Tag Archives: Outsource

How Do You Scale Up a Product That Is Taking off! Four Points

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Situation: Demand for a product produced by a company has increased dramatically. The CEO realizes that they need to scale up production quickly to meet this unexpected demand. The company is small and the CEO wants advice as to how his company can accomplish this without killing the product. How do you scale up a product that is taking off?
Advice from the CEOs:
• This represents a major change of both mentality and culture. Essentially, the company needs to move from a “handmade” process to a commodity volume process. This may also mean moving from low volume/high margin production to high volume/lower margin production. This shift will significantly change the company.
• If there is high confidence that the company will land a contract for long-term production consider establishing high volume production at a new site. Rent or lease another facility. Alongside this hire a set of experienced people who understand the challenges of scaling up rapidly. Consider giving this facility a new name to suit the new team. This will help to establish a new culture suitable to the new opportunity.
• While negotiating a lease, ask for an option for additional space to be included in the lease. If things don’t pan out, look at this new space as the eventual location for your existing team.
• Two other options to consider: (1) Outsourcing to a 3rd party manufacturer. This is an option unless the company is an OEM outsourced producer itself. However, be careful – you could be telling your customer that they could go directly to your OEM source at a lower price. (2) Establishing an overseas production capability – one where you own the facility and manage quality control. This will be a challenge if the customer wants to specify “Made in US”, or where quality concerns are essential.

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How Do You Take on Additional Business When You Are Capacity Limited? Seven Suggestions

Situation: A Company has been growing rapidly over the past year. This has strained resources in some departments, including manufacturing. New customer demand just keeps coming in. What can the CEO do to meet customer demand without busting at the seams? How do you take on additional business when you are capacity limited?

Advice from the CEOs:

  • There are three questions to be asked before taking other steps:
    • Is it possible to expand manufacturing by outsourcing?
    • Can the company just hire more people?
    • Is the business that the company is getting good profitable business?
  • First, what a great problem to have – not to belittle the challenge that the company faces.
  • If there is concern about the company’s vulnerability to future downturns and the company is holding off adding staff because of this, look for a filler product that can help the company to smooth business cycles.
  • Farm out constrained work to other departments of the company – for example engineering. Are there independent entities that the company could partner with to add temporary capacity?
  • If there are financial constraints, then look at adjusting the pricing for new business.
  • If there are conflicts between capacity in manufacturing and engineering, consider becoming more of an engineering-focused firm and invest in this area. Look at outsourcing manufacturing capacity.
  • Look for sources of temporary capital to fund the company through the adjustment. Use an existing bank line of credit or a loan to finance short-term capital needs.

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Do You Need a Formal Marketing Function? Four Points

Situation: A small company serves a specialized, targeted group of customers. The founder/CEO seeks advice from the group on whether it is time for the company to create and staff a formal marketing function or can this be outsourced. Do you need a formal marketing function?

Advice from the CEOs:

  • The company services a specialized and targeted group of customers. However, they target the high end of this market, so the target market is smaller.
    • A highly targeted promotional and marketing strategy will work best.
  • There are two principal functions within marketing: providing direction to guide product development efforts and creating awareness of the company’s products through promotions and advertisements.
    • To serve a narrow market, the information and insight gathered from trade shows, technical meetings, the company’s sales and design engineers may be sufficient to drive product development efforts.
    • It may not be necessary to do more than this unless the company is planning for substantial growth and wishes to diversify the product offering in a short period of time.
  • To handle promotions and advertising there are two options: hire an individual to do this or utilize the resources of an outside agency.
    • The marketing plan should be refreshed and updated on a regular basis – at least annually.
    • A good task for the company’s marketing committee is to become aware of local resources that could help.
    • Identify marketing themes to guide advertising in specialty magazines, supported by trade shows, technical conferences, and on-site training session for key customers.
    • Create and maintain a calendar of marketing activities and assure that that messaging is consistent across promotional events.
  • If the strategic plan calls for substantially increasing the revenue base or broadening the product offering, consider a merger with a competitor that already has the ability and resources to meet these needs.
    • Just the planning exercise for a merger will help the company to evaluate the issues involved in market expansion.

