Monday, 22 May 2017

Applying Externalisation to improve effectiveness & reduce costs, #digitisation

The previous post (here) showed increasing use of externalisation.  In this post, I’ll touch on ‘How’.  It can be used to reduce costs and improve effectiveness.

Recap, what is externalisation?

It is a way of working.

Instinctively we execute tasks, achieve goals and work within the organisation, something we have been doing for centuries.  Externalisation allows the same, say a task, to be accomplished using an external element. Contracting is already practiced today but it is the unconventional (for now) extension to involve customers and the public that is changing how organisations operate.  Payment too is not usually made and unlike contracting which plays a peripheral role, externalisation can be strategically used or simply to provide a better alternative.

It can be a task like building an alternative review team (Alibaba) - externalising a task, at little cost
It can be a function like designing a car part (BMW) - externalising a function.
It can be a goal like developing closer customer relationship (Goldman Sachs) - externalising business goals.
It can create an encyclopaedia (Wikipedia) – externalising fact finding.
It is strategic like Uber – upending the taxi industry.

[These examples are elaborated in the previous post]

Societal connectivity brought about by the internet made this possible.  Used by internet startups and some of the more progressive firms like GE, this form of externalisation lowers cost and improves effectiveness. 

If you’re asking “isn’t that crowdsourcing?”, the difference is that externalisation is a way of thinking and is a working practice while crowdsourcing is a method to engage the community (public, customers, industrial ecosystem).  Externalisation efforts use crowdsourcing as a tool.

Tapping this process

Unlike what we are used to, it is difficult to simply order a task to be carried out by externalisation.

This is because it is mostly an indirect technique.  You are not paying the ‘workers’.  You cannot force your customers to use the internal tools (Goldman Sach) or review suppliers (Alibaba).  Uber needs to coerce the ‘drivers’ who can leave anytime.

Nevertheless it is a deliberate process and a continuous one to make it work.  You must find value for the ‘workers’ because in most cases, you just don’t make a payment.  It destroys the nature of the task.  It is, for example, ridiculous for Goldman Sachs to pay their customers to use its in-house analytic tools and data platforms.  In some cases, money can induce like BMW’s case (leads to a contract) or prizes for winners of hackletons but that’s mostly it.  And it’s indirect with Uber - the customer pays the driver with Uber getting a cut.

This post – value-of-free – explains this digital economy dichotomy of ‘working’ with no pay, showing how value for the ‘workers’ is created. It is this alternative value that makes externalisation efforts work.

There is a degree of volunteerism and community.

The ‘workers’ need nurturing.

And to make it work, a different kind of skill is required.  Tweaking the corporate culture helps.

I think [in a certain traditional way], therefore I am

Change is bugbear.  Senior management recognise the problem of inertia within their organisations.  Those charged with transformation know that messing with their operational culture is tough.  But also that untangling it is critical for long term good of the firm in a digital era; otherwise transformation will only be at the fringes.

Recognition of the issue is the starting point

Most organisations today have a top-down command-and-control culture.  They tend towards being closed, hierarchical and inward-looking. Trust is within.

Internet startups that perhaps are showing the way of new (internet) culture operates quite differently.  They are peer-oriented (vs command control), inclusive (vs closed) and likes partnership (vs inward-looking).  They operate with an open ethos.  Millennials like such environments so it is not just about transformations but the workforce.

Loosen up

If executives can grasp this working culture they will start to think differently and perhaps become more effective in their transformation efforts.  They will, for example, be more willing to consider the outside beyond the limitations of their personal network.

More on internet culture here:

Most of all, be open!

In the meantime, turn it into a process

Our long tradition with internalisation (see previous post) makes it hard to practise externalisation.  Try to turn it into a process, something managers are familiar with.  Think of it as a deliberate process. 

The operative words are engagement and ‘outwardness’.

Take small steps such as the use of reviews and comments but this time take it seriously and certainly more than a suggestion box.

‘Online reviews and comments on social media help consumers see a product’s underlying merits and demerits, not the image that its makers are trying to build around it.’
 – “It’s a real thing” - Economist 14 Nov 2015.

But obviously not all tasks or organisation functions can be externalised.  Understanding crowdsourcing, the open-source-business-model and the peer-to-peer-business-model helps.

For the long term, build a community around your products and firm.  Engage this community continuously.  New job titles I expect will emerge in the industry – community leader, engagement executives, collaboration evangelist….


Tools for externalisation include crowdsourcing, open API, OpenData, open platforms, blogs, social media, messaging and hackeltons but it can be as simple as “BMW hosting a ‘virtual innovation agency’ on its website”.   The habit of collecting emails (even if there is no obvious reason) and building communities (even if it is not obvious yet) are all part of long term externalisation efforts.

But bear in mind that it’s mostly in the mind.

Yours externally,

As internalisation is embedded in today’s operational culture so externalisation will too.  If your mind instinctively considers external elements as much as internal ones when you are tasked, you are there.  Like, I believe, Elon Musk.