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Authors John Gray and Michael Leiblein join host Matt Quin to speak about their best-selling case study, Scotts Miracle-Gro: The Spreader Sourcing Decision. We revisit the debate over offshoring in today's context and discuss how a student project evolved into a best-selling case.
Professor Gray is an expert on outsourcing, offshoring and reshoring; he teaches data analysis and global sourcing at The Ohio State University's Fisher College of Business.
Professor Leiblein, also an expert on outsourcing decisions, teaches courses on competitive strategy, innovation strategy and innovation management at the Fisher College of Business.
Transcript
Hi, I'm at Quinn. Thanks for joining us for decision points from Ivy Publishing at the Ivy Business School. Offshore outsourcing was a prominent strategy at the turn of the sentry as Globalization Shifted the Operations of Western company. During his two thousand and sixteen US Presidential Campaign, then candidate Donald Trump for new public debate over offshoring with his message of economic populism make America grade again, a commitment to bringing manufacturing job home. More recently, the trump administration's trade war with China has accelerated global sourcing move, with some American companies reshoring and many other shifting operations to other Asian countries with manufacturing prowess, such as India. For Vietnam, the pandemic, as of course, kept this conversation top of mine, notably around medical supplies that were in short supply in many countries and companies shifting operations to help. One notable example with Scott's miracle growth headquarted in Marysville, Ohio, which used its factories in California to produce face shields to help local hospital. Today will rewind the tape on the long standing sourcing debate. I'm joined by Professor's John Gray and Michael Liveline to speak about their best selling case, Scott's miracle growth, the spreader sourcing decision. Professor Gray is an expert on outsourcing, offshore ring and restoring. He teaches data analysis and global sourcing at the Ohio State Universities Fisher College of business. Professor Live Line, also at Fisher, has consulted with numerous clients in the US on Europe on outfurcing decision. He teaches courses on competitive strategy, Innovation Strategy and innovation management. I hope you like today's episode. John, when you think back to what sparked your interest in writing the case and getting it down on paper and bringing this to the class room, what was it that stood out to you as interesting and something that you wanted to follow? So this case actually originated as a student project in my class. So in my initial global sourcing class at Ohio states to Scott's miracle grow agreed to help students, have students help them with this decision. They opened up, they flew them to California and brought them to the tumcular plant. They brought into headquarters and shared with them a lot of data and the project turned out really, really good. Scott's was really pleased with the analysis of students had done and one of the students actually that their author, Shiam car are in a curran, actually said, hey, why don't we write this up as a case? I'd like to like to see this publish. This is really interesting and Michael and I are working on some projects at the time and and we both found it extremely interesting. It was a difficult decision that Scott's had. They had a kind of more expensive current location. At that time a lot of people are going to China all things like plastic buckets, which is essentially what they were doing, plastic buckets and assembly, and so we thought it'd be really interesting to go through the analysis we had gone through to show that maybe China willn't necessarily the right answer at that time. That's really cool to hear about the the organization taking an interest in getting this story out. Do do you remember what what it was that they saw, or was it they had an interest in cases and they had a relationship with you before that? Because that's that's doesn't always happen, where you get a company really making the decision and pushing for it. Yeah, well, the student was one who initiated the conversation with the company and then we went to the company and ask them if they would allow it to happen and once they once we got going, they got kind of excited about it. We used real names in the case for the most part and and I still occasionally see the people and they're happy to know that thirtyzero or more students have read there their story. So they just felt like it was a it was. It was worthy of telling that the challenging decision that they have to make and it sounds like they really open the books and and gave great access, which you can see that in the case and one it makes the case a lot easier to write, but it also really makes that narrative so much more one, authentic and easier to dive down into. What else do you think it gave, you know, having this access to the students, what else did it do as far as the the pro ususund the end and product? Well, the students that the students spent in the semester pouring through a binder of data that was four inches thick with contract manufacturer quotes and a bunch of internal information and really built bottoms up cost models from for China and for the US and then