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How Do You Position the Company for Growth? Four Key Points

Situation: A company is completing the design of a new line of equipment which is expected to drive future growth. An important distributor for a company’s principal product – a consumable – also distributes equipment. The CEO is concerned that this distributor may perceive his new line of equipment as competing with their existing line. How should the CEO handle this? How do you position the company for growth?

Advice from the CEOs:

  • Meet with the CEO of the distributor and ask two questions:
    • Can they sell the company’s new line of equipment, as well?
    • Do they have any other source for the company’s consumable product?
    • If the distributor must rely on the company for the consumable, whether they decide to distribute the new equipment line or not, there should not be any risk.
  • The company has a wonderful opportunity to start doing business in a new way.
    • The company has a proprietary consumable and chemistry/formulation knowledge that will be difficult for others to copy.
    • The company now has knowledge of how to design equipment that utilizes the consumable.
    • Proprietary trade secrets may be more valuable than patents, presuming that the company can keep a lid on these secrets. Coca Cola and 3M have never sought patents on their key products. In a well-managed environment, trade secrets have a much longer life than patents.
  • Think about the sales mix in a new way, one that would address concerns about the annuity vs. capital equipment mix as well as improve overall profitability.
    • Focus on turn-key solutions. Use Hewlett Packard as a model. HP makes the most money selling paper and ink cartridges – annuity products; not from selling printers which sell less frequently than the cartridges. A busy office will spend far more on ink cartridges and paper per year than they spend on printers – and at a better margin for HP.
  • Combine the two prior points to leverage the new model.
    • Lease or provide the equipment at just above cost, in exchange for a contract commitment to purchase the consumable for a defined period.
    • Triple the cost of the consumable over time!
    • This should provide a more profitable and sustainable model. Adjust the cost of the ink upwards so that it pays. On a per-piece basis, the consumable at 3x or 4x current cost will still be a miniscule part of overall product cost. Further, the buyer won’t have to amortize the cost of the equipment over their production, making this an attractive option.
    • Concentrate on equipment design and outsource the manufacturing on a modular basis while keeping control of the one or two most critical components.

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How do You Develop and Retain Talent in a Competitive Market? Six Points

Situation: A company must acquire new engineering talent to sustain its growth. However, there are few local engineers who are experienced in company’s key technologies, and the cost of living in the company’s location makes it difficult to bring in new talent. The CEO is considering developing a remote office where there are experienced engineers that they could attract to the company. How do you develop and retain talent in a competitive market?

Advice from the CEOs:

  • There are a number of issues to consider: location, management of the culture, leadership and potential unintended consequences that must be mitigated.
  • The COVID pandemic has forced companies to adapt to remote employees. Has this been considered as an option?
    • High definition, large screen systems can be set up for $2-3,000 per site.
    • Web cams, projectors, etc. can be set up for several hundreds of dollars per site.
    • Add to this design and analysis tools, with technology for prototyping.
  • Consider where within the organization the remote people will fit?
    • How will the organizational structure impact the integration of design engineering and manufacturing engineering?
    • What policies and procedures are needed to assure that there is no clash?
  • How will leadership be implemented for the remote group?
    • One CEO feels that there must be a sponsor from the home office to assure smooth and consistent transfer of company culture to the remote operation. This may take 1-2 years to achieve.
    • Another CEO hired a qualified individual locally for their remote operation. The important point was that this company has a very tight process and found that they could package this process sufficiently so that the new individual could pick it up quickly.
  • Look at developing a remote office as essentially the same challenge as a mini-acquisition. Like an acquisition, the key resource being gained is new talent. Think through the integration process and trade-offs as though it were a new acquisition.
  • Developing a remote location can be a good solution for advancing the company’s ability to outsource. It will teach the company:
    • How to design using a combination of internal and remote resources,
    • What infrastructure is needed in terms of policies and protocols around designs, and
    • What works from a communications standpoint to assure knowledge transfer between sites.

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Where Should a Company Focus – People or Cash? Four Thoughts

Situation: A small company sells consumables as its primary source of revenue and profit, and produces equipment associated with these consumables. Their challenge is that designing and producing equipment is beyond their financial capacity. They have a small, loyal staff engaged in equipment production. This is a critical trade-off that must be resolved. Where should the company focus – people or cash?

