Playing to Win. Roger L. Martin
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it didn’t help much, either. Saturn vehicles, though they garnered loyalty from owners, never reached the critical mass needed to sustain a full lineup of cars or a national dealer network. As one former GM director said of Saturn, “it may well be the biggest fiasco in automotive history since Ford brought out the Edsel.”4
The folks running Saturn aspired to participate in the US small-car segment with younger buyers. By contrast, Toyota, Honda, and Nissan all aspired to win in that segment. Guess what happened? Toyota, Honda, and Nissan all aimed for the top, making the hard strategic choices and substantial investments required to win. GM, through Saturn, aimed to play and invested to that much lower standard. Initially Saturn did OK as a brand. But it needed substantial resources to keep up against Toyota, Honda, and Nissan, all of which were investing at breakneck speed. GM couldn’t and wouldn’t keep up. Saturn died, not because it made bad cars, but because its aspirations were simply too modest to keep it alive. The aspirations did not spur winning where-to-play and how-to-win choices, capabilities, and management systems.
To be fair, GM had myriad challenges that made playing to win a daunting prospect—troubling union relations, oppressive legacy health-care and pension costs, and difficult dealer regulations. However, playing to play, rather than seeking to play to win, perpetuated the overall corporate problems rather than overcoming them. Contrast the approach at GM to the approach at P&G, where the company plays to win whenever it chooses to play. And the approach holds even in the unlikeliest of places. Playing to win is reasonably straightforward to contemplate in a consumer market. But what does it look like for an internal, shared-services function? Even there, you can play to win, as Filippo Passerini, president of P&G’s global business services (GBS) unit demonstrates.
Playing to Win
At the end of the dot-com bubble, the IT world was in turmoil. The NASDAQ had melted down, taking both the credibility of the high-tech industry and the broader market indexes with it, throwing the economy into a recession. Yet, despite the crash, it was clear that spending on IT infrastructure and services would continue to increase. IT services were far from a core competency for most companies (including P&G), and the costs and complexities of providing IT services in-house were daunting. Fortunately, riding to the rescue was a new breed of service provider: the business process outsourcer (BPO). These companies (including IBM, EDS, Accenture, TCS, and Infosys) would provide a range of IT services from the outside, managing complexity for a fee. As the postcrash dust cleared, rapidly digitizing companies were faced with decisions on how much to use BPOs, which BPO partner to select, and how best to do so. It wasn’t easy; the implications of a poor choice could be millions of dollars in extra costs and untold headaches down the line.
At P&G, many of the operations that might be outsourced had been gathered together in a 1999 reorganization. This GBS function was responsible for business services including IT, facilities management, and employee services. In 2000, three options for the future of GBS were being actively explored: stay the course and continue to run GBS internally; spin off GBS (partly or wholly) to allow it to become a major player in the BPO business; or outsource most of GBS to one of the biggest existing BPO companies.
It was not an easy decision. The stock markets and economy were cratering, as were the stock prices of the publicly traded BPOs. If completed, the deal would have been highly complex and at an unprecedented size for the global BPO industry. P&G had never outsourced or sold anything affecting this many employees, so the impact on morale and culture was highly uncertain. As the options were made known to employees, some employees feared the company would sell loyal P&G employees into “slavery.”
The easiest thing would have been to declare that the issue was too divisive and to stick with the status quo. After all, GBS was working just fine. It was playing well in its space and delivering high-quality services to a wide range of internal customers. Alternatively, P&G could have gone with the next most conventional option: a single large deal with a premier BPO firm like IBM Global Services or EDS. Finally, the company could have acknowledged that a large, in-house global services organization was an inefficient use of P&G resources and spun out GBS into its own BPO. Any of these choices might have seemed sensible given the circumstances. But none effectively answered the question of how P&G could win with its global services.
The senior team wasn’t convinced that all of the options were on the table. So, Filippo Passerini, who had a strong IT background and marketing management experience, was asked to think through the existing options and, if appropriate, suggest additional possibilities. Passerini struggled with the conventional choice. In theory, outsourcing to a single large BPO would create considerable economies of scale. It was clear that the deal would be good for the BPO partner, which would secure the biggest outsourcing deal in the industry’s history. But there was no obvious reason why the deal would help P&G to win. P&G wanted more than cost-effectiveness and a commitment to a predefined service level from an outsourcing deal. It wanted flexibility, a partner that could and would innovate with P&G to create value that didn’t exist in the current structure.
Passerini soon came up with a new option. Instead of signing one deal, P&G would outsource various GBS activities to best-of-breed BPO partners, finding one ideal partner to manage facilities, another to manage IT infrastructure, and so on. The logic of this best-of-breed option was that P&G’s needs are highly varied and that a variety of more specialized partners would be most capable of meeting the needs. Passerini saw that specialization could increase the quality and lower the cost of BPO solutions, and believed that P&G could manage the complexity of multiple relationships to create more value than it could through one relationship. Plus, there was risk mitigation in having multiple partners, and they could be benchmarked against one another to promote better performance. Finally, outsourcing would free up remaining GBS resources to invest in P&G core capabilities and build sustainable competitive advantage.
The case for a best-of-breed approach was compelling. In 2003, P&G entered BPO partnerships with Hewlett-Packard in IT support and applications, IBM Global Services in employee services, and Jones Lang Lasalle in facilities management. Importantly, Passerini didn’t simply select the biggest or best-known player in each BPO space. In fact, as he explains, he chose partners considering another essential criterion: “For each one of them, there was a common denominator: interdependency. It played out in different ways. For HP, they were a distant fourth player in the industry. With P&G, they gained instantaneous visibility and credibility. As important as they are to us, because all of our systems operate on the HP platform now, we are equally important to them [as their lead customer]. For each one of the [best-in-breed partners], the benefit was different, but each one of them became interdependent with P&G.”5 Passerini had crafted a richer way of thinking about the BPO relationship, one that asked, under what conditions can we help each other win?
Passerini’s approach has been a success. The three original partnerships have performed well and have led to a handful of deeper partnerships for different services. The cost of services has fallen. Meanwhile, quality has risen and service levels have improved. Satisfaction rates for the six thousand employees who transferred to the BPO partners went up too; they are now a core part of their new organizations rather than a noncore part of P&G. And the approach has freed up P&G’s GBS team members to focus on innovating and building IT systems that support P&G strategic choices and capabilities, like designing state-of-the-art virtual shopping experiences for consumer insights work and a desktop-based “cockpit” that provides P&G leaders with at-a-glance decision-making tools. GBS has been able to outsource the utilities element of P&G’s shared services and focus internally on areas where it can build strategic advantage. P&G’s approach to this set of transactions has become a model for other organizations, as multiple rather than single-source BPOs are becoming a preferred industry norm.
If the aspiration for GBS was to come to a good-enough solution, then the best-of-breed option would never have been created. But the aspiration was considerably higher. The questions asked were these: What choice would help P&G win? And how could that choice create sustainable competitive advantage? These questions continue to be asked. Now head of a more agile GBS organization, Passerini thinks about providing service to P&G in terms of creating a winning value equation. “I fear becoming a commodity,”