Global financial contagion and sourcing

Watching the financial industry events unfold (perhaps snowball is a better word), I started wondering what this could mean for the sourcing industry.

We've certainly seen the reactions of bankruptcy, "fit" firms taking over "weaker ones", layoffs, etc. But, can we consider this through a different lens?

For the weaker firms or firms most affected, survival was the first priority, as it should be. For other firms, what we're seeing are some very strategic responses that tie well to a topic I discussed some time back, the 3C's--cost, capacity and capability.

Much of the M&A (merger and acquisition) activity is clearly driven by a perceived opportunity to improve on at least one, if not multiple of the 3C's. As just one example, think of the acquisition of Lehman's captive centers--a great way to acquire a potentially lower cost profile along with increased capability and capacity.

Firms who provide outsourced services will most likely go through much the same lifecycle. Weaknesses in their customer base, coupled with increased financing costs, mean the first reaction is survival. For the stronger service providers, that will likely shift fairly quickly to how they can use M&A to address the 3C's for themselves.

They know that some of the remaining customers will be bigger, and therefore more demanding of service providers, and they will need to continue to reduce their costs as well as increase their capabilities. Other customers will be more in survival mode for a while and will need cost reduction help, something that is delivered both from scale-driven lower costs as well as from improved capabilities.

For financial firms, we've come to see that a broad deposit customer base has become a key ingredient. I wonder what we'll discover is the key ingredient for service providers as they navigate the current challenges.

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Michael Rehkopf

Michael has more than 20 years of experience in operations, strategy and sourcing covering all major parts of the globe. He has also worked for Australian, Canadian, German and Japanese companies in both business process outsourcing and IT outsourcing.
Michael's industry experience includes the financial services, manufacturing, telecommunications and travel sectors. He leverages this diverse industry experience and his university background in accounting, IT and his Master of Dispute Resolution, to assist clients in the development of business strategies and the implementation of sourcing strategies. These include the associated evaluation, negotiation and organizational change.
Michael is currently a partner at TPI, the world's oldest and largest sourcing advisory firm. Prior to joining TPI, Michael held leadership positions with Siemens Business Services, OpenPlus International, Mitsubishi Electric and Netron.