Technology as the Secret of an Agile Advantage

Modularity enables agilityHow does a company become agile without destroying its scale advantages? In the make-and-sell model, variety is an evil because choice is the enemy of scale. Customers now demand variety but this comes at a cost. So how can a company become agile without compromising its cost position? Business processes can also be made more agile and more effective by decoupling the front-end of the business process (the end closer to customers and markets) from the back-end of the business process (the back-office processes that support the front-end). The back- end can then be centralised to create shared services, and it can also be relocated to places where resources are more cost- effective. For example, GE has created a shared services operation called GE Capital International Services (GECIS) in India, to provide more than 450 business processes to GE businesses worldwide. This back-end is more efficient because it can benefit from greater scale as well as more cost-effective Indian talent. It is also more flexible, because it can be applied in a "plug-and-play" manner to any GE business, leaving the front-end business to focus on marketing, customer relationship management and distribution, where the most value is added. Modularity is also enabling agility at the level of industry value chains as vertically integrated companies become virtually integrated networks of companies, where each specialises in one part of the value chain and outsources the rest of its activities. Consider the operating model of Virgin Mobile in the US. The company outsources its network operations to Sprint and does not own a network. It outsources its IT operations, customer care, logistics and many other business processes to partners, focusing on building its brands and managing customer relationships. It is lean and agile and on track this year to become thefastest company to reach Dollars 1bn (Pounds 555m) in revenues in the US.