My Outsourcing Pundit

Outsourcing in the 21st century

2011-10-22T06:00:00.003-04:00

During a recent business trip to India on a consulting engagement, I came across a news item in the local newspaper in Pune, India that is worth a mention for the benefit of my readers. In the September 26, 2011 issue of the Times of India (Pune edition), Kenneth Coleman, member of a special advisory group on US-India trade policy and a key figure in US President Barrack Obama's IT think tank was quoted “If Indian players can solve critical problems in the processes of their customers there is no question of 'lower cost' logic coming into play, because it is value that will drive businesses in the next 20 years."

Coleman added that markets such as China, the Philippines, Poland and Russia are coming ahead fast and will challenge India's cost advantage.

Coleman went on to say that many US companies have significant cash reserves and are looking at opportunities to pick up businesses that can help them grow. "Average to weak companies which thus far thrived on venture capital will no longer be relevant and only those with a strong growth promise will attract international strategic investors," Coleman underlined.

Outsourcing service providers should take a cue from Coleman’s remarks. Solving their customer’s business problems throwing human capital will no longer be acceptable. Solving critical problems in the processes is the value-add that customers are seeking and I may say willing to pay. BPO service providers should help transform their customer's processes and position their customers for the growth that will inevitably come. Outsourcing companies need to move their focus from transaction processing to process improvement to process transformation.

You may also read my earlier blog on a related subject “Predictions for 2011 in Shared Services & Outsourcing”.

Laws of Life

2011-10-20T09:00:00.001-04:00

It's been a while since I last posted on my blog site. But I am back and expect to continue blogging for a long time. I received these Laws of Life from a friend of mine and I thought it might be a good way to re-engage myself with my readers with some humor. As you read these eighteen Laws of Life, I am sure you will relate to them as I certainly did. So here you go:

Law of Mechanical Repair - After your hands become coated with grease, your nose will begin to itch and you'll have to pee.
Law of Gravity - Any tool, nut, bolt, screw, when dropped, will roll to the least accessible corner.
Law of Probability - The probability of being watched is directly proportional to the stupidity of your act.
Law of Random Numbers - If you dial a wrong number, you never get a busy signal and someone always answers.
Variation Law - If you change lines (or traffic lanes), the one you were in will always move faster than the one you are in now (works every time).
Law of the Bath - When the body is fully immersed in water, the telephone rings.
Law of Close Encounters - The probability of meeting someone you know increases dramatically when you are with someone you don't want to be seen with.
Law of the Result - When you try to prove to someone that a machine won't work, it will.
Law of Bio-mechanics - The severity of the itch is inversely proportional to the ability to reach.
Law of the Theater & Hockey Arena - At any event, the people whose seats are furthest from the aisle, always arrive last. They are the ones who will leave their seats several times to go for food, beer, or the toilet and who leave early before the end of the performance or the game is over. The folks in the aisle seats come early, never move once, have long gangly legs or big bellies and stay to the bitter end of the performance. The aisle people also are very surly folk.
The Coffee Law - As soon as you sit down to a cup of hot coffee, your boss will ask you to do something, which will last until the coffee is cold.
Murphy's Law of Lockers - If there are only 2 people in a locker room, they will have adjacent lockers.
Law of Physical Surfaces - The chances of an open-faced jelly sandwich landing face down on a floor, are directly correlated to the newness and cost of the carpet or rug.
Law of Logical Argument - Anything is possible if you don't know what you are talking about.
Brown's Law of Physical Appearance - If the clothes fit, they're ugly.
Oliver's Law of Public Speaking - A closed mouth gathers no feet.
Wilson's Law of Commercial Marketing Strategy - As soon as you find a product that you really like, they will stop making it.
Doctors' Law - If you don't feel well, make an appointment to go to the doctor, by the time you get there you'll feel better. But don't make an appointment, and you'll stay sick.

Do you have your Laws of Life to share? If so, please leave them behind in the Comments section.

Root Cause Analysis

2011-03-17T14:20:00.021-04:00

We have thus far reviewed the following modules in the process improvement or continuous improvement journey:

We are now ready to analyze the data we have collected and conduct a comprehensive root cause analysis. Keep in my mind that our objective is to improve the current process and as such collecting the health of the current process (QCPC data) and doing a root cause analysis forms the foundation of continuous improvement (CI).

