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Steven Spear

Steve Spear: It’s not about formal boundaries between firms, but about the dynamics of improvement

By Steven Spear, - Last updated: Monday, November 11, 2013 - Save & Share - Leave a comment

In trying to understand what to in source and what to out source, it is first important to recognize what we are trying to accomplish: create the possibility for high speed problem seeing and problem solving as the engine for improvement and growth.

The key point is that exceptional performance levels are won by exceptional rates of internally generally improvement. Improvement, in turns, means finding where problems are occurring and concentrating time and resources on them to convert the ignorance at their core into useful knowledge that separates us from the pack. In effect, those who win do so by outlearning their counterparts.

Therefore, before deciding where to draw the lines between one part of an organization and another, between one organization and another, first where problems are clustered has to be identified, to keep the problem’s sources and consequences within the same cluster and to avoid creating artificial boundaries among those who have to be part of the collective diagnosis and treatment.

Therefore, it well may be that within an industry many competitors may replicate similar structures, in terms of where the formal boundaries of one firm end and another being. However, the evidence is overwhelming that the dynamics across those boundaries vary considerably, within some relationship largely contractual, defined by price and quantity, while others are largely collaborative, defined by cross functional, cross boundary problem solving.

One example: I was at an auto supplier in 2008 when the market was rapidly tanking. One customer was trying to tighten the screws on purchasing, contracting, financing, and the rest. The other customer was in the plant trying to wring efficiencies from the process, generating more value with less exertion and trying to teach the supplier to do so repeatedly and self sufficiently.

Same structure; different dynamics. The consequences of such disparate behavior were evident in wildly disparate results over the ensuing years.

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