In the last few years outsourcing firms have increasingly been called upon to do more than provide services that amount to “your mess for less.” ITO and BPO customers are asking their service providers to help–and in many cases–take the lead in the transformation of their operations. Transformation can come in many forms, shapes, and sizes; for the purpose of this blog, it will divide transformation into “Big T” and “Small T” improvement efforts. Big T is the big bang approach to transforming an organization; it can consist of several large transformational efforts that usually has contractually defined benefits for the client in the form of improvements in productivity, and cost reductions. Small T refers to the continuous improvement approach which utilizes methodologies such as Lean or Six Sigma. The lever that ties these approaches together is the process of quantifying improvement benefits. The question leaders ask is: “How much will this project save me? They do not want qualified numbers, they want to know the numbers, and how you will do it. The ability to quantify benefits which are tied to an improvement opportunity is becoming a differentiator for both consulting, and outsourcing firms. What customers require is movement from the theoretical to the practical. They want analytics that will provide them with real data that can tie improvement efforts to actions and hard dollars.
An example of just how important this requirement is was recently demonstrated in proposal made by a top tier strategy consulting firm to a Blue Chip Company. The proposal was a plan to reduce IT infrastructure outsourcing costs (Company names withheld). The consulting firm provided a great presentation with zero data to back up its estimate of potential benefits. In essence, they believed that their reputation would be enough to win the deal. The Blue Chip Company’s executives rejected the proposal, and relieved the consulting company of all its activities. Leadership wanted details, estimates, and a plan for actual implementation. Simply put, the strategy firm was out; the practical firm that did their homework was granted a multiyear contract.
The above referenced example is real eye opener; the challenge for outsourcers is to provide their customers with a coordinated, quantifiable collaborative effort, which produces benefits above and beyond the savings built into the contract. This means that the promise of additional financial benefits actually has to be delivered, and isn’t real unless it can be measured. Activity and attempts won’t be rewarded; and efforts that do not result in hard dollars, may be dismissed out of hand because they do not register on the financial statements.
To be successful, the whole collaborative effort needs to be level set from the start; customers which have little or no continuous improvement experience need to understand that all improvements are not the same. Each effort requires accurate benefit estimates that differentiate hard and soft dollar projects. This information helps set the ground work for an open and honest relationship when working projects together. Typically organizations split benefits into 3 or 4 buckets. They are:
- Type 1: Cost Reduction
- Type 2: Revenue Enhancement,
- Type 3: Productivity Improvement
- Type 4: Customer Satisfaction
Understanding the differences, and what the impact on both the customer and the outsourcer is important to the relationship. Often the customer assumes all projects will have an impact on the company’s financial statement…this is obviously not the case. Make sure that everyone understands what the results of the effort will be, who will benefit, and how much will be saved…