The idea behind root cause analysis is that each problem or turnback is to be treated as a golden nugget, offering an opportunity to get better. Using QCPC data, root case analysis tells a story about how and why a problem occurs. It offers the “CI doctor” an opportunity to dig deep down in the process and prescribe the correct medicine for the cure.

In order to do a comprehensive root cause analysis, the process improvement participants must have an open mind, be alert and be persistent and tenacious in their approach. Also, the process improvement participants must dig deep down and not limit the assessment to the surface. Often, the real root cause is hidden somewhere else in the process or the process value chain and not visible on surface. Finally, before a solution is identified, the root cause must be confirmed with the customer and all stakeholders.

Management at the leadership level plays a very critical role in root cause analysis. They must not give lip service or solve the problem through a shot gun approach. Management must display the proper attitude by adhering to a defined and disciplined approach to problem solving. They must provide the appropriate level of support and resources and ensure that a solution is only implemented once the root cause has been properly identified and confirmed with the customer.

Following are the key steps in doing a root cause analysis:

Identify and define the breakdown in process
Utilize the underlying data collected in the QCPC phase of CI
Brainstorm causes of breakdown
Ask “Why? Why? Why?” multiple times
Apply DIVE Technique: Define the problem; Investigate the problem; Verify the root cause; Ensure a mistake proof solution is achieved and implemented
Confirm root cause with the customer

The following are a few different tools and techniques available to analyze the root cause:

Generating ideas through brainstorming and the use of 5 Whys

Brainstorming – helps to generate and collect ideas and helps facilitate the involvement of various stakeholders

5 Why’s - The following practical example demonstrates the basic process:

My car will not start. (Problem)

Why? - The battery is dead. (first why)
Why? - The alternator is not functioning. (second why)
Why? - The alternator belt has broken. (third why)
Why? - The alternator belt was well beyond its useful service life and has never been replaced (fourth why)
Why? - I have not been maintaining my car according to the recommended service schedule. (fifth why, a root cause)
Why? - Replacement parts are not available because of the extreme age of my vehicle. (sixth why, optional footnote)

I will start maintaining my car according to the recommended service schedule. (Solution)

Finding patterns and relationships through the use of a cause and effect diagram such as a fish-bone diagram.

Such a diagram helps analyze causes across different dimensions (typically equipment, process, people, materials, environment and management as shown in the picture below) and understand their effect (problem) on the process.

Several other techniques are also available such as storyboarding, grouping ideas through the use of nominal group techniques, prioritizing action through the use of histograms and pareto charts, etc. However, no matter what technique you use, the goal is to use the data collected in the QCPC phase of CI and breakdown the process problem down to its root cause and not limit the solution only to the symptom.

The next blog will be devoted to process flow assessment, also known as value stream mapping.

For questions or comments or help in implementing, please contact me via email.

Collect Process Health Data

2011-01-04T16:50:00.007-05:00

For those joining the PI discussion, we have thus far covered the following PI modules:

Process improvement road map– Introduction
Establishing objectives & strategy
Identify process value stream
How to select processes for PI assessment (a.k.a Assess Process Impact & Maturity)

We are now ready to get into the nuts and bolts of PI assessment.

Known as QCPC (Quality Clinic Process Chart) assessment, this aspect of the PI journey involves collecting and recording process deviations for the area under review. The area under review is the one that was identified and explained in the previous phase of the PI journey, “Assess Process Impact & Maturity”.

Just as a doctor orders the necessary tests to diagnose an ailment, in this module of PI, the “PI doctor” also collects and charts significant data by conducting the necessary process deficiency tests.

A QCPC clinical activity is similar to a medical clinical diagnostic activity. PI process technicians collect business process deviation data to help identify potential business process problems. After collecting the data, they chart the process deviations to look for trends and patterns. These PI technicians do not jump to conclusions and immediately treat the problem, unless the issue is so severe that a short term solution is necessary. Additional tests may have to be conducted and charted and eventually the process technicians perform a root cause analysis to correctly identify the mistake proofing solution.

QCPC assessment is the foundation and heart of any process improvement activity and allows organizations to pinpoint what specifically is wrong in the process.

So how do you conduct a QCPC clinical activity?

The first step is to know the existence of a problem. This is generally identified through a formal Impact-Maturity exercise or knowing the existence of a problem day-to-day. This initiates the need for QCPC clinical process.

The second step is to collect, document, summarize and chart the process deviations in a manner and form that will be understood by all. The proper and meaningful charting of the data is very critical as it will help identify patterns and trends. Collected data should be shared with the process stakeholders as “golden nuggets” for process improvement.