consider the risk an uncertainties as well, so that without that time in that data and that investment in the student group being so engaged in doing such a good job and Scott's being so helpful, it would have been much harder to write that case of the quality at this one turned out to be. That's good. So it's some some Kudos to scots there. And Michael, what do you think I mean? I think I think what also comes into this is, I don't know if it's a parent everyone. I mean in some sense the Miracle World Company was out in New York, but Scott's is right up the street from Columbus, from Ohio state, so there's a lot of inner you know, several of our students you know work it's Scotts. We've all, or several of US have, you know, had scotts executives in our executive education courses. So there's a lot of ongoing conversation about what's going on at the company. That allows you to have some of this richness that I think. I think it makes it interesting. You know, you walk in saying we probably going to be able to, you know, get access to the appropriate data and this sort of the the issues that they're at heart some of the decision making. And then, of course, you know, what was interesting to hear was it was an interesting interdependent sequence of choices or set of choices, with the the outsourcing choice as well as the location choice. And you know that that really gives us an opportunity to, you know, explore the limits of what we think we know on the academic side, you know, and maybe invest in the case development and way that you know you're probably going to learn something as well. So it was a great, great, great example of what could happen. That's very cool and one of the themes that comes out in the case is, as what you've already mentioned, offshore outsourcing. Could you explain this for the listeners, not only in the context of the case, but John What does that mean? What is offshore outsourcing and what are you teaching the students about that in the case when you teach? Sure, but I was, Michael pointed out, is really interesting case because it wasn't just a location decision, it was a makebye decision as well, and and a lot of at the time, a lot of companies were moving activities to China and also, at the same time, outsourcing them without necessarily explicitly thinking through the applications of the makebye decision. So off shore outsourcing is is doing two things at once, taking an activity and moving it up shore, which is often to a low cost location, and then outsourcing is taking activity that you were performing in house and now having another entity perform it for you. And so again, the richness in the case is not just the incredible that the data and all of the analysis of the location decision, but also the additional complication that the two choices given in the case really are keep it in house in California or outsource at to China, and that outsource decision is also pretty pretty complicated. Yeah, I think what I'll add to that we believed it was a problem of someone contemporary importance, but there's also so much confusion about what offshore outsourcing may or may not be. I mean we use that term colloquially, but unless we're talking about to you know, paraphrase miles shaver, and you know, a big step away from the home country, we don't care about offshore. I mean that's sort of a silly it's a location choice, right. So I think what we care about is there are these differences in formal and informal institutions associated with conducting business in these locations and, as John was saying, and then, on top of that, we care about the different ways of control and coordination across you know, make buy outsourcing decisions. And now we have this interdependence between these, these two choices, between outsourcing and location choice. So I think what happens, I mean the speculation, I guess, at some level. What I think is in interesting about the cases. When you're teaching it, you can become talk about, you know, what are the important factors that affect each of these choices individually. How do we consider them? Should we consider them jointly? How do we, you know, how to what changes when we consider them jointly? You know, if they're interdependent? Is there a sequencing of choices? Do I think about one or the other? If I've been using, you know, some of the tools or frameworks we've been teaching in the class about outsourcing our location choice independently, does that lead me to an incorrect decision about how, you know, the combination of these choices? I think it a just generates this sort of cool, rich discussion. Yeah, there's a ton of nuance in that and you talked about you know. Initially coming into this conversation I'm thinking, okay, maybe there's just this one decision point, which we often see in a case. There's one thing that's very clear, but it sounds to me that once you've got into it and got into Scott's and started looking at there was maybe a few different dilemmas that were facing. How did you narrow it down or did you leave a lot of purposefully leave some of that nuance or lack of clarity in the case, because that's often a choice that author has to do. Do we go pinpoint or do we leave a little mystery in there? How did you guys handle that? John so Michael May no better in the writing of the case exactly how purposeful we were in writing it the way we did. But