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At the core of X-engineering, then, is the need to understand the rationale for every step in a process. You need to really understand what customers expect of you, and start thinking about them not in terms of size or geography, but expectations. You need to do that because your solutionyour value proposition, if you willhas to respond to what your customers' expectations really are.
Although a lot of companies up to this point will say, "Well, we do some of that," I don't think companies do it anywhere near the degree that they should.
For the CIO, there are specifically four places where you can look to increase how efficiently your customer does things. Where does the inventory back upduring shipping, in the warehouse, on the production line? Where does the transaction slow downin the sales department or at the approval level? Where are the highest costs in the transaction? And how is the design process handledis everything sequential or are many disciplines working on it simultaneously? Once you figure that out, you need to get close enough to your customers so you really understand what they're going through, what their issues are and how they truly experience you. They'll be candid because the payoff for them will be a lower price from you. Just like you, customers want to pay less and make their own lives simpler wherever they can. So X-engineering begins with going deep into your customer's experience and expectations.
Your next step is to jointly redesign the process with your customernot just at the interface, but something end-to-end. Maybe it's not just how something is bought and sold, but really how it is ordered and inventoried. Look at all the tasks involved to see what can be eliminated and where there are redundancies. Look carefully, and start to experience what shared process design really looks like.
Then move onto suppliers. The truth is you have leverage here, especially if you engage your suppliers in X-engineering in a way that benefits them, and not simply by demanding every cent you save them. How do you engage them? I use the expression "fish upstream." Go back and look at the way the supplier buys and staffs, and also the way he supplies you. The farther upstream you can go with your supplier, the greater the chance that you can create a good deal for yourself and them, because something like 75 percent of costs are fixed very early in the design process. Go deep into the process with your suppliersgo way back and see whether there are ways to change the way a supplier buys or manufactures its products and services to see how those decisions affect you.
I actually believe that in the next two to five years we are going to go from individual companies engaging with their customers and their suppliers to having companies join together to form a network that will perform some common function. We have seen early examples of this with everyone from the Big Three automakers setting up a joint purchasing company to the metals industry coming together to source raw materials. There is simply no reason for every company to handle exactly the same function in exactly, or almost exactly, the same way.
In the financial services business, everyone buys and sells the same way. Each individual company doesn't need to create a separate function for doing it. One network could handle it for everyone. When that happens, there will be a huge opportunity for success, because companies will be free to concentrate on what they do besttheir core competency. In financial services, that might be excelling at securities research or designing the most innovative products or offering the best customer service. The idea of not doing anything but what you are best at is very liberating; it frees you to concentrate on your real competitive advantage.
But that is still a little ways off, in part because we haven't solved the problem of what to do about companies that are members of the buying or selling consortia cutting individual deals as well. If members of the consortium undercut the consortium, then eventually it will just fall apart. So certainly pay attention to what is going on in your industry, because eventually these networks will form and facilitate some of the kinds of process changes I'm talking about. But this is not the place to be putting a lot of resources right now.