The third step in the QCPC activity is data and trend analysis leading to a formal root cause assessment. This involves a deep and rigorous root cause analysis (RCA) of the process deviations so that meaningful solutions can be identified. We will devote a separate module on RCA.

The fourth and final step involves determining process improvement projects based on the process clinical activity.

The benefits of a QCPC activity are many; however, some of the major benefits are summarized below:

Employee involvement
Building employee / management trust and confidence
Creating a positive work environment
Making the lives of the associates involved in the day-to-day activity more meaningful and less stressful
Encouraging problem solving
Addressing customer issues in an unbiased and an unemotional manner
Prioritizing corrective actions to the areas that have the highest impact to business objectives
Setting aggressive process improvement goals

Like any major initiative, the QCPC or PI activity requires management support, commitment and leadership to a “Quality First” culture. When process deviations are captured and shared, it requires management leadership of not “shooting the messenger”. All process deviations must be treated as golden nuggets and associates should be rewarded for bringing forward this information. This helps raise the morale and associates will get excited in making improvements. However, this type of inclusive culture must start at the top, with top managers making themselves part of and active members of the QCPC clinical activity.

The next blog will be devoted to analyzing turnbacks or process deviations and conducting a formal root cause assessment.

Predictions for 2011 in Shared Services & Outsourcing

2010-12-30T13:59:00.011-05:00

With the uncertainties of 2010 and the Great Recession almost behind us, corporations and service providers will need to start looking at and driving deep process improvements in their back office functions. By the very nature and as the name implies, back office process improvement took a back seat in the overall scheme of things. With limited budgets and resources, corporations deployed their scarce resources and talent to “front office” type of activities such as increasing top line growth or driving quick wins in cost reduction through labor cost arbitrage or dealing with cash management to remain afloat. In other words, corporations "hunkered down" to survive.

However, it’s now time to start focusing on the back office non-core functions that was perhaps neglected in the past either due to circumstances or by design. By only focusing on labor cost arbitrage, corporations will only be able to take their cost reduction initiatives up to a certain point. Also, corporations generally deployed their expensive internal or external resources to those functions that either gave them the maximum return on investment or helped grow their core functions. And again back office took a back seat.

So here are my predictions / recommendations:

Corporations who have not yet thought of shared services, should start actively pursuing, planning and quickly implementing a strong shared services function in one or more back office areas. And those who have already implemented a shared services model, should start driving continuous improvement (CI) or process improvements (PI) using common sense PI principles and tools from their CI/PI tool kit.

Corporations who have outsourced their shared services functions to low cost external service providers need to start leveraging the labor cost arbitrage. They need to start utilizing strong domain expertise of the service providers to make quantum improvements in their business processes by driving out waste and inefficiency. While the domain expertise does not come cheap, it certainly is a lot cheaper than the domain expertise that corporations can acquire in their developed markets. This will give corporations a double benefit; low cost transactional arbitrage with a lower cost transformational advantage as well.

For external service providers, here’s your opportunity of increasing your top line. Focus on CI/PI and help corporations make quantum improvements in their back office processes rather than simply throwing low cost resources to push transactions out of the door. You will not only help companies become better and more efficient; you will in turn help increase your top line as well.

2010 was the Year of The Tiger. 2011 is the Year of the Rabbit. Let’s take the roar of the tiger and the speed of the rabbit to drive quantum process improvements!!

Happy New Year!!

Managing the Outsourcing Relationship

2010-12-27T10:45:00.008-05:00

Managing the outsourcing relationship is a journey. It's a journey where miracles do not happen overnight. For a successful outsourcing relationship, it requires hard work, dedication and a little bit of the Irish luck. For a two-part presentation, Managing the Outsourcing Relationship, based on a real life case study, please view the presentation on Slide Share.

Puns for Educated Minds

2010-12-24T11:55:00.004-05:00

I get a lot of frivolous spam email; however, this one, even though it has nothing to do with outsourcing or shared services, is quite entertaining. Read on ....