having taught it now for fourteen years, there is a lot of ambiguity left in in both decisions, which really helps the discussion. The students basically are able to make logically consistent arguments based on makebye theory and and factors driving location decisions. Really for either decision and they're also, as they sometimes do it, able to make logically inconsistent arguments. But the Makebye decision was actually quite subtle with that in mold. Labeling in the case is one thing that the level of asset specificity of that is in the level of strategic importance are both a bit debatable and but students can take a stance and make a recommendation based on that stance really kind of almost either way, and I think that that richness is really cool to be able to bring out in the classroom after having taught an introduction to make by and an introduction to location decisions and decision making under uncertainty and risk. Yeah, I think I think John's hitting is spottle. I mean so one of the beautiful things here is that, you know, it seems so simple what appears to be a relatively simple product, you know, what appears to be a relatively simple, you know, cost decision. John's comment was maybe I learned it thought about something aheaded time. I don't think I did. When I you know, I think the problem frame is really evolved for me over time. I think we knew we had some tools to address the basic questions would I've certainly learned over time is that there was a lot more subtlety to the problem. So, and what I mean by that is I've framed over time. I've changed my frame and formulation of the problem. I used to I used to see this is clearly risk and hold up issues, you know. Now I see more of the challenges of managing the the temporarily managing the delivery of the spreaders to the retail outlets. In some sense, reflecting back on our earlier conversations that's running in exact you know, running our classes with some of the executives from Scotts and you start hearing the folks who are running home depot or lows and what challenges they're running into, you sure saying, Oh, this is really what's going on, you know, in terms of some of the problems are having matching and getting literally getting a spreader or fertilizer to, you know, a home depot in Columbus Ohio or in, you know, southern California on the right weekend when everybody's going to be doing there, you know, using their working in their lawn and garden. So sort of really interesting to see how the problem frame, you know for me has evolved over time. And let me just add to your addition that evolution is interesting because from Michael's a strategy professor, I'm an operations management professor and from an operations perspective, inventory theory as well established matching supply and demand and tools to do that and know they had a long lead time is probably one of the first things that is evident to a an operations professor about moving this activity to China and and to me is much more subtle and much more revolution in my own learning and thinking about kind of make by theory and and some of the what I consider them more subtle thing. So it's an interesting evolute different maybe different evolutions based on our different backgrounds and areas of expertise. But regardless the the in two thousand and seven almost everybody would have thought a plastic bucket should be made in China and and and really even teaching the case, and maybe it's partially how I've taught leading up to the case, but more and more students are recommending on shore than the still I still get a mix. If I have five case groups, three hundred three might recommend on shore to offshore. You know, in a given year, but the percentage recommending on shore is gotten higher through the years. And it is and it is interest right. It's something they coming with strong opinions on right. It's I think everybody says. I understand what a spreader is, I understand what a bucket is. I understand a couple of you know I have some bias. Maybe it's biased, maybe it's something else. I understand what the problem is. I'm not war, it's not you know, it's not a pharmaceutical drug that I I'm not really sure what this is or how this acts. It's a seemingly simple problem and then all sorts of nuance comes out and I really like the fact that there is that nuance because over time, you know we're recording this the middle of July, when you go back and say, teach this in September or October, the answers that you're going to get, in the opinions from students that you're going to get them are going to be, or could be, radically different than the last time you taught it, just given the you know what's happening in in trade and global economy, etc. So I really love the fact that you guys have left in this opportunity for evolution in the case and heaven't made it so fine tune that there's only one one way to look at it. So that's that's kind of a cool thing about about the case. So, John, I want I want to come back to something you touched upon just briefly, which is the the teaching note. And so in the teaching note you cover, you know, wide variety of frameworks to help evaluate the decision when you're when you're going through this in class. One of the interesting parts is that the financial analysis tended to lean in a different direction than other models folk that focus on more of