Global Businesses and The Three Bears Question
Every kitchen sink startup has experienced the production crunch when orders go from zero to dozens, and mom-and-pop businesses fret over cash flow when considering adding a second location. Similarly, CEOs of multi-million dollar global businesses face these same issues (and more) with every expansion. Companies experiencing rapid growth—whether to boost margins, overcome competition, or take advantage of new market conditions—will likely face the following obstacles:
Scarcity of Talent. Even in normal, everyday operation, the finding, recruiting, and training of qualified talent can be a headache. This is exacerbated when you need to staff a new division or location quickly.
Scalability. Changing markets, shifting demand, raw material availability… these are just a few of the elements that can drive rapid growth. But what happens when it all changes again? Companies need to be able to ramp up and scale back production efficiently to accommodate the economic ebb and flow.
Company Culture/Morale. The sudden production demands caused by expansion can negatively affect existing employees, who are often tasked with additional work and extra duties to cover the shortfall of talent (see above). Disaffected staff members, if they even choose to stay with the company, do not work at peak efficiency.
Cash Flow Shortfalls. The capital outlay required to expand can overwhelm a company’s existing income streams. While loans can bridge the gap, missing even one payment can start a snowball effect that ends in bankruptcy.
Operational Inefficiency. Production schedules, supply chains, and even org charts can all be rearranged as a result of rapid growth, leading to missed deadlines, confusion, and frustration. And it’s not limited to the rank and file, either. CEOs, board members, and other upper management can get caught up in the minutia and lose sight of the bigger picture.
Customer Dissatisfaction. All of the above directly affects company employees, which indirectly affects customers. This can result in the loss of the existing business and goodwill which is underwriting—or even driving—your expansion.
Let’s examine the choices available to a fictional company as they contemplate an expansion in light of the above issues.
Golden Lochs, Inc. is a Scotland-based maker of cargo security, monitoring, and tracking devices. They have recently landed a very large contract as the exclusive supplier to a new shipping line that aims to deliver over 600,000 TEUs each year. Consequently, they must triple their current production rates.
Traditionally, Golden Lochs, Inc. has had only two choices available. These are the first two bears in the three bears question.
Bear #1 – Outsourcing Model. The company hires a third party to provide components, assembly, transport, distribution, etc. Advantages: Quick implementation, little initial investment, flexible scaling, available talent pool and shared risk. Disadvantages: Lack of direct control/ownership, poor process visibility and company culture not integrated.
Bear #2 – Captive Model. The company builds or develops all assets necessary to perform in the new market. Advantages: Company culture fully integrated, direct control of processes and full ownership/oversight. Disadvantages: Slow recruitment/training of talent pool, long implementation, high initial investment, lack of easy scalability, initial production inefficiency possible and all risks on company.
The CEO of Golden Lochs has three main concerns: to implement the expansion quickly, be able to scale back again if the demand disappears, and have direct control over the production process. Neither of the two traditional business models wholly meets these needs, but there is a third option.
Bear #3 – Hybrid Model. In a hybrid model, the physical assets/infrastructure and talent pool is provided by a third party, but these resources are under direct control of the company hiring them. Advantages: Quick implementation, little initial investment, flexible scaling, available talent pool, shared risk, company culture more fully integrated, direct control of processes and full oversight. Disadvantages: Can be inefficient due to redundancy of duties and may be complex to manage in-house and outsourced teams.
As you can see, the hybrid model addresses each of Golden Lochs’ concerns, and the potential disadvantages can be overcome with good management. And this model not only suffices for manufacturers of physical goods, it also works extremely well for those that produce intellectual property. For example, the not-at-all-fictional company of Indovance, Inc. is a world leader in using the hybrid model, which we call the Twin Engagement Model, to partner with architectural firms, civil and mechanical engineers, sign manufacturers, and companies with premedia needs, offering their clients dedicated teams to produce CAD drawings, site design, pre-press services, and more on a large scale. Indovance maintains the physical assets (buildings and talent), and their clients get direct control of scalable production capacity without threatening the existing revenue streams. We seek to become a true extension of our clients’ teams, fully taking on their work ethics, business goals, and culture, hence the term “twin engagement.”
Each of the above models has its place, but global enterprises facing rapid change can benefit most from the flexibility, fast implementation, and oversight offered by the hybrid model. When talent is scarce, scalability is a must-have, and the company culture is important, it’s the choice that is just right.
Sandesh Joshi is the president and co-founder of Indovance Inc. Prior to founding Indovance, one of the leading CAD and drafting outsourcing service providers in the world, Sandesh worked at SolidWorks Corporation as a senior R&D member.
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