1. The fattest knight at King Arthur's round table was Sir Cumference. He acquired his size from eating too much pi.

2. I thought I saw an eye doctor on an Alaskan island, but it turned out to be an optical Aleutian

3. She was only a whiskey maker, but he loved her still.

4. A rubber band pistol was confiscated from algebra class, because it was a weapon of math disruption.

5. No matter how much you push the envelope, it'll still be stationery.

6. A dog gave birth to puppies near the road and was cited for littering.

7. A grenade thrown into a kitchen in France would result in Linoleum Blownapart.

8. Two silk worms had a race. ;They ended up in a tie.

9. A hole has been found in the nudist camp wall. The police are looking into it.

10. Time flies like an arrow. Fruit flies like a banana.

11. Atheism is a non-prophet organization.

12. Two hats were hanging on a hat rack in the hallway.

-One hat said to the other, 'You stay here; I'll go on a head.'

13. I wondered why the baseball kept getting bigger. Then it hit me.

14. A sign on the lawn at a drug rehab center said, 'Keep off the Grass.'

15. The midget fortune-teller who escaped from prison was a small medium at large.

16. The soldier who survived mustard gas and pepper spray is now a seasoned veteran.

17. A backward poet writes inverse.

18. In a democracy it's your vote that counts. In feudalism it's your count that votes.

19. When cannibals ate a missionary, they got a taste of religion.

20. If you jumped off the bridge in Paris, you'd be in Seine .

21. A vulture boards an airplane, carrying two dead raccoons. The stewardess looks at him and says, 'I'm sorry, sir, only one carrion allowed per passenger.'

22. Two fish swim into a concrete wall. One turns to the other and says 'Dam!'

23. Two Eskimos sitting in a kayak were chilly, so they lit a fire in the craft. Unsurprisingly it sank, proving once again that you can't have your kayak and heat it too.

24. Two hydrogen atoms meet. One says, 'I've lost my electron.' The other says 'Are you sure?' The first replies, 'Yes, I'm positive.'

25. Did you hear about the Buddhist who refused Novocain during a root canal? His goal: transcend dental med ication.

26. There was the person who sent ten puns to friends, with the hope that at least one of the puns would make them laugh. No pun in ten did.

Congratulations, UCONN Women's Basketball Team

2010-12-22T03:23:00.010-05:00

Connecticut coach Geno Auriemma, left, poses with his team after the No. 1 Huskies defeated No. 22 Florida State 93-62 Tuesday to win their NCAA record 89th consecutive game.

This isn't about streaks or men or women. It is about excellence. Relentless, consistent excellence over a period of years. Doesn’t matter if you watch women’s hoops or ignore it all costs. It is about giving the "customer" superior performance in your "product". That's the take away here ... relentless focused execution.

“One thing that’s non-negotiable is that the one thing we have in common is we settle for nothing less than the absolute best we give you every single night. They did it and we’re doing it. Everything else to me is meaningless,” Auriemma said.

Well done, UCONN Women's Basketball Team.

Process management of Titanic proportions

2010-11-04T15:25:00.000-04:00

On the morning of April 10, 1912, a luxury liner sailed out of Southampton on its maiden voyage bound for New York. Four days later the ship sailed into the history books and 1571 lives were lost. The name of the ship – the Titanic. If just one of those people involved in the building and the sailing of the ship had questioned the processes, would history have been different? What do you think went wrong?

Click on the above image to watch a short 5 minute video and identify the weak links in Titanic’s processes. Please use the “Comments” button below to post your answers. I will post the official “My Outsourcing Pundit” answers in a couple of weeks.

How to select processes for PI assessment

2010-10-27T20:41:00.003-04:00

We have thus far gained an overall understanding of the PI (process improvement) road map that will take us through the journey, visited the first building block of establishing objectives and strategy and taken an inventory of the organization’s processes that aid in the delivery of goods and services. In this module, we will examine how to prioritize the processes for a comprehensive process improvement. Keep in mind that the overall goal is to focus intensely and continuously on those aspects of the organization’s process chain or value chain that will lead to the ultimate nirvana of realizing a delighted customer.

While it is redundant; it’s important to emphasize that the assessment of the process maturity and the impact the process has on organizational objectives, or for that matter any other aspect of the PI assessment, should be done across the entire organization at all levels involving all stakeholders, including the customer. The word “organization” refers to all levels of the organization, with the cell / department at the lowest level and the overall organization at the highest level and all levels in between.

The key steps in this phase of the PI journey are:

Identification of all significant processes within an organization

Assess impact process has on attainment of objectives

Assess the current maturity of process

Involve key stakeholders, including the customer, to perform an objective assessment

Confirm & publish results with all stakeholders, including customer

o Identify processes with high impact & low maturity

o Goal: move processes to high maturity, focusing first on those that have the highest impact on organizational objectives

Identification of all significant processes within an organization
The first step is to identify the organization’s significant processes using the process inventory document completed in the previous phase – Identify Process Value Stream - of the PI journey.