the qualitative assessments. Can you talk a little bit about that, because that's kind of a cool nuance about the case as well as depending on which way you look at it, qualitative or quantitative, you could arrive at some different recommendations. Yeah, so I think a lot of a lot of offshoring decisions, if you wire decisions to move an activity low cost location, the the the measurable costs will tend to favor moving going off shore, but the qualitative risks and an ambiguities will probably tend to favor staying closer, assuming the demand is local as well. It's a different much it's a different situation at the demand is also off shore, and so we wrote the case with a careful financial analysis. In the case gives you a lot of data to do a financial analysis and if in you're right, if you do it correctly, that I'll shoring would be pretty pretty heavily favorable in a way that a CFO might get excited or vp of supply chain looking to cut some costs might get excited. And but you know, matching supply demand being one of many hidden risks and challenges are also exist. And so the the the the decision making process in the case is presented as kind of evaluate the costs and look at the qualitative factors and decide what to do. Now I'm a little bit ignoring the make by part, which is a whole nother thing. I'm not I'm really focusing on and that's another ambiguity. And interestingly, in teaching the case in for fourteen years and then I started studying some decisions of actually companies that are off short and then reshort. So went and actually interview the managers involved in those decisions and talked about the process by which they made those decisions. They did tend to make the off shore decisions driven by cost and the reshoring decisions driven by other factors. As one might effects, they were learning about these hidden costs and risks, and so after that it got me to thinking about what is the right decision process from one of these decisions? Is it to first evaluate the costs and then figure out whether then figure out what the other things are worth enough to walk away from the cost savings? And so that did lead to kind of the updated teaching note and some research that. But thinking about how your current the current thinking and thecurement's total cost of ownership, which is you evaluate costs and you try to add on other costs. Okay, but should we maybe start with value, try to understand what firm values matter that are affected by this decision and and anchor people on those to try to d bias the decisions that are already biased in favor of measurable cost which is also happens to be the incentence of the people making these decisions off and are are to cut out costs. So that's kind of how I started teaching. That the case in the last few years and it working now on trying to maybe even update the teaching note to reflect that and I think that's a cool point that you bring up. That I want to pause on for a second is the updating of things that you know, the case is a few years old now. You're still using it and I really like that you're adding the new thoughts of the new research that's coming out to enhance that teaching note. And for those that are thinking of writing a case or have had a case that's that's been around for a few years, that's always a really good option to say here's some new thought or here's a new model and with Whi should look at the challenge or the decision point. That's always an option to update teaching also. Thanks for bringing that up, John, because it is something that helps maintain the relevancy of really important topics and and for sure the cases. Yeah, I think that really I mean the new, the new, the new, you know, analyzes and statistical reports John's added have added some interesting stuff. I mean one of the conversations going on now. A friend of mine has this question. Why do managers choose too much governance? And it's, you know, sort of more psychological behavioral? What's going on? And I always find that question interesting. Right. So it's it's interesting. Even in the question of separating out the quantitative in the quality of I don't know that that's quite right. I mean we think about, let's say, black and shoals, formula and fall and put options there are they're based on some sort of you know, assume distribution about, you know, we're assuming a Gaussian distribution outcomes. We calculate the value. So I think we do the same thing if we actually really push the analysis on some of what we would I think in this case characterizes some of the qualitative frameworks. If we really push the analysis, we can actually get numbers as well. Just as you can estimate a call option, you could estimate, you know, think through what do we mean by core competencies and capability logic, and so I think one of the Nice things about the case is, you know, we probably talked about those things in an overly simplistic way and a lot of classes and that misses the point of the tool. And now you can sit back and say, okay, so how would you know? What assumptions do you have to make about what the competence is when whether you're going to make this investment and it's going to actually pay off or not, and so it's another way to push forward another pastor of discussion with the case. One of the things that comes up, and you've brought it up already, is the case demonstrates