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Beyond costs: Achieving operational excellence in outsourcing

November 18, 2009

In today’s difficult economic and competitive environment, going beyond cost to achieve operational excellence is the core requirement of any industry and an increasingly crucial determinant of success for BPO and outsourcing vendors in particular.

1. Need for Operational Excellence in Outsourcing
Operational excellence is loosely defined as the philosophy of leadership, teamwork and problem solving that results in continuous improvement throughout an organization. Or simply put, operational excel­lence means doing everything well on a consistent basis across an organization and its value chains in order to attain a competitive advantage in the market place.

To achieve this consistency, an operational excellence program may have more than one component but according to a recent Economist Intelligence Unit (EIU) report and survey sponsored by SAP, 45% of respondents cited having end-to-end visibility and transparency across the entire organization and in all geographies as the number one component or goal. This includes ensuring that the connection between strategic objectives and day-to-day operations are clearly transparent to everyone in the organization so that everyone can see how their efforts contribute to the big picture. Moreover, this transparency will enable a deeper understanding of customer needs and allows for better collaboration with all external parties including regulators.

In addition, 40% of respondents cited the ability to add value for their customers throughout the product lifecycle as the second most important component and 13% cited the ability to quickly integrate with external parties for collaborative purposes as the third most important component. However, the survey also found that different levels of experience with operational excellence also shaped opinions about what components were considered to be the most important and what the overall benefits are. Respondents who had more exposure to operational excellence ranked transparency as the most important component while those with less exposure involving it tended to rank adding customer value as the most important component. Moreover, three-quarters of respondents who had operational excellence experience cited lower cost or better efficiency among the top benefits, half of respondents cited increased revenues as a benefit and one-third of respondents cited agility or the ability to respond faster as a benefit.

Nevertheless, while it may be easy to identify the components and benefits of operational excellence, achieving visibility after execution is another matter as it is often dependent upon a diverse range of operational factors including capacity utilization, talent management, attrition and absenteeism management. Moreover, while technologies such as enterprise resource planning (ERP) and customer relationship management (CRM) systems exist to help monitor and track products and customers, determining customer and even employee satisfaction is often a much more difficult task.

Hence, operational excellence is often a tricky combination of investing in the right people, leveraging the best technology and developing the best processes as this in turn leads to the delivery excellence that will form the basis for successful outsourcing partnerships between a vendor and a client.

2. Operational Excellence Case Studies
Nevertheless, operational excellence can be defined and executed in a number of ways in order to achieve delivery excellence and ultimately a competitive advantage. Below are three case studies of how well known BPO and outsourcing companies seek to define and execute their operational excellence programs:

2.1. Infosys BPO
At Infosys BPO, operational excellence is defined as a roadmap to a differentiated customer experience with the motto: “Do it right the first time, every time.” Their operational excellence framework contains two facets, predictability and differentiation, and their overall model is a simplified equation that consists of motivators (work environment) plus enablers (institutionalization) which equals results (sustained outcomes).

In their experience, there are several factors that act as key motivators for achieving operational excellence:
Vision and Growth:To ensure that focus is maintained, the operational excellence program is aligned with strategic objectives.

  • Leadership:Commitment is shown by leadership via extensive communication to all stakeholders, encouraging participation among all stakeholders, utilizing scorecards and by providing the required infrastructure and budget.
  • Recognition and Reward:Improvements are rewarded and publicized and progress is part of the criteria for promotion.
  • Governance:An Operational Excellence Council consisting of senior managers from operational and business enabling functions is empowered to drive change management.
  • Benchmarks:Excellence is driven by a common framework (”dashboard”) and benchmarks that allow comparison with best-in-class practices and metrics.
  • Visibility and Consistence: C-Sat scores from Customer Satisfaction Surveys help to indicate customer perceptions about performance and consistency and also serve as an early warning system.

These motivating factors are then combined with the following enablers:
Process Management:Various methodologies and certifications such as ISO 9001, 27001, TR 19, eSCM SP v2.0 among others are in place.