Assess impact process has on attainment of objectives
The next step is to assess the impact each process has on the attainment of organizational objectives. These are the objectives highlighted in the first phase of the PI journey – Establishing Objectives & Strategy. The assessment of the impact the process has on the attainment of the objectives is best accomplished using the input from all stakeholders, especially the customer. By engaging the customer and the associates involved in the process, you will capture the voice of the two most critical stakeholders. You can identify the impact as “High”, “Medium” or “Low” or preferably on a six point scale with “0” being no impact, “1” being low impact and “6” being high impact. I prefer to use a numerical scale as it becomes easy to plot the results in a chart.

Assess the current maturity of process
In this step, obtaining the input of all stakeholders, especially the customer, is also very important. We can assign either a qualitative (High, Medium, Low) or a quantitative score using a six point maturity scale. A score of “1” would indicate low maturity and a score of “6” would indicate high maturity. I prefer a quantitative approach for the reasons noted above.

Involve key stakeholders, including the customer, to perform an objective assessment
As mentioned above, it is very important to engage all stakeholders and not just the associates involved in the process when assessing the impact and maturity. It is especially important to engage the customer(s) as they are the ones whose voice ultimately matters. When assessing the score, it is good to get everybody’s “blind” input, ensuring that no one person influences the results and then using some form of averaging, identify the final value of impact and maturity.

Confirm & publish results with all stakeholders
In this final step, the results of the impact maturity exercise are documented through the completion of a Process Impact Maturity chart (PIM Chart), updating the process inventory document and sharing the results with all stakeholders. A key element of PI is the active sharing of all results of the PI assessment through visual organizational PI Boards that are strategically placed within the organization. We will cover this in a subsequent blog.

Shown below is an example of an updated Process Inventory document and a completed PIM Chart for the six processes in the example:

Updated process value stream document

Click on the template above to view larger image and then click your browser's "Back" button to return here

Completed PIM chart for the six processes in the example

Click on the template above to view larger image and then click your browser's "Back" button to return here

The PIM Chart above shows the current health of each process by identifying their respective impact and maturity scores and shows processes with high impact & low maturity, which become the initial candidates for a rigorous PI assessment. The eventual goal is to move all processes and especially those that have a high impact on objectives to high maturity, keeping in mind that there is always room for continuous improvement no matter what the score.

So now that we know the processes that have the highest impact to the objectives and those that are the least mature (processes "F" and "E” in the chart above), it becomes convenient to objectively select the processes for a rigorous PI assessment. The goal is to move processes “E” and “F” to a process maturity closer to “6.0”. This impact and maturity exercise allows us to prioritize our PI work.

In the next blog, we will review the steps to start collecting the health of the process, which will form the basis for subsequent PI steps.

Finally, for those who are just joining the PI discussion, to recap, we have reviewed the following topics in the PI journey thus far:

• Process Improvement Road map / Framework
• Process Improvement – Introduction
• Establishing Objectives & Strategy
• Identify Process Value Stream

If you have any questions or comments or need help in implementing PI, please contact me via email.

People’s dreams are changing

2010-10-24T09:17:00.012-04:00

Globalization is bringing significant economic changes and upheaval across the world. This shift in economic power is unstoppable, no matter what governments and politicians may say. All they can really do is enact policies in favor of or against globalization.

However, the will of the people and the business community, driven largely by the younger generation desirous of seeking what they feel is good for them and the community, will be the deciding factor whether globalization will succeed or not. Just as in physics where water seeks its own level, in economics and in a free society, money will flow freely and “seek its own level” until such time conditions become uneconomical.

The news article from NY Times articulates that people’s dreams are changing, especially in those economically conservative countries like India, China and other eastern countries. In these countries the young view their lives in a much different way than did their parents or grand-parents.

According to the Old Guard, “Those of us who went through the hardships of the past know the value of money in a different way,” Mr. Garde (manufacturer in India of non-stick pots and pans.) said. “Those who get quick money, their relationship is different. After globalization things happen very easily. The element of struggle is gone.”

This news article continues on to say – “The desire to flaunt new wealth, however, is a natural part of India’s economic trajectory, said Ashutosh Varshney, a Brown University professor who has studied the social dimensions of India’s economic rise.

