsory "knowledge interfaces", and remove what is not really needed, also because now cannot anymore assume that all the organization is there.

As an example (I used it in the past in books and articles- so, in the magazine I will re-add the link to the source): I remember an article on how a Chinese company acquired from a French company a production line.

Initially, the production line used robots.

After a while, the Chinese company removed the robots and re-introduced people.

There was some sneering in the West, at the "blatant" (in reality, apparent) Chinese inability to manage complex technologies.

The same "noises" with a whiff of racism that as a kid I remember hearing about Japanese "transistors", only to be converted into something else in the late 1980s, when Japanese companies were the first to release innovative products in multiple categories.

Later, the Chinese company introduced new robots.

The rationale? The old ones were to be continuously tuned, and assumed a set of processes that did not interest the company.

So, after using people for a while, and altering processes (people are often more easily "reconfigured" on operations than either software or machines), once they were optimized for the company's purposes, new robots were introduced to implement the new approach.

And this what you could do when you internalize again something that you externalized (with real outsourcing, it is different- and you would end up having to re-invent the wheel).

On the way back, you get a set of processes/systems/products/services that does only what is needed now, and with just the interfaces (and people) required.

It might be that you would then need to adapt before re-integrating.

Obviously, then, the point is evolving "organicallly" with the other parts of the organization.

But that worked until the last decade.

I will further develop the discussion at the end of the month, but just consider few points.

Nowadays, when you outsource, it might well be that at first your supplier will keep everything "as is".

But as most contracts include a "cost reduction" clause while keeping the product/service unchanged, in the past suppliers would intervene on volumes, or internal costs.

Today, it is often on the table another, smarter option: convert knowledge into representation of knowledge, and automate, often using approaches such as machine learning to improve operations while lowering the cost.

When you obtain the same results at a lower cost by using technology, it is only natural to be willing to keep doing so, isn't it?

In the end, would you not let technology propose improvements that, once accepted, would become the new "baseline" upon which further improvements will be carried out?

And do not most of the current applications of technologies such as artificial intelligence (including machine learning) lack an ability that any human will have, i.e. common sense?

And do not they lack also the ability to explain how they reached a solution, and which patterns were followed, which were discarded, and how the two affected each other?

If you were to internalize again what you externalized, you would probably obtain the final result, but that would not necessarily bring back into your organization the "degrees of freedom" provided by knowledge of critical junctures- i.e. your ability to evolve would be only apparent.

When I refer to "externalization", within our current organizational scenario, there is a further element worth considering.

Most organizations of the future will be not only "flatter", as many approval and knowledge-transfer/workflow processes will be automated, instead of having scores of employees e.g. moving object from A to B or moving documents from A to B after reading and signing to confirm that everything is in order.

Those organizations will also need to be more flexible, more resilient, and able to rearrange some patterns in either supply chain or organizational structure as required by e.g. increasingly "within the corporate walls" impacts of regulations.

On this last point, you can also read what I wrote in 2005 on e-government trends (see robertolofaro.com/bfm2013, the last two chapters), and the material linked to "data-centric business" that I enclosed within the introductory pages of my book on GDPR published in June 2018 (see robertolofaro.com/gdpr).

For the time being, this is all.

As in cloud atlas, it will all converge...at the end of the month.

Tomorrow, an article in Italian.