When you manage projects, a big part of your effectiveness is derived from common knowledge and a database, not necessarily a formal database, of what works and what doesn’t. In the last decade, everyone in a corporation “knows” certain basic facts that underlie the logic of why we do projects. We “know” that: things made in China are cheaper, that it cost less to make things in far away and inexpensive locations, that you don’t pay taxes on things that you buy on the internet, that certain businesses are gone forever from America. Because we know these things, we can act without re-examining these beliefs or explaining them to everyone. This database of common knowledge both informs us of what we should do, and defines the scope of the benefits we should deliver if we are successful. But what happens if one day you wake up in a strange world where everything you knew is now wrong, and the world runs backwards. Well, this Bizarro world may already be here!
For years, we have worked under the assumption that globalization and outsourcing work and work well. Yet, in the 80s most decison makers believed that there were significant, if not insurmountable barriers to globalization. Manufacturing and purchasing was much more local. It made sense to buy from local vendors rather than using centralized, lower cost supply chains. It took a long time, but we all learned that our new eternal truths were: central, global, and often involved distant locations. However, we have seen ever-widening cracks in our beliefs about how business fundamentally works. For example:
Taxing the Internet: Years ago, we knew that bricks and mortar were dead, when internet merchants were exempted from sales tax. How can a local business compete against this huge advantage? Well, that advantage is now trickling away. California is now charging sales tax, making it eight states that have leveled the playing field for traditional stores, with 6 more states about to impose a sales tax on the Internet.
FedEx Restructures: Which explains why FedEx is restructuring its business model. Back in 2000 FedEx did its IPO based on the growing need by Internet merchants for delivery services. Now, FedEx believes that it’s time to cut their Express services, raise the price for all premium shipping, and move resources into lower cost shipping options.
Fuel costs Drive Location: The cost of fuel has been rising ever since the beginning of the Iraq war more than a decade ago. The farther away you manufacture, the more fuel it takes to bring that product to your market. A sudden spike in the cost of fuel, and a storm that delays the arrival of a container ship, and the profit from a billion dollars in cargo disappears. The uncertainly of fuel costs and weather in a world of global warming, and all of those offshore factories are not nearly as attractive as they used to be.
Outsourcing to America: The cost of local labor has dropped in the last few years, and domestic productivity is rising. The justification for offshore manufacturing of high price tag goods isn’t what it used to be. Look at cars. Most of the Japanese and Korean cars that Americans buy are built in Kansas. That’s where China is setting up factories. When it comes to cars, there is still a bias towards the Japanese cars being better built and a better buy. But did you know that the top-rated Toyota Camry is it’s not only made in the US, but it uses more US labor and parts than any other car in the world! Japanese designed, and American built has produced the best product in its category.
If you manage projects, you need to know what “normal” looks like. Today basic project assumptions, such as “farther away means lower cost,” are no longer automatically true. Big changes are on the way. The changing value of distance isn’t just something that internet businesses need to think about. Take a look at your own firm’s supply chain. How dependent are your projects on getting products through express shipment? Take a recent IT project, and assume two more days to ship every order needed to complete the project. How many projects are based on outsourcing or offshoring fueling a financial benefit?
Take a close look at your basic project assumptions… are your assumption up to date? Is it time to review your least successful outsourcing projects and look at how making local decisions for production and/or management might turn it around. Yes, it’s a Bizarro world, but this is your big chance to fix the wrong assumptions of the last few years. Hey, Bizarro is looking better every day!