the difficult internal, external political issues, you know, associated with offshore outsourcing. How's the approach benefited you and the adopters of the case that you've talked to? Has that part of it come out and discussion? Is that a main thing that people say, wow, this difficulty is something we spend a lot of time on. Where you noticed? I guess I'll jump in on this one first. I mean this is one area. I mean you asked earlier. I mean you know, do you anticipate all these things? And I have to admit no, and just for clarity, but is this is the area where I've drastically changed the way I think about and teach the case. I think when we wrote it, I think we somewhat well, at least I'll speak for myself. I was somewhat somewhat simplistically attributed the differences an opinion between to maculent corps grit to incentive issues, and that's what fit with the the theoretical frame I was bringing to the problem. I was at that time the way I was thinking at John might have had more insight over time. I started thinking about framing the problem in time terms of not only incentive differences but, you know, was their goal? Ambiguity, you know, is a true disagreement between individuals about what was right. Was Their fragmented knowledge to different parties have different types of data or different individuals giving them data that influence their opinions. So what ends up happening now, for me at least, is, and I guess this, this does pay more into the strategy versus maybe the picture, the procurement side of the problem. You know, I pay a lot more attention to diagnosing the reasons why differences of opinion exist, you know, and then it's okay, assume. You know, what do we think is the real source of these differences of opinion between the individuals who, let's assume they're trying to do the right thing? Is it just incentives? There's there's something else. Well, maybe it's a little ambiguous about what the right goal is, or maybe they have different sets of data and then, well, what tools do we have? Okay, so if it's an incentive problem, we have certain tools. If it's a goal ambiguity problem, we have other tools. If it's fragmented knowledge, is a third set. If there's different combinations, you again, and this is it becomes too much for one class. But you know, depending on how the discuss should you know, evolves, you can push into this whole conversation about what tools are appropriate to solve the problem based on your perception of what's leading to these disagreements. It's I'm taking a bit more of a simplistic approach with the politics, which is in the last few years I've played the role of the CFO corporate and then had another team that was prepared the case kind of be my other corporate people and then have the students present. And the Nice thing about this case is there's no in my opinion, there's no unambiguously right answer. So no matter what the students say, I can challenge them and and how can you justify that? And they it's they always experience. You know, the difficulty in kind of arguing this decision was so much ambiguity. That's that's basically what I've done the last few years. I have not played the political aspect of much as in my teaching. I love that. You know, whatever they say, you can put a different spin on an hand challenge and what a that's a great rich environment for the student to you know, maybe feel a little uncomfortable. I have to work through that and really give thought to their position as they as they go through the case. One word that you brought up, Michael, as you were speaking was evolution. And, as you know, the case evolves, the teaching note of Aols, the discussion in the classroom evolves. As there been any surprises, real surprises, as you've taught the case where you go? Man, I did not anticipate that coming out in the discussion. and think come to mind. Well, I mean, I think we've touched on several of these things. I think to me, you know, you're opening question by recall correctly, with something about you know, why did you write the case? And I think at the time it was well, you know, this is an interesting, simple problem. We know what's going on. It's Scott's you know. Yeah, this is there's a lot of data, there's a lot of there's a confluence of factors that come to comes together. But a lot of it was hey, it's an inparent, apparently simplistic problem. The simple problem the case appear straightforward. You know, I know what a spreader is. I can seemingly estimate the costs associated with Temecula or outsourcing in China. I know transportation costs. You know. So what's great about the case is as soon as walking the room they have an opinion and then I think, you know, a lot of what's happened is I've learned a lot, you know, some from my students. You know about all these other aspects of the problem. Some of it has been with, you know, ongoing literature, you know, act. So the academic literature is changed about how do we think about this interdependence between these choices? And there's some research coming out talking about, you know, is this unobserved errors? You know, is there or something, you know, that's that's affecting this correlation between these choices it? Are they interacting with or directing each other? Is it? You know, is there a cause, a link between governance and location choice or location choice and governance