Discuss, debate and exchange ideas on latest trends and opportunities in the Business Process Outsourcing (BPO) landscape. Deliberate on adding “business value” to clients, vendors, employees and various other stakeholders to enhance customer satisfaction and sustain long term partnerships.

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August 31, 2012

Glocalizing BPO Services, the manufacturing way

Will we see the possibility of BPO vendors moving towards glocal markets where individualized services are delivered from glocal hubs focusing more on intellectual arbitrage and less on cost arbitrage? Or will it be a combination of the traditional and glocal models which vendors will now have to offer clients to match their operating models?

While globalization has taken a full circle trot around the world, glocalization, is steadily being implemented across the world. Global companies are looking to adopt their glocalization manufacturing paradigm to their BPO support as well. Glocalization is the creation and servicing of major markets by local hubs. Putting your eggs in baskets close to each other is what enterprises are looking at.
Outsourcing all parts of production and the supply chain to low-cost countries, specifically China, while retaining the bare minimum in distribution and design in-house is now witnessing a profound change.

Factors affecting this change are:

  • Rising labor costs in emerging economies such as China where labor costs have doubled in two years
  • Higher fuel costs resulting in higher logistics costs while moving goods across continents
  • A requirement for greater localization in product content
  • High risks associated with disbursed supply chains. Example: the Japanese Tsunami  disrupting supplies to American auto majors is a recent example
  • Sales growth being driven by emerging markets 
  • Political pressures resulting from recession and stagnating economies

In the manufacturing industry, glocalization focuses on creating glocal hubs where each major geo is serviced within the boundaries of the hub. Caterpillar's glocalization strategy is most identifiable in recent times where a single world market is replaced with many regional ones. The U.S. market was predominantly serviced from its Peoria plant. Projects were lined up to automate most labor-intensive processes such as welding (done by robots) while still creating more jobs for technicians with higher levels of computer skills.

Since 2009, Caterpillar started the program of replacing cheap labour with even cheaper robots. There has been no fall in the number of human employees. The only change being one in the skill levels required of these employees. Similarly, a network of over 2,000 suppliers in the Illinois areas provides custom-designed goods for the main plant in Peoria. This strategy was replicated in major markets such as China creating regional hubs to cater to localized demand specifications.

Do these initiatives apply to the BPO industry?

The answer would be a resounding "Yes" with the BPO industry actually having made its baby steps in this direction with a slew of initiatives:

  • FEND-BEND model: The concept of basing  FEND services  (Front End Customer facing operations)  near shore to  a client's markets while moving only the BEND services (Back End transactional operations) 
  • Onsite delivery of services requiring higher or specialized skill sets being delivered from the client's premises or in the target country locations
  • Most BPO vendors today have delivery centers in the US - aided largely by the recession. This has eased the labor markets and associated costs
  • Tools and technologies:  BPO vendors have been quick to adopt cloud / platform based solutions and automating technologies which replace FTEs with tools and applications (very similar to Caterpillar's robots)

Will we see the possibility of BPO vendors moving towards glocal markets where individualized services are delivered from glocal hubs focusing more on intellectual arbitrage and less on cost arbitrage? Or will it be a combination of the traditional and glocal models which vendors will now have to offer clients to match their operating models? I would like to hear your views.

August 30, 2012

Moments of Truth: Your Brands and Customer Service

What followed was a long, animated, sometimes comically derisive, but educative debate between my two neighbors on customer service and brands. I became almost incidental to the discussion and my mind drifted towards more fertile thoughts - what if "Jack and Jean" could be brought to share this debate with my clients, peers, and other industry associates.

It was an interesting flight for me out of Miami last year. I was stuck between two fairly smart and garrulous neighbors. Certainly not the kind of predicament you would want to be in, especially when you are severely jet-lagged and, to top it all, have a load of business documents to review. Add the pleasure of a center seat, and it makes an explosive cocktail. I made some polite conversation with my fellow passengers, including a stylish "merci beaucoup" before diving into my work.

As I powered up PowerPoint (no pun intended) and the presentation announced itself as "Revolutionary Customer Service", both my neighbors' stares were fixed on my laptop screen. It was a long, comprehensive presentation, and I could sense my neighbors peering intently, but secretively into the material - not without interest. Having finished reviewing the document, I started annotating it. And now, I could uncomfortably sense my neighbors wanting to say something. It's not exactly polite to ignore your co-passenger, and so, I raised my gaze and met Jean's.

"You know, I run customer service for ABC Corporation?" she said. I must have said something like "Oh really!" And on that cue, she went on to tell me about her experiences in the customer service organization of a major brand. It turned out she had made quite a few trips to all globally popular outsourcing destinations as well. She also held fairly sharp views about locations she had seen, the technologies used, trends in customer care such as effort reduction, NPS, etc. And of course, she had to speak about how her customer care organization had 'dramatically changed the perception' of her employer's brand in the marketplace.