“It does show the burst of ambition in the small towns of booming states,” Mr. Varshney said. “It is, deep down, a drive for recognition, an impulse known to be sociologically and psychologically important when those lower down rise.”

“People’s dreams are changing,” he said. (Reference: India’s Smaller Cities Showing Off Growing Wealth - New York Times October 24, 2010).

And herein lies the economic magic that businesses around the globe are leveraging.

This is a fascinating article and I recommend it to those who may be interested in globalization.

Identify Process Value Stream

2010-10-06T11:34:00.020-04:00

The previous blog was devoted to establishing objectives and strategy, the first building block in the Process Improvement (PI) journey. In this building block of the PI journey, it is important to understand and identify the process value stream or also known as the process value chain.

In delivering a product or service, organizations perform a diverse level of activities. These activities or processes when added together will ultimately lead to the delivery of the goods or services to the customer. They are the building blocks or the DNA chain of an organization and a weak link in this chain can mean success or failure in delighting a customer. That activity or process, multiplied many a times over, is what we are trying to improve and continuously refine in the PI journey. So it is important that we first gain an understanding of that process (activity) or processes (activities) so that we can ultimately make the quantum improvement.

So let us first define a process. The Merriam-Webster dictionary defines a process as “a series of actions or operations conducing to an end”. The operative words in this definition are “series”, “actions or operations” and “end”. Also, if there is an “end”, then there must be a “beginning”. Also if there is a “beginning” then there must be someone who initiates the beginning and if there is an end then there must be someone who receives the end product. So presented pictorially, a process looks as follows:

Pictorial representation of a Process
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By connecting each process from cradle to grave, you end up delivering that product or service to that internal or external customer. By focusing intensely and continuously (we will cover that later in future blogs) on each and every step and aspect of this process chain or value chain, we will achieve the ultimate nirvana of realizing a delighted customer.

The identification of the following components is very critical in the PI journey:
• Supplier
• Input
• Process
• Output
• Customer
• Hand-offs

So in this phase of identification of a process value stream, it is very critical to assess the finer details of SIPOCH for each level of organizational activity or activities for the delivery of goods or services. Please keep in mind that we are not only trying to improve the process leading to the delivery of goods or services to the external customer. We also want to ensure that all processes, internal as well, leading to the delivery of products or services to the external customer in that "DNA chain" are improved upon as well. We want to focus on the entire value chain. In fact, a mature and advanced PI methodology should also require that upstream processes outside the organization be also subject to a rigorous PI assessment. In fact many progressive organizations now either require or assist upstream suppliers of critical goods and services to implement the organization's PI methodology.

Regardless of the specific activity that you will ultimately focus on improvement (we will cover this later in a future blog), it is very important to take an inventory of the organization’s critical value stream(s) using a SIPOCH approach. The table below is a convenient template to capture and document the organization’s value stream:

Example of template to document organization's process value stream
Click on the template above to view larger image and then click your browser's "Back" button to return here

Every organization should document or create an inventory of the processes they use for the delivery of goods or services. Such documentation becomes very handy when the time comes to conduct a Process Flow Assessment, which we will cover later in a future blog.

One final point: It is extremely important to review and confirm such documentation with all stakeholders, especially the customer and those involved in the process to gain a complete understanding of the process environment.

In the next blog, we will discuss assessing process maturity and the impact of each process to the organization’s objectives and strategy.

Finally, for those who are just joining the PI discussion, to recap, we have reviewed the following topics in the PI journey thus far:
• Process Improvement Road map / Framework
• Process Improvement – Introduction
• Establishing Objectives & Strategy

If you have any questions or comments or need help in implementing PI, please contact me via email.

Eat, Pray & Outsource

2010-09-30T14:10:00.008-04:00

With no offense to the famous movie by an almost similar name, “Eat, Pray and Outsource” is the symptomatic problem facing many, if not all, F&A (Finance & Accounting) outsourcing arrangements and I would venture to guess other non-F&A deals as well. As I have seen from my F&A experience on the buy side of such deals, during the “Eat” phase of the deal, buyers (corporations) and sellers (outsourcers) mutually woo each other to get the deal; the buyer wants quick cost reduction and the seller wants revenue growth.