Advice from the CEOs:

  • This product/profit combination is common. HP sells printers and ink, as well as other products, but ink cartridges have long been their primary source of corporate profit. The question is how to produce the associated equipment at the lowest cost?
  • Given the shortage of financial resources, why not asks a company with expertise in equipment to build the equipment on a contract basis?
    • Offer the outsource company the designs and expertise to support the project. That company may even hire your employees who have developed expertise in this area.
    • In return for providing design and guidance, ask the contract company for a percentage of the revenue or profit on equipment that they sell. This relieves you of the payroll and cash obligations for the equipment, and provides you with a modest income stream from equipment sales.
  • There is an obvious question of how the small company retains its intellectual property position. Is it possible to look at critical sub-assemblies and retain the expertise within the smaller company to complete and install some of these?
    • If so, this will boost annual revenue. The contract partner completes all but the most critical pieces, and the small company finishes the product with its technology.
  • The small company, through its sales and marketing efforts, should maintain control of leads and sales of both equipment and consumables.

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How Does a Small Company Build an HR Function? Four Thoughts

Situation: A small company has no formal human resources, pay scale or performance review systems. The CEO wants to create a structure to address these gaps, as well as to encourage employee feedback. How do you build an HR function for a company with under 20 employees?

Advice from the CEOs:

  • Many small companies outsource HR services. There are a number of firms who provide outsourced HR services, and through them much of the HR activity can be conducted online. Examples include ADP, Administaff, Express Employment Professionals and PayChex.
    • These systems cover all of the mechanics of HR, and help to assure that the company is in step with changing regulatory requirements.
  • There are also a host of individual consultants who put together HR systems for smaller companies. These are most easily found using locally-focused Internet searches.
  • Employees in small companies are used to wearing many functional hats. Hire or assign a manager to create an HR system and implement it once it is set-up. This person will be in charge of the personnel review schedule, changes to regulations and contact with outside HR resources.
    • One company’s HR Manager has a one hour conversation with the company’s lawyers once a year to make sure that the company is up to speed on any regulatory changes.
  • Hire a Director of Operations and include HR in this individual’s responsibilities. This person can research options for discussion by the leadership team. Empower them to bring in resources that will meet the company’s needs.

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How Can You Best Reduce Costs? Six Points

Situation: A company wants to reduce their cost of engineering. They are considering outsource options, both domestic and overseas, as well as remote offices in lower cost regions domestically. How can you best reduce costs?

Advice from the CEOs:

  • An emphasis on cost may be misplaced. Consider instead of where you can offer the best value to your customers or clients. Focus on and compete in best part of your market – the place where you possess the strongest advantage; then worry about cost.
  • Outsource companies can be dangerous partners. Assume you only profit from the first job that you give them and that they may be your competitor the next time around.
  • We’ve learned from the last decade of experience in Asia that cost advantages are often temporary. Salaries for top talent in India and China now approach those in the US. This experience is likely to be repeated in Southeast Asia.
  • Focus on high dollar services and opportunities.
    • There are limitations to offshore talent – especially in complex, multi-step development projects. Keep high dollar projects in-house because they justify higher prices and margins.
    • When you outsource, negotiate retainer contracts with additional charges for work above and beyond the scope specified in the retainer.
  • What do you want to be? Consider your options:
    • Become a project management company and outsource development.
    • Be a development company and just look for cost effective sources of labor.
    • Start your own outsource company – a split-off staffed by your own employees – and feed them work.
  • Before you invest substantial time or money, do a test.

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What is Your Experience Outsourcing to Eastern Europe? Five Factors

Situation: A company is in contact with an Eastern European company that seeks outsourced business from the US. The CEO seeks guidance on challenges managing as well as formalizing this relationship. What is your experience outsourcing to Eastern Europe?

