Consulting in company transformation

The potential of insourcing is in:

●reducing duplication: more ground can be covered at less cost by one large central SSC than by many small units doing the same work;

●building commercial awareness: staff who were previously unconcerned about costs become accountable for their time and spending;

●letting business units focus on their core business: managers can concentrate on improving productivity rather than on paperwork;

●making local expertise available to all: an expert who previously worked for one unit can now be of use company-wide;

●offering an alternative to outsourcing: companies can keep the cost benefits of outsourcing, with increased confidentiality and control.

As with outsourcing, there are some problems with insourcing. It comes at a cost. Usually, only large firms can afford the logistics, technology and set-up costs; and, as SSCs need fewer staff, layoffs are also usual. But what is really a matter of concern is that insourcing is not really a business. Most SSCs are only allowed to cover their costs and do not have to market themselves as outsourcers do.

22.8 Joint ventures for transformation

An effective approach to restructuring and freeing idle assets could be a transitory joint venture with a partner, leading eventually to a transfer of ownership; the terms of separation can be negotiated as part of the initial deal. Such transitory joint ventures have to be structured and managed differently from traditional joint ventures. To spot the problem of imprisoned assets, the consultant has to check the following possibilities or conditions:

●The business is not core to the future of the corporation and is underperforming compared with its potential.

●It is difficult to justify major new investments for such a non-core business.

●Since the assets are largely intangible, sceptical potential buyers undervalue them.

If the above conditions are met a consultant could advise the use of a transitory joint venture. Indeed, the only way to liberate the imprisoned assets is to sell them to a buyer that wishes and has the ability to nourish them with complementary capabilities. After identifying such a buyer, the next step is to work out a mutually satisfactory deal. The challenge for the seller at this step is to reassure the potential buyer that the business is indeed “as advertised” – some kind of warranty would be useful. Next, an important issue will be to minimize disruptions as the business moves from the seller to the buyer.

Joint ventures are most effective at releasing imprisoned assets when those assets are tangled with the rest of the organization. A difficult untangling

511