choice? How is that affecting performance? I think the academic literatures evolved. I think a lot of the things we've talked about on this during this conversation, the political issues, the the richness of the various theoretical opinions. That is about in my mind. For sure you know, and but it what's been interesting to see is the complexity of that, that conversation, and I think, you know, the students have at least I'm sure this is the case for John, you know, in our stiff I think this our students are starting to see, yeah, there is value the good rigorous business education. If I really understood the I mean I thought I understood this. I don't understand it. I don't go to so far as to say you're wrong, whatever you say, but you know they're they're seeing there's different aspects of the problem. What advice do you have for new case writers or others thinking of writing a case as there any main point that you'd like to give as advice, and what is the experience with this particular case taught you as a writer that you'll take forward for the next case that you're that you're also going to write? I'll share three points, or I hope I'll share a three points. You know, I think the process could be educational. So I don't you know, this is there was a part of that in my initial thinking, but not fully. I think you want to pick the right context where you have access. Think you want to be really clear on the theoretical contribution the case and what's the purpose of the case, or at least have some let me let me put it. Let me put that just a little bit differently. I think you want to have a clear perception of how the case is adding value and then understanding it might change. And what I mean by that is, you know, it's not a journalistic exercise. I mean I read, at least for my tastes, too many cases where there's you know, here's a wonderfully detailed case study of the decisionmaking process or the strategic process or the operational process and kind of firm X, but there's no underlying theory or tool or framework or pedagogical objective. So you're trying to illustrate a point, help your students develop judgment and that judgment is hopefully based on some sort of rigorous theory or evidence or something among those lines. And then I guess which I what? I really I don't know. Maybe maybe you know John took too much of this and help me out. I think there is an art to writing a good case. I think of, you know, my friends and Ed him again, Jen Ripken, are these tremendous case writers. That and those cases resonate with me, you know. So I'd love to have learned from them. So I mean, I think, you know, if I were to do this all over again, I'd say we. What I, you know, thought about correctly was, hey, the context is right here. Scott's is cool this. The decision is simple. Hey, I there's a clear theory that I have either I can contribute to to help drive home a perspective or some help students to buipe some judgment in this area. But I would have been asking, Hey, what do I really need to be thinking about when I'm writing a case, other than sort of stumbling into it and evolving? It's over time. Now I'll try to see if I can add to that at all. I think the case at this is the only case I've written and I do intend to write more, but I think maybe not seeking to go write a case, to write a case, but rather through your research or through, in this case, a really good student project, finding a rich environment that maybe there isn't something out there to illustrate is is one piece of advice of falling, falling into it through your research. As far as the case Mike, Mike May Great points, particularly about having a theoretical point to make, but I would just add, you know that I think what this case was actually the students. Do they think about Bob Malcom and him driving into work on a warm sunny morning? I mean, I think telling a story, keeping it fairly short, writing enough data for the students to analyze and maybe the weaker students to feel like they've done their job by analyzing the given data and the stronger students to realize there's much more. I think that's another another good thing about this case. Well, that's great and I want to go back to another thing. We often look for our research to guide a case being written or a contact that we might have, but that that's not overlook that power of a student suggestion, student taking an interest in a topic or a company. We're seeing more cases grow out of that and as a real furtile you know, I hate to talk sound corny because we're talking about Scotts, but it's fertile ground for for a case to come out of and so let's not overlook that is a huge opportunity. Students have some pretty awesome ideas for four cases and should be encouraged to bring those forward. So, Michael John, thank you for joining us for sharing the experience that you've had. For me, walking away from this conversation, I really am going to spend more time thinking about how cases evolved and how much that that the little nuances and the gray areas can add so much to a conversation in the classroom. So thanks very much for joining us. Thank you much for evils. If you enjoyed today's episode, subscribe to Decision Point on spotify or wherever you listen. Be sure to check out the show notes for links to cases, resources and more. How many feedback? Send US an email at cases at IB DOTC. A