An army of sellers descend upon the offices of the buyers to review, often limited, data during the famed “yellow pad sessions”. The buyer expects a ridiculous cost saving to justify the deal and the seller is ready willing and able to make all kinds of promises. Also, the buyer does not want to share all the data for reasons of security and confidentiality. During this honeymoon phase, there is a lot of eating and drinking that goes on in the guise of team building. People work for hours on end to somehow “make things work”. Some of the sellers, generally the small boutique firms, get eliminated in the first few rounds as they just do not have the competencies that the buyer is looking for. Or the buyer is seeking big name players so that it becomes easy to sell the deal to the corporate higher ups or is ignorant of the capabilities of the niche players. Often by spending a little more time with the boutique firms or by taking a gradual steady approach versus a big bang approach, it is conceivable that the outcome could be different.

So once the “Eat” phase of the courtship comes to an end, the deal is inked and then begins the “Pray” phase. This is where the rubber meets the road. This is where it is going to become evident whether the due diligence done by both the parties is going to pay off. This is where it is going to be evident whether the seller has what it takes to successfully transition the buyer’s services at the committed cost, quality, delivery and customer satisfaction goals established during the “Eat” phase of the journey. This is where it is going to become evident whether the buyer chose the right outsourcer and whether the right protections, service levels, governance model and other expectations such as process improvement were baked into the agreement. Failure to perform adequate due diligence or incorporate the appropriate processes in the agreement and working relationship, means both parties will only be praying their way to a desirable outcome. No amount of praying will lead to high customer satisfaction.

So as both parties “Pray” their way out of the arrangement, service levels deteriorate, the seller starts getting hit with service level credits or penalties, the seller’s business / financial model falls apart as their cost structure gets out of control, business processes do not get executed as they used to before the outsourcing, the associates on both the teams get stressed, and the ultimate customer gets significantly dissatisfied with the new arrangement. The outsourcer pleads that the service level credits be held off to stabilize the arrangement until perhaps a “new agreement” is executed with the proper service level, financial and governance design and then begins the true “Outsource” phase.

The lesson I have learnt is: do your due diligence thoroughly, talk to as many people and companies as possible not only about the seller but about outsourcing in general, think outside the box and look at niche players, have a well defined long term strategic plan on outsourcing, have a realistic time line, build a very effective governance function, make sure knowledge is appropriately transferred and most importantly take the ultimate customer in confidence in everything that is done.

And when things do not work out, do not “Pray” or dig in your heels but work together as one team because at the end of the day, both the buyer’s governance team and the seller’s operations’ team have one common goal – to make the ultimate customer happy. You may also read my presentation on Risk Mitigation Strategies in Outsourcing by clicking here.

Outsourced

2010-09-23T16:48:00.005-04:00

All of us in some way or another have been impacted by outsourcing. Some of us have worked with outsourcing companies, while most of us have had our computer problems solved (or perhaps not solved) by a call center in a far flung country. No matter what and no matter what the politicians may say, outsourcing is here to stay. So not to be left behind, NBC has decided to have some nice clean fun with this and the show Outsourced premieres tonight at 9:30 Eastern and Pacific times; 8:30 Central. If you would like to read NY Times' review of the show, click here. Enjoy!!

Establishing Objectives & Strategy

2010-09-06T10:55:00.047-04:00

In my previous process improvement introductory blog, I had laid out an overall road map. So now let’s start building on each step of the road map. Before embarking on the PI journey, we must ensure the existence of the ten primary characteristics mentioned in my previous blog “Process Improvement – Introduction”.

The first building block in this process (no pun intended!) as in any other process or initiative, starts with establishing objectives and strategy. Without a clearly defined set of objectives or understanding the underlying strategy, the PI effort will get diluted with little resultant improvement.

The PI journey is not limited to a specific area of the organization; it cuts across the entire organization affecting all parts of the organization. The best PI approach would be to mimic the way the organization is structured for management and performance reporting. So for example, at the lowest level you could have a cell, that would roll up to a department or a cost / revenue center, that would roll up to a function that would roll up to say a segment that would roll up to the organization as a whole. Such an approach makes it convenient to measure progress, establishes goals and objectives and allows for healthy competition across the organization.

For any activity to be successful, at its core, it must satisfy the following four principles: Cost, Quality, Delivery and Customer Satisfaction. To this I would like to add another principle and that is safety, in which I also include care and concern for the environment and people.

In any organizational endeavor, if you take care of these five guiding principles, you will be successful. These principles are all equally important and neither one necessarily comes before the other. However, given that I have a finance background, I will start with Cost!

