The world is undergoing a fundamental transformation to a services economy, fueled primarily by the digital disruption happening within our personal lives and within industry. Within business, digital technology is allowing companies to unbundle and rebundle their value chains (i.e., physical goods, information, money and people) in innovative new ways that can make those value chains more valuable by not only making them smarter but also making them more flexible, personalized and on-demand for the customer who craves the ideal of “free, perfect, and now.” And the key concept in making this happen is the concept of the service.
The concept of everything as a service (XaaS) in this “new” as-a-service world is all around us:
- Technology as a service via cloud computing: infrastructure as a service (IaaS), platforms as a service (PaaS), software as a service, etc.
- Service oriented architectures (SOAs) that, whether they’re app services via APIs or business services (including procurement function services) via service level agreements (SLAs), use explicit interfaces to define the service inputs and outputs
- A shift from the manufacturing economy to the services economy, as evidenced by Figure 1. This includes the internet of things (IoT) wrapping physical objects with sensors and software to better manage those assets and serve them up as an outcome-focused service (e.g., the airline paying the engine manufacturer on engine run hours in the air)
- The trend toward managing these services outcomes via flexible managed services provider (MSP) models that are reshaping traditional markets in consulting, business process outsourcing (BPO) and physical supply chains — with technology creeping in (or busting in) to augment or disrupt these traditional models
- An evolution of sophisticated shared services models like global business services (GBS) to deliver business services, including supply related services from procurement and supply chain groups
- The transformation of employee-based resources to on-demand contingent labor services from contractors and services firms
- Technology “platforms” (i.e., PaaS) that not only build cloud applications but also engage communities of services “prosumers” (producers and consumers) to use the platform to aggregate, match, coordinate and transact these services.
Figure 1: Non-Manufacturing Services Activity is outpacing Manufacturing
Source: Institute for Supply Management data, reported at http://www.financialsense.com/contributors/matthew-kerkhoff/tale-two-economies-manufacturing-vs-non-manufacturing
So, it’s a “big aaS world.” End of story, right?
Or is it? Does something seems missing?
Here’s one: What about the assets, or resources, that supply those services?
What about a firm’s core competencies and assets that allow it to not be a commodity? What about the quality of its people? How about its proprietary IP and related patents? What about the quality and agility of its extended supply network? How about its IT assets to reduce transaction costs and reconfigure nimbly to respond to market conditions? How about the firm’s ability to capture and reuse its institutional knowledge? What about its goodwill from its customers and suppliers to be a “partner of choice?” And ultimately, doesn’t it come down to people? You know the truism: “People are our greatest assets!”
The bottom line is that if you want to succeed in an XaaS based economy, you need to be really good at managing the assets that create those services. Succeeding in an as-a-service economy is not just about managing the services but rather managing the assets (or resources) that create those services.
The economic theory of a firm is about maximizing the returns of the assets in the firm’s “portfolio” (see my posts on RONA here and here), and the returns on procurement organizations are certainly compelling (easily greater than 500%). The reason is simple: Supply markets are a massive source of innovative assets to tap, if you know how to do it. In fact, check out the old definition of “supply management” from ISM back in 2010:
The identification, acquisition, access, positioning, management of resources and related capabilities the organization needs or potentially needs in the attainment of its strategic objectives
Just replace the word “resources” with the word “assets”!
So, even though assets are increasingly becoming outsourced, componentized, virtualized and assembled on-demand, every firm should have an internal capability that orchestrates this supply of external assets.
In other words, shouldn’t there be a chief externalization officer (a new type of CEO)? If the two major transforming forces happening to firms right now are digitization and externalization, and since CIOs are morphing into chief digital officers (or getting augmented by them), shouldn’t the role of the chief procurement officer (CPOs) similarly be morphing to such an externalization role? Or will it be left to corporate strategy groups, GBS leaders or other groups? This is a clear leadership opportunity for CPOs.
Doing so requires being one heck of an “asset manager,” as well as being able to lead a transformation (and a portfolio of transformation projects) that will certainly be increasingly digital but also increasingly externalized. Such a leader will also need a good “asset management model” to help understand this evolving asset transformation and how to translate it into a broader business transformation.
This model is something that I feel is lacking in the industry and could be something very useful to executives and anyone in business trying to understand digital transformation and supply chain transformation in a simpler way. And, since I hate complaining about something without trying to solve it, I’ve actually been working on such a model recently, which I plan on sharing with readers in the next few weeks. I think you’ll find it helpful in understanding the digital revolution (or more specifically the digital evolution) happening in the supply chain.