4. Strategic sourcing. This will be the year in which procurement of supplies, machines, components, materials, and services takes on a strategic importance it never had before. One driver of this trend is scarcity. In their forthcoming book, Make or Break: How Manufacturers Can Leap from Decline to Revitalization (McGraw-Hill, 2008), Booz Allen Hamilton Vice Presidents Kaj Grichnik and Conrad Winkler note that, “For the first time since World War II, companies face growing shortages in key raw materials — everything from once commonplace supplies, such as steel and aluminum, to high-value elements, such as gold, silver, copper, and platinum. Even recycled materials are increasingly scarce. In general, these shortages are primarily due to the inability of mining and processing facilities to keep up with ballooning economic growth in emerging countries like China, India, and Brazil.”
The most farsighted companies have already begun to respond by rethinking the operating model underlying their procurement. They are abandoning the traditional adversarial efforts to divide and conquer suppliers through price-based competition; instead, they are seeking more collaborative, capable, information-rich partnerships with their suppliers. This means changes in practices and in procedures (often abetted by new ways of using information technology), and changes in corporate culture. They are also developing complex, multitiered, global supply networks. All of this signifies a broader and more incisive role for the chief purchasing officer in many companies. Increasing preference for green products (particularly those with low carbon footprints) and problems with product safety (exemplified by the lead paint in inexpensive toys and concerns about food impurities) will make the quality of sourcing ever-more important.
5. Excellence as a differentiator. Three trends from previous years are continuing to affect corporations, and they are also interacting with one another in unexpected ways. The first is cost pressure. Global competition continues to accelerate; expanding markets and technological uncertainties demand increasing investment; and mergers, acquisitions, and private equity deals add pressure, as well.
Second, the task of reducing cost is growing more difficult every year. Much of the “low-hanging fruit” has already been taken out of marketing expenses, SG&A (sales, general, and administrative expense), and HR. Outsourcing, once seen as a relatively quick and easy way to arbitrage labor costs, is maturing into a source of capability — higher value, but more expensive.
The third trend is labor scarcity and a rise in labor demand. In the last few years, shortages of skilled workers have begun to constrain new operations in energy, transportation, and manufacturing. Now, even in countries with immense populations like China and India, companies need talent (and governments do, too). There aren’t enough highly skilled people to go around. Meanwhile, as the millennial generation (those born since 1980) enters the workforce en masse, qualities that once seemed novel — in-depth familiarity with the Internet and technology; casual acceptance of diversity in race, gender, and sexual orientation; and appreciation for informality — will become the norm. Millennials also appear to be more interested in social causes than their predecessors, but are also extremely pragmatic: They don’t want to waste their time without seeing results.
Together, these trends seem to be sparking a small but potent cultural shift, both inside corporations and in society at large. We see it in the ever-growing demand for science education, and in an renewed interest in various forms of participative management, operational excellence, and more results-oriented organizational practices and structures. The craft of management will be seen as a differentiator, even in high-growth environments like China and India, between companies that succeed and companies that fail.
Employers will increasingly attract people through learning and development, corporate culture, and operational excellence. After years of being downplayed, practices like lean production, metrics-based marketing, focused priorities (instead of dozens of strategic initiatives that lead nowhere), and in-depth executive succession practices will be taken more seriously.