Bonnie Keith

Considerations for Crossing the Continuum

You’ve done your homework. You’ve used the Business Model Mapping Toolkit and now have a preliminary understanding of which Sourcing Business Model is the most appropriate for your situation. But how do you take this information and turn it into action? In the past, you would have used a formal multistep strategic sourcing process. (Exhibit A1 in the appendix presents the most popular models.) But as we noted in chapter 1, existing models have many weaknesses, resulting in lower-than-expected performance.

Vested: A Brave New World

When we think of the great innovations that come our way, we might instinctively think of them as the product of a sudden brainstorm from an individual—a light bulb moment, if you will. But, in reality, good ideas can come from anywhere. Leading companies find that innovation is often produced over time with a lot of collective sweat equity. And that includes perspiring suppliers.

Maturity Meets Modality

Think of children, and the various levels of maturity they go through as they develop. Physical maturity allows children to crawl, then walk, then run. Mental maturity develops as children begin to process problems. Children start by figuring out how to get dressed and tie their shoes. As they develop, they learn to handle more complex problems, such as algebra and learning how to drive so they can get themselves to school. Cognitive maturity is the ability to relate cause and effect, understand societal rules, and see the potential consequences of your actions. Emotional maturity helps children deal with siblings and difficult peer group dynamics with grace.

Sourcing Is a Continuum

Sourcing has its roots in our collective past in commerce and trade. As individuals formed family clans, tribes, communities, and complex societies, individual members began to specialize. That led to a division of labor, improved skill and knowledge, and better workmanship. People with specialized skills traded with each other for goods and services they needed to survive. They did not try to be totally self-sufficient; they relied on each other’s talents and productivity and, as a result, lived better.

The 800-Pound Gorilla Has Left the Building

Julie—not her real name—came from humble beginnings in London. She put herself through vocational college and received a one-year criminaljustice specialist certificate. The degree came in handy when she landed a security job at a Fortune 100 company. Julie was excited when she was promoted to work in procurement— managing contract compliance for the firm’s security contracts. This was a big deal when you consider the firm had hundreds of locations throughout the world and virtually all security functions were outsourced to third-party security companies, such as Securitas, Brinks, and many smaller local firms.

Selecting the Right Sourcing Business Model For Your Situation

In chapters 4 to 7, we profiled seven distinct Sourcing Business Models. Which one is right for your situation? The answer is: “It depends.” You don’t need a sophisticated relationship to source paper clips. A straightforward transactional deal works just fine. Likewise, as Adrian Gonzalez points out in chapter 5, an organization shouldn’t rely on an electronic auction to find a third-party logistics service provider to provide

Investment-Based Sourcing Models

100 million of logistics support.

Trekking Through Transactions

In chapters 4 to 6, we discussed five different Sourcing Business Models, all relying on suppliers to ensure availability of particular products or services. This chapter is devoted to investment-based models that organizations can use when they want to “make” versus “buy.” According to Oliver Williamson, organizations that select a make or insource strategy select a structure that, by default, creates a hierarchy. We think of insource decisions in terms of investment-based models because organizations consciously open their wallets to invest in the capabilities needed for securing supply sources for goods and services.

Embracing Codependency: Enhancing Success

For centuries, businesses have chosen transaction-based Sourcing Business Models as the primary way to buy goods and services. The heart of the transaction-based model is a simple exchange of goods/services for a set price driven by market competition. Successfully completed transactions trigger payment. Transaction-based approaches are usually highly efficient. As strategic management guru Gary Hamel observes, an efficient transaction-based system allows companies to stamp out the zillions of widgets and process the billions of transactions they need to keep businesses running.1

The Only Person Who Likes Change Is a Wet Baby

As mentioned in chapter 4, transaction-based models are great for driving competition and ensuring low prices. Unfortunately, the highly competitive processes that enable an organization to get the best price do not always bring out the best from suppliers. Buyers can unlock value by moving along the sourcing continuum to hybrid or relational contract models. Properly structured relational contracting models—preferred provider, performance-based, and Vested business models—lead to organizations viewing suppliers as sources of competitive advantage, not as operating at arm’s length. As an organization moves to collaborative, relational Sourcing Business Models, it needs to apply different methods. Most importantly, it also needs a different mindset to unlock potential.