Control, as it relates to non-core business
processes, is mainly a cultural issue.
When a furniture retailer is considering whether or not to outsource his delivery operation, the issue of "loss of control" is often a primary objection to contracting with a third-party provider.
A careful analysis of the development of management control systems within the local or small regional furniture retailer should clarify this important issue.
"Control", as it relates to non-core business processes, is mainly a cultural issue, rather than a business issue. Most retail furniture businesses were traditionally built through the vision and leadership of a single individual (or a small group). Management controls were developed using a "top-down" methodology. Policies and procedures were either imposed by top management or approved by top management before implementation. While this is a common method for systems development, problems may arise that can subvert the original goal of those policies or procedures.
This is contrasted by a lateral or departmentally organized control system where individual workgroups are developed and maintained by managers who have full responsibility for the contribution of each respective group.
Most furniture retailers have developed a hybrid system consisting of a sales department (responsible for end-user sales only), a purchasing department (the buyer or buyers) and a warehouse department (responsible for everything else). Some larger operations have added a customer service department to help insulate the other workgroups from non-sales related customer contact. The owner or partners directly supervise the department heads. Legally, the supervision is based on employment law; if the department head cannot, or will not, perform according to the owner's needs, the only real remedy to either party is to vacate the position in favor of another individual.
A little history is in order here. Early in this century, most service and retail businesses (in fact, most businesses of any kind) were small and owned by one or two people, who kind of "figured out" things that worked or didn't, and changed policies whenever they felt they were necessary. However, with the advent of the industrial revolution, and the emergence of a consumer-driven economy, service and retail sector businesses were forced to become much more efficient in order to compete successfully.
The only available model at the time was that of large manufacturing concerns. Typically, a top-down management model is suited to assembly line manufacturing, where large numbers of workers perform repetitive tasks, making overall performance and job success easy to quantify.
Large non-manufacturing concerns adopted this model in an attempt to properly control processes that could not be directly supervised by top management. Relative to core operations, this model worked fairly well; systemic failures were more often related to top-down management of non-core processes.
Over time, this gave rise to several major industries; transportation and advertising are a couple of the first industries that specialized in sourcing of non-core related functions. This trend toward outsourcing of non-core functions has accelerated as the service and retail industries have become more skillful at identifying core and non-core functions. In particular, outsourcing of logistical processes has become a major focus of retailers in the last several years.
Within the "top-down" culture, implementation of a procedure is not the end of the top-down process. Procedural success stories will flow back up the management ladder, but procedural failures will always flow downhill as far as possible. Rarely will anyone be willing to assume responsibility for failure of a system or process that was imposed by "the boss". Therefore, procedural problems are either hidden from management or blamed on the next lower (hierarchical) level, and the next, and so on, until somebody, somewhere, with little authority (or political capital), is ultimately held responsible.
The problem is, system problems usually involve more than one department or group of employees. This gives rise to interdepartmental rivalries, power struggles within the organization, and (in the worst cases) near paralysis in effectively coping with cross-departmental service issues. No manager wants to admit that "his people" are responsible for a problem, especially when "someone else's" people might be at fault. When compounded by the complexities of employment law, it becomes obvious that executive management has very little real control over the day-to-day operation of the business, particularly in areas that are peripheral to the core business (because management usually does not have, or need to have, in-depth understanding of peripheral functions).
For these reasons, the enlightened management team recognizes outsourcing of non-core business functions almost always enhances that control (in this context). The third-party relationship is contractual, not verbal; expectations, capabilities, and limitations are defined in the agreements between the parties involved. The third-party provider must correct service failures, and corrective procedures must be implemented to the satisfaction of all the parties. More importantly, the relationship is that of a customer and vendor, rather than that of an employer and employee. Where an employee may attempt to circumvent a process, shift the responsibility elsewhere, or otherwise undermine effective problem resolution, a third-party provider cannot do so, lest the customer be unsatisfied with the service. An employee does not need to deal with the realities of a market; a business, on the other hand, that provides services or products to a client cannot ignore the needs of that client.
Business is not perfect; problems always arise, changes must be made, and systems must constantly be refined and redeveloped. In order to dynamically adjust to the forces that conspire against the successful enterprise, the best way to ensure control of your core business is to let another company use its core strengths to leverage your own.
John Yeargain is president of NowCor, Inc., a value-added home delivery carrier operating in secondary markets. Mr. Yeargain has provided transportation consulting and complete solutions to a variety of regional and national furniture retailers since 1996. Inquires can be sent to John care of FURNITURE WORLD at email@example.com.