  • Metrics Orientation:COPC-Gold framework metrics and daily metric dashboards are utilized while metric definitions are aligned with client expectations.
  • Improvement Culture: Six Sigma and STARR (Lean) methodologies are employed to help create an improvement culture.
  • Compliance Management: Daily reports are generated and regular risk assessments and independent assessments are performed.
  • Knowledge Management:All capability baselines are aligned with service level agreements (SLAs) early in the engagement for knowledge management purposes.
  • Risk Management: Risk assessments based upon multiple parameters are performed and this acts as an early warning system to prevent failed customer engagements.
  • Technology: Advanced technology is employed to capture both process and operational metrics.

For Infosys BPO, the results from combining the above motivators and enablers are sustained outcomes such as customer satisfaction, higher revenue and productivity, zero surprises and escalations, and value added to the engagement in the form of money saved and cost reduced.

Achieving operational excellence in BPO and outsourcing
2.2. Hewlett Packard
At Hewlett Packard, operational excellence is best defined as the ongoing optimization of processes and the superior execution of these processes in order to improve quality and efficiency while reducing both risk and cost. Their operational excellence framework spans the entire BPO lifecycle starting with assessment and analysis, transition, production monitoring and finally operations. Hence, their framework includes:
Knowledge Management and Transfer

  • Business Continuity Planning
  • Data Privacy and Security
  • Organizational Development and Training
  • Quality
  • Industrial Engineering/Continuous Process Improvement
  • Business Controls
  • Process Engineering
  • Audits (Both Internal and External)
  • Compliance

In addition, Hewlett Packard uses an IE Sigma+ methodology that integrates standard Six Sigma quality methods along with industrial engineering techniques and tools that were developed by them for process design, simulation, testing, automation and optimization. This methodology consists of four steps that include:

  • Business Continuity Planning (BCP). BCP includes the development of a strategy and associated documentation, training, testing and finally maintenance and monitoring.
  • Information Security (ISP 27001) and Data Privacy. After the initial BCP phase, information security and data privacy related risks are continually managed and controlled.
  • Audits and Assessments. Furthermore, a maturity assessment program (MAP) is put in place along with internal and customer audits, SAS 70, ISO 27001 and an integrated risk management program.
  • Special Report. Finally, unexpected events are managed via disaster and incident management programs while standards of excellence and other trainings are made mandatory.

Furthermore and to further reduce risk, Hewlett Packard incorporates standard methodologies and tools along with best practices into the HP Business Process Management (BPM) Framework which it uses for every BPO engagement. Simply put, this framework consists of both a quality and efficiency lifecycle with the following five stages:

  • Define. The first stage involves the creation of a project plan that takes into account potential customer demand while a production plan that also includes capacity planning created.
  • Measure. The second stage includes the use of process and value maps, time and method studies and volume measurements.
  • Analyze. In the third stage, VA-NVA analysis and root cause analysis is performed along with simulations.
  • Improve. In the forth stage, improvements are made using techniques such as more forecasting and simulation runs, workload balancing, standardization and layout planning.
  • Control. In the final stage, production reports are maintained that reveal efficiency trends while audits are performed to further ensure that everything is under control.

By employing the above frameworks and methodologies, Hewlett Packard is able to achieve the predictable and consistent delivery required of a high-quality BPO and outsourcing operation.

2.3.Accenture
At Accenture, operational excellence is an approach that focuses on excellence in a steady state and their emphasis is on delivering business processes that are competitively differentiated and designed for an increasingly competitive world. To develop next generation operational excellence capabilities, an Accenture whitepaper has five suggestions for BPO and outsourcing firms to expand their outsourcing models and the scope of their services along with what customers who want to achieve operational excellence should consider when selecting a BPO or outsourcing vendor:

  1. Focus on the Anticipated Business Value to be Delivered. In the early years of outsourcing, the goals were usually centered on a customer’s transactional needs whereas today, goals need to be more than one-time efficiency improvements or for labor arbitrage purposes. Hence, discussions should focus more on the value that will be delivered and how this value will contribute to the customer’s ability to achieve better business results over the life of the outsourcing contract.
  2. Take an Approach that is Both Optimized and Industrialized. A BPO or outsourcing vendor needs to have the ability to bring innovative technologies, industrialized methods and finely tuned processes that reflect the work of experts into any type of BPO or outsourcing engagement. However, any industrialized approach must also be carefully balanced with the unique needs of a customer. In other words, a “one size fits all” approach is unlikely to help a client achieve operational excellence.
  3. Support for End-to-end Processes. In today’s world, a BPO or an outsourcing vendor must have the ability provide end-to-end processes and solutions to customers on a global basis. In other words, vendors need to have the ability to handle multiple functions or processes rather than just one function or process alone as any gains achieved from optimizing one area may be offset by continued poor performance in another area.
  4. Greater Scalability Should be the Goal. With large and even medium sized companies operating on a global scale, a BPO or an outsourcing vendor must not only be able to provide a 24/7 global solution but must be able to scale up with a customer and have the ability to duplicate the same level of performance and operational excellence over and over again.
  5. Ensure that Performance Improvement will be Demonstrated During the Relationship. Customers should not only ask their BPO or outsourcing vendor how they will help them achieve operational excellence today but how their vendor’s processes will lead to both continuous improvement and better performance over the entire course of the relationship. Moreover, some BPOs or outsourcers will claim that their processes are Six Sigma-compliant and yet, few outsourcers can actually demonstrate how their culture, training and management systems can help clients secure the process outcomes that will drive operational excellence and achieve better business results.

In addition, another Accenture whitepaper states that companies that are successful in achieving operational excellence follow three crucial steps:

  • Determining Which Operating Model(s) are Needed. The first step involves determining what operating model is needed to achieve operational excellence, performing various diagnostic exercises to assess the current operating model and validating targeted operating models. However, companies operating on a global scale will need to keep in mind that there are trade offs between market agility and leveraging global scale as well as different levels of cultural acceptance towards standardized practices and processes around the world.
  • Being Realistic. Companies always need to be realistic about where they are now with their current operating model and where they will be when they adopt one with operational excellence as a goal. In addition, companies need to keep in mind that although choices will likely be determined by a company’s own characteristics, looking at industry peers may also provide clues as to what model is more likely to succeed in achieving operational excellence.
  • Improving Execution Odds. Once an operational excellence model is selected, a company will need to closely monitor execution and the factors that impact execution success in order to improve the odds of achieving stated goals. These factors include having the right governance structures and the right employees and employee incentives in place. In addition, the most crucial milestones will need to be identified and progress will need to be tracked against these.

With the above suggestions and steps in mind, Accenture believes that operational excellence is not only the most important competitive differentiator in today’s world but also a tool that high performance companies employ in order to emerge strongly from recessions.

3. Conclusion
Now more than ever before, BPO and outsourcing vendors and their customers need to move beyond just costs towards achieving operational excellence in their operations in their BPO and outsourcing engagements. Nevertheless, it is also important for everyone to remember that operational excellence is not just a one time project or a quick fix but rather a continuous journey to be undertaken that, if executed correctly, will inevitably lead to better overall decision making, more transparency and hence, better business results.

Related posts:

  1. Outsourcing with Solvency II in mind
  2. Benefits of Business Process Standards in BPO
  3. The (dis)advantages of sourcing governance models
  4. Why Offshore Outsourcing Fails?
  5. Outsourcing Data Analytics


Written by JohnU · Filed Under Articles 

Comments

2 Responses to “Beyond costs: Achieving operational excellence in outsourcing”

  1. Trustoutsourcing on December 10th, 2009 5:46 am

    BPO Industry is one of the key drivers of our economic. The term BPO refers to outsourcing in all fields like accounting outsourcing, transaction processing…..

  2. Mickel on April 12th, 2010 5:18 am

    Many companies have proved time and again that operational brilliance can be achieved by year-to-year cost cutbacks, maximum product quality, and predictability of operating outcomes, superior safety performance, and technical accomplishments.

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