Jack, my other neighbor, uncharacteristically quiet (but portraying increasing agitation!) till this point, could now bear it no more. He introduced himself, with a drawl, as an expert analyst in the customer care business (he really was a customer service analyst by profession), and now began relating his experiences, at length. His experiences, in many ways seemed to misalign with that of Jean's. I increasingly got the cringing feeling that this selective rendition wasn't so by chance, but the man had his compelling points. Finally, he ended by saying, "Corporations don't really understand whether customer service contributes to a brand's reputation at all". A pregnant pause followed, but, the fuse, as you would guess, had been lit.

What followed was a long, animated, sometimes comically derisive, but educative debate between my two neighbors on customer service and brands. I became almost incidental to the discussion and my mind drifted towards more fertile thoughts - what if "Jack and Jean" could be brought to share this debate with my clients, peers, and other industry associates.

Think about it - Customer care is a $400 billion (yes, with a 'B') industry globally. Large scale technology deployments, up-sell and cross-sell, behavioral techniques, positive thinking, analytics, speech recognition, outsourcing in exotic locations...the list just goes on and on. And yet, you have corporations with diametrically opposite views and implementations of customer service succeeding in this myriad marketplace.

Like they say, only half of your money spent on customer service and advertising works, but which half? That's the $400 billion question!

August 23, 2012

Achieving Cost reduction and World Class operations in a Finance Department - is it a Paradox?

There is a need for the Finance Department to reach World Class standards and at the same time reduce costs. This calls for a transformation in the way in which Finance organization operates.

Finance Departments of most organizations are going through a significant pressure to reduce cost. In fact, they are almost one of the first casualties of cost reduction programs in large corporations. Business pressures are so high that there is an urgent requirement to reorganize funds from Indirect cost to more revenue generating functions. Unfortunately, for some reason cost of Finance department tends to be considered as overhead cost and not directly contributing to the revenue generation of the corporation. This causes huge pressure on the Chief Financial Officers (CFOs) of corporations to substantiate their contribution to the success of the organization. One of the biggest contributions of the Finance Department is in providing business value to the organization by providing financial insights. While Finance is an integral part of the running of business, there is a need to articulate the value the Finance Department is providing to the business to substantiate their existence.

Therefore there is a need for the Finance Department to reach World Class standards and at the same time reduce costs. This calls for a transformation in the way in which Finance organization operates. It demands a different operating model with a sharper business orientation. There are many organizations that have done a number of cost reduction programs by different methods of elimination of work, reorganizing their geographies and so on. However, many of them are yet to reach the desired business requirement of running World Class operations and providing the best-in-class support to the business. Some organizations are somewhere in the middle-path and a few are lost in the complete mishap of reorganizing themselves. There is a growing mistrust among internal stakeholders on the functioning of Finance Department which is leading to even more difficult situation.

Is it too much to expect a Finance Department to reduce cost at the same time run world class operations?

Will there be a transformation in the approach?

Is there a tip-off point?

Is Transformation in Finance Department a myth?

Are there enough proof points?

Is there a method to the madness?

These are a number of questions arising in the minds of CEOs, CFOs and internal stakeholders which needs to be addressed. Transformation' as a buzz word in Finance Department is stretching beyond the imagination and it is at times tending towards misleading. This is especially in the context of complex situations of having operations at businesses in-house, Shared Services Centre, outsourcing to a third party service provider and so on.

Not every method works for every organization. Method and approach varies based on the maturity of the organization. Therefore it is important to first define the current maturity of the Finance Department. Once the current state is defined and the end-state is articulated, the approach and roadmap to reach the end-state needs to be defined further. This calls for a structured and proven approach from a practitioner's perspective. There is a need to create a cross functional governance to arrive at a solution to reach the desire state of World Class operations and Cost Reduction in Finance Department. Transformation in Finance Department is not a short-term journey. It calls for a structured approach and well crafted execution plan with appropriate stakeholders' involvement.

Read this recently published Infosys thought leadership paper on how we can support CFOs in defining a transformation journey for the Finance Department.

August 13, 2012

Sports to Source: An analogy

A sport, they say, is a great character builder. Sports brings out the best professional in us is what I think. But is it any different from sourcing? Not much I think. Right from setting the ground rules (initial forecast / expectation setting), sticking to the rules of the game, following the basic discipline (timelines, budget, escalations), working together for a common goal / co-operation (as in stakeholder management),  perseverance and game strategy (towards negotiation, savings and contracting), there are so many ways we can relate SPORTING to SOURCING.

Let us look at chess first. Many times in my sourcing experience, I have seen and come across situations that look like a "gridlock" - none of the stakeholders seem to budge from their expectations/stance. It is precisely under these circumstances that one person has to "make a move" - it can't be the most "optimized move" but a move can help resolve the situation and make a way forward. It is the same manner as in Chess - you can't sit, all at once and think about all the potential moves that can lead you to win. For instance, a few years back, I was faced with signing a GPA (General Purchase Agreement) for a few engineering component suppliers. One component was "our all sounding" vehicle horn that had to meet a 3 lakh km and 3 year warranty term at the same erstwhile OEM price, considering that electric horns on an average do not