Advice from the CEOs:

  • Location in Eastern Europe is important. There have been concerns with both corruption and IP protection in Russia. Some other Eastern European are more aligned with US/European values and farther up the ramp as outsource partners.
  • Experience of other US companies suggests that your spec must be written much more tightly than if you were doing the work here. If you can’t write a tight spec on the work, don’t outsource it!
  • Contract outsourced work on a fixed fee basis with the bulk of payment due on completion. This helps to assure that you receive timely delivery and the quality of work required.
  • Set up thresholds for the circumstances to engage an outsource partner.
    • Say one US worker is economically worth 5 foreign workers in your domain. Do you have enough work to support this?
    • Determine who will manage the outsourced work. A European is fine, as long as they have experience managing outsourced work.
    • Someone on your team will become their Project Manager. This can be VERY time consuming.
  • Consider setting up an offshore company to shelter some of the revenue from the outsourced work.
    • You want to locate the offshore company in a tax-free country, and to have them handle the funds connected with the outsourced work.
    • The contact in the tax-free country will likely be an accountant, lawyer or both. There are many reputable individuals who do this in tax-free countries, but be sure to check references and background carefully.

Key Words: Outsource, Eastern Europe, Challenges, Manage, Relationship, Experience, Concerns, Alignment, IP, Corruption, Contract, Protect, Spec, Fee Basis, Delivery, Quality, Parameters, Tax Shelter

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What Are The Barriers to Companies Moving to The Cloud?

Interview with Jim Kaskade, Global Executive (most recently SVP and General Manger, SIOS Technologies, Inc.)

Situation: Cloud computing as a concept dates back to the 1960s. “Cloud” became a more prominent concept in 1990s as a metaphor for service delivery over the Internet. The technology that makes it a practical reality has advanced significantly. Broad business adoption, however, has varied depending on the deployment architectures used. What are some of the barriers to enterprises “crossing the chasm” and embracing moving to the cloud?

Advice:

  • Definitions: There are three cloud deployment architectures or market segments when defining the opportunities and barriers to entry:
    • Software as a Service – SaaS – represented by distinct B2B applications like Salesforce.com and Google Apps, and B2C applications like Apple’s iCloud.
    • Platform as a Service – PaaS – represented by application platforms targeted at application developers and including Microsoft Azure and Amazon Beanstalk.
    • Infrastructure as a Service – IaaS – represented by on-demand access to low-level IT infrastructure such as virtualized computer, storage, and networking infrastructure.
  • The elephant in the room is that, relative to global IT spend, use of public cloud is in its infancy.
  • Adoption of the cloud varies by business size and IT structure.
  • Start-ups – particularly technology start-ups – use all three segments. The rationale is simple. It is easier and conserves capital to use all three delivery segments as an expense rather than invest in IT infrastructure. Another benefit is time to market.
  • Mid-sized companies  – up to hundreds of employees – have more challenges.
    • They start with SaaS applications to get their feet wet. Primary concerns are availability and security. If they have good, dependable Internet access, barriers to entry can be low.
    • Using a PaaS is also attractive but begins to compete with internal, existing platforms. Mid-sized companies typically have their own IT and developers who may prefer an internal platform. The company’s choices are also limited to a PaaS system that is similar to current development platforms.
    • The barrier to IaaS adoption is the IT staff itself. If the IT staff is savvy, they can maintain and run their internal data center less expensively than IaaS services. The question comes down to whether building and maintaining a “crazy smart” IT group is core to the company’s business model.
  • Enterprise companies – Fortune 100s or even 1,000s – have far greater challenges.
    • Their current IT model already has moved to a mix of 30% in-house and 70% outsourced with partners like CSC and Accenture.
    • Most Enterprise CIOs begin their use of “cloud” with a migration to SaaS. The barriers to PaaS are that their systems are tailored to customer-specific applications and internal infrastructure, limiting PaaS use to small, non-critical applications which require quick, global deployment.
    • The barriers to using IaaS services are similar to PaaS, where CIOs struggle with tradeoffs between agility and issues of cost, security, and availability.
    • The Achilles’ heel of these companies is that 80% of their IT spend is just keeping the lights on.
  • The implications of all this are that the cloud is ideally for small to medium companies, some of which will become large enterprises. If you can succeed with a migration of legacy applications to cloud-based services you will become more nimble in responding to customer’s needs – the biggest upside to cloud services in general.

You can contact Jim Kaskade at [email protected]

Key Words: Cloud Computing, Adoption, SaaS, PaaS, IaaS, iCloud, Business Size, IT, Structure, Staff, Applications, Cost, Nimble, Availability, Security, Chasm, Start-up, Mid-Size, Enterprise, Outsource, Partner, Data Center, Legacy

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