Do Business Well

The third delegation strategy involves more than the second. What we have been talking about so far is the deep delegation strategy, that is, off-loading a specific process or activity onto someone that specializes in that task. There is also a broad strategy, in which a customer contracts out entire business operations. As in the previous approach, the suppliers’ expertise and scale advantages motivate clients to delegate. What distinguishes this strategy is that it places a high premium on the supplier’s orchestration skills. The broader the scope and the more critical the nature of the work, the more customers have to trust that the supplier excels in coordinating and juxtaposing various pieces of the puzzle to form a solution and keep it running smoothly.

Responding to this demand, General Electric Power Systems, which builds turnkey power plants for thousands of customers around the world, will even run its customers‘ plants for them. For the company in need of a power plant, GEPS will take care of everything. In this case, all the delegators have to do is determine the spread between what they plan to charge and what they are willing to pay.

One of Britain’s most prominent logistics companies, Hays PLC, manages its clients‘ entire supply chains. For the large retailers Tesco and Waitrose, Hays provides and runs regional distribution centers. For other large companies, such as Philips Electronics and Shell Oil, Hays offers warehousing and transportation services similar to those rendered by UPS in the United States. For Vodafone, another top 100 company, Hays furnishes what are, essentially, repair centers, as well as logistics-related services. If you have a problem with your cell phone, you don’t call Vodafone to have it fixed, you call Hays, which services other clients at the customer center as well. Hays offers warehousing systems, express parts delivery, repair delivery, and technicare services. Undoubtedly, Hays provides a turnkey, one-stop solution for its customers.

In information technology, companies are more frequently looking for turnkey solutions. For suppliers such as EDS, CSC, and IBM, this trend has created a boon. In the past six years, the information services and software companies in my database grew from $73 billion in sales to $220 billion, roughly 50 percent of which I estimate to be delegation-related. For example, in 1993, Xerox signed a ten-year, $3 billion contract that allows EDS to run its IT operations; a few years later, J. P. Morgan signed a seven-year, $2 billion deal to have a consortium of four technology services companies take care of a large portion of its operations; last year, cereal maker Kellogg renewed a multiyear outsourcing contract that arranges for Unisys Corporation to provide it with state-of-the art technology.

In a variation on this theme, information service companies are eagerly catering to customers who are anxious to establish an Internet presence. A manufacturer can allocate entirely the job of arranging a “digital strategy.” This means delegating the design, setup, operation, and maintenance of a Web site, which includes keeping the software up to date. The supplier will also oversee your click stream, so that every time someone clicks on to any piece of information on your Web site, the move is recorded and analyzed. With this information, you can figure out which parts of the site are working well, what most customers want to know, and how you can get people to linger longer on the page. What is fascinating is that, now, suppliers are working with their customers at great physical distances. Witness the explosive growth of India’s software and information services companies, which emerged from relative obscurity to become a $5 billion industry serving two out of every five Fortune 1,000 companies. By 2008, McKinsey consultants estimate the industry will reach $87 billion, which would most certainly identify it as a veritable delegation success story.

Infosys Technologies is one of the hottest of these Indian companies. Its impressive performance placed it on my top 100 list. Though Infosys Technologies had grown steadily since the early 1980s, it wasn’t until the last several years that it really took off. This success accompanied the company’s realization that, instead of continuing as a low-cost subcontractor, it could use the Internet to provide an integrated range of technology solutions around the clock and, in so doing, take advantage of India’s educated talent, low wages, and geographic location.

For its customers, such as Nestle’s, Adidas, Toshiba, Nortel, Amazon.com, Goldman Sachs, and J. P. Morgan, Infosys Technologies provides customized software, maintenance, reengineering services, applications development for manufacturing companies, engineering-related software development, and e-business development. Because its people work while its Western clients sleep, it offers unique advantages in speed—and its prices are 30 to 40 percent below the Western competition.

Today, the Bangalore-based company employs an estimated five thousand people and is always overwhelmed with job applicants. With such strong prospects for growth, it is no wonder that the company’s stock price has soared ever since, in March 1999, it became the first Indian company listed on the NASDAQ.

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