As part of our MU Thought Leadership contributions, I had an interesting conversation with my business partner Tobias Scholtis as a member of the core team of MU's global manufacturing practice. Tobias Scholtis is Senior Director Corporate Procurement & Vendor Management at Hamburg Commercial Bank (HCOB). He gained experience in operational and strategic business at Lufthansa and Draeger for seven years each before moving to HCOB. Tobias Scholtis kindly took the time to talk to us about his experiences of changing company processes, outsourcing core activities and the associated management tasks. An exciting topic, especially for production companies, but also for banks and other service providers.
Tobias Scholtis: Due to very complex processes that now take place in companies, it is often difficult for the management to determine the total cost of ownership. This applies to the internal manufacture of products, the purchase of external services or – as it is often the case in the banking sector – the outsourcing of core processes. Typical examples in the IT environment are cloud, application management orpayment services. The one-off effects of an outsourcing can be calculated relatively easily, but the long-term costs of such changes are difficult to determine. Basically, this is a question of the sustainability of decisions. After all, the loss of expertise within the company and the resulting dependence on third parties can create new risks that lead to new or even higher costs, especially in times of crisis and phases of high change dynamics. Not only in the banking sector it is very important that the economic and social responsibility always ultimately remains with the company itself, even in the case of outsourcing. However, it is understandable why companies often push for quick decisions. Cost pressure is increasing and additional financial resources must be released for digitalisation and increased efficiency in order to remain competitive towards customers. Maintaining a balance here is difficult and one reason why companies are increasingly having to revise strategic decisions.
Tobias Scholtis:For change to be accepted, it is important to make clear the added value not only for the company, but also for the employees. After all, new processes are not an end in themselves. A win-win situation must be created, because without an understanding of the added value, employees will ignore new processes and fall back into old routines. The aim of the change must therefore be communicated clearly and comprehensibly. Higher efficiency, lower costs and the reduction of risks through increased transparency are goals that employees understand. A company must describe very precisely why something new is being done and, in a second step, how it will be tackled. A common mistake is to start with the second step straight away, only paying attention to the implementation and not involving the employees sufficiently in the change.
Tobias Scholtis: In vendor management, as in collaboration with external service providers, the most important thing is to establish clear and efficient interfaces. In many industries, such as aviation, security and medical technology or the financial sector, the regulatory corsets are becoming ever tighter. In addition, there are numerous new and generally applicable requirements due to regional and global ESG targets such as the German Supply Chain Act. In addition to short procurement times for materials and services, companies on both the supplier and customer side need more and more data points in an even shorter period of time, from which the right information must be derived through efficient analyses. The requirements in the various sectors are diverse. In the automotive industry, suppliers have been docked directly to production for many years or, as at Tesla, parts lists have been massively simplified in order to reduce complexity. In the banking sector, as in the automotive industry, it is almost exclusively about the exchange of data and therefore digital interfaces: Which data is used via which interfaces and systems, which software needs to be licensed or further developed? What can a company do to reduce complexity in its IT architecture? Collaboration portals with service providers are becoming increasingly important here in order to set up joint data systems and bind suppliers closely to the company, as well as to create a sufficiently strong environment for information and IT security. The recent major incident between Crowdstrike and Microsoft once again made this very clear to the wider public. In the future, it will be increasingly important for companies to expand digital bridges and make them more secure.
Tobias Scholtis: Outsourcing should always be based on a long-term outsourcing strategy and fit in with the company's overall strategy. The specific target positioning results from the magic triangle of time, quality and costs. As a rule, only one of these objectives can be optimised by outsourcing core processes. If, for example, it is difficult to ensure the quality of a certain component, a company should have it delivered and utilise its innovative strength elsewhere. When it comes to cutting costs, the loss of expertise associated with outsourcing and the difficulty in managing interfaces can damage the company in areas such as product quality or reaction time. It becomes particularly difficult if, for example, a company realises after just a few years that the outsourcing business case is not working out and the company has to spend money again to rebuild processes, structures and employees. In this case, it is important to perform a lessons learned on the basis of a maximally transparent analysis and with the involvement of both management and board of directors to adapt the strategy sustainably.
Tobias Scholtis: As already explained, one risk is that the objective and the business case have not been sufficiently clear calculated and communicated. Missing to closely monitor influencing factorsor to recognise trends in time is another one. A black-swan moment such as the coronavirus pandemic cannot be predicted, but economic cycles, developments on the labor market or decliningquality of external service providers can be identified at an early stage using various indicators as well as meaningful KPIs and service level safeguards. The company's own strategy can be adjusted accordingly, as smaller and timely corrections are much easier for a company to digest economically than abruptly necessary changes of direction. I still see massive potential for improvement in German companies when it comes to assessing risks and the resulting risk mitigation as a key instrument of modern risk management.
Tobias Scholtis: First of all, a company should assess what proportion of external value creation exceeds the critical mass and where concentration risks could lead to further dependencies and risks in its own value chain. Every external service has to be managed, which also requires time, financial expenditure and a healthy ratio of external to internal employees. It must be clearly communicated internally what kind of innovation and added value should be provided in-house and what proportion should be outsourced and for what reasons. This promotes a willingness to work together and allays employees' possible fears of disruption through digitalisation, job relocation or, in extreme cases, job loss. Successful cooperation should be emphasised instead of competitive thinking towards external service providers. Artificial intelligence will cause fields of work to change even more dynamically in the future. Nevertheless, in my view, this will not require fewer employees, but rather employees with different skills. The need for training must be recognised at an early stage and in-house employees developed.
Tobias Scholtis: The requirements profile for managers becomes increasingly complex and includes an ever broaderrange of topics and tasks. One of these is a stronger focus on situational leadership, which means responding to the individual needs of employees, especially in times of a hybrid and digitalised working world. When tasks change, employees need to be introduced to the new requirements in good time and prepared accordingly. In many companies, this does not happen proactively and then leads to an increased proportion of external services, which could be avoided at this point and is not derived from strategic considerations. Identifying such needs as part of employee development and further improving one’s own leadership behavior through reflection and exchange with other companies and experts are core characteristics that each manager must bring to the table today and therefore take responsibility for. Core functions such as HR or the upper management of a company cannot do this alone.
Tobias Scholtis: The board and management should be clear about the skills required in the various management positions in order to steer the company through an increasingly difficult world. Both need a clear overview of future management competences in order to matchwhether these are sufficiently available in-house in the second step. This results in either the need to develop existing employees or to recruit from the labor market. In recent years, it has been pleasing to see that a typical mistake of automatically promoting good specialists to management positions is happening less frequently and has been systematically replaced by internal or externally supported assessment centers, for example. However, whether someone is or could be a good manager not only depends on skills, but also on the organisational structure and environment within the company. The life cycle of a company and therefore required management tasks and skills are very dynamic. I can only recommend both managers and companies to take the time for sufficient reflection again and again in order to analyse and strengthen the incentives and motivation for leadership in a targeted manner.
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