McKinsey research is always thought provoking, and when a recent article came across my desk, I read it with particular interest. It places proximity to customers and innovation ahead of labour costs as keys to the success of the “new” manufacturing. I wondered if there was a corollary to systems integration – what we do for our customers. I concluded an emphatic yes, but read on and see what you think…
Next-shoring: A CEO’s guide
According to McKinsey, “Proximity to demand and innovative supply ecosystems will trump labour costs as technology transforms operations in the years ahead.”
Here in the IT industry, software development and systems integration have borrowed many of their methods from manufacturing. Wipro in India based its project methodologies on just in time manufacturing, which had been perfected by Toyota in Japan. Post World War 2, Japanese manufacturing was improved by coaching on production and quality from American corporations like HP which pitched in to help Japan get back on its feet. Lean Software Development and Lean Integration, which we use at First Point Global, were both developed as a result of improved manufacturing processes.
So what is Next-shoring?
As McKinsey introduces it: “When offshoring entered the popular lexicon, in the 1990s, it became shorthand for efforts to arbitrage labour costs by using lower-wage workers in developing nations.” After discussing economic trends, including the importance of local demand factors, the limits of labour-cost arbitrage and the impact of disruptive technologies, the article goes on to suggest the following:
“Although these forces are still gathering strength, they’re already pointing toward two defining priorities for manufacturing strategy in the era of next-shoring: proximity to demand and proximity to innovation, particularly an innovative base of suppliers. In developed and emerging markets alike, both ingredients will be critical. Next-shoring isn’t about the shift of manufacturing from one place to another but about adapting to, and preparing for, the changing nature of manufacturing everywhere.”
And what does it mean for IT?
Think about this:
1 – Developing countries’ labour costs are on the rise;
2 – Even with modern communications, separation of teams comes at a cost.
How does this apply to systems integration projects such as implementing enterprise software like identity and access management? If manufacturing is a bellwether for what’s coming down the track in IT, is it possible that the process should take place:
3 – Where there is demand, close to the customer; and
4 – Close to where there is innovation and innovative companies?
If you add up 1+2+3+4, there is a very compelling case for cloning the next-shoring model into IT systems integration. Combined with efficient project delivery methods like lean integration, next-shoring is potentially a term for an approach we’ve been using, which we call LIAM or Lean Identity and Access Management – the topic of our last blog – the principles of which are:
1 – Focus on the customer and eliminate waste;
2 – Continuously improve;
3 – Empower the team;
4 – Optimise the whole;
5 – Plan for change;
6 – Automate processes; and
7 – Build quality in.
By observing the principles above, placing subject matter experts at the customer site (where the demand is), and acting as a hub back into innovative companies (a portfolio of best in class vendors), we are effectively practising next-shoring for systems integration.
And what is systems integration? Isn’t it just an assembly of parts into a system?