Cost, which includes overall financial performance, is important because if we do not put an emphasis on it, our very organizational existence will eventually be at risk. Without a quality product or service, we will have no customers and no organization, making Quality a very vital principle. If we are unable to deliver our high quality products or services in a timely manner with a quick turn around time, our customers will go else where, placing our organizational existence in jeopardy. Customers are the most important stakeholders and the life blood of any organization. Only by satisfying our customers first do we have the opportunity to satisfy the needs of our other stakeholders. Finally, in operating our organization, if we are not to observe the basic principles of safety, environmental and people care, we could cease to exist as a human race.

I hope I have made my case for the five fundamental organizational principles. These will also help guide us through our process improvement journey and allow us to monitor our progress. Also note that I am not using the term “business principles” as I feel that for PI, these principles apply to non-business areas as well. In fact they can apply to all organizations, profit or not-for-profit; business or non-business.

In this phase of establishing objectives and strategy, I recommend the following broad approach presented pictorially below:

A typical road map for establishing objectives & strategy
Click on the process-map above to view larger image and then click your browser's "Back" button to return here

1. The first step in this phase is to identify and define the customer, who is the heart or the life blood of any organization. A customer is not necessarily the organization or person who buys your products and pays your bills but can certainly be so. Any organizational activity, even at the most basic level, has a customer and a supplier. It is that organization or person, who receives the products or services, paid or unpaid, is a customer and must be delighted in the PI journey. Explained another way, in a process value chain, the organization or person handing off is the supplier and the organization or person receiving is the customer.

2. The second step in this phase is to define the key organizational objectives, under the five major principles of Cost, Quality, Delivery, Customer Satisfaction and Safety/Environment. These objectives or key drivers are no different than the objectives identified say during the strategic planning process and perhaps should be the same to ensure total organizational alignment.

Under “Cost”, examples of key drivers are meeting or beating the organizational budget or providing products or services at the target cost or exceeding the target return on investment. Under “Quality”, the key drivers could be ensuring that the defect rate in delivering the products or services does not exceed a certain threshold. For “Delivery”, the key drivers could be providing the products or services on the target date or at the target turn around time. Key drivers for “Customer Satisfaction” could be attaining or exceeding the customer satisfaction target. Finally for “Safety/Environment” the key drivers could be meeting or beating the occupational injury standards or reducing carbon dioxide emissions by say 25% or providing frequent feedback to the organization's associates.

I think you get the drift. I would also like to emphasize that objectives are those strategic activities, when measured, allows the organization to determine whether they are on the path of improvement.

3. The third step in this phase is to validate the strategic objectives through the key stakeholders, including the Customer. We have to identify the customer’s “hot buttons” and by seeking their input, assess the key measures or “hot buttons” that will delight them and make them repeat customers. So for example, it could be high level of customer service measured through high level of customer satisfaction. Or it could be high speed to answer in a call center environment. The bottom-line is that the organization must identify that key metric, when continuously measured, will provide a good trend line on customer satisfaction. The goal of PI is to delight the “customer”, so when an objective is met, there is a high likelihood that the “customer” will be delighted.

4. In the fourth phase, it is very critical that periodically, the stakeholders and the organization as a whole be provided a status on the objectives by means of a Scorecard. The Scorecard is a key tool in the PI process.

Also, for an objective to be a strategic objective, it must meet the “SMART” or “SMARTER” principle, which stands for:

Specific
Measurable
Attainable
Relevant
Time-bound
Evaluate
Re-evaluate

5. Finally, the strategic objective must be periodically updated or as noted above evaluated by comparing actual results against planned results and then continuously re-evaluated. An organization will only be successful when the bar or the objective is met and is continuously raised over time.

My next blog will be devoted to the second building block; process value stream. It will involve understanding what is a process value stream, looking at process improvement holistically across the entire organization, what is an organization in the PI context, definition of process and process management, and briefly touching on the foundations of conducting a process value assessment.

If you have any questions or comments or need help in implementing PI, please contact me via email.

Pictorial Journeys

2010-09-03T07:49:00.010-04:00

In this post, I am doing something different for my weblog. Just as outsourcing brings people and cultures together, travel gives us an opportunity to see and understand other cultures and value our fragile ecosystem. In the words of Mark Twain “Travel is fatal to prejudice, bigotry, and narrow-mindedness” and as Twain also said, “Twenty years from now you will be more disappointed by the things that you didn't do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover.” So go ahead, discover and enjoy the PICTORIAL JOURNEYS that you will find in the right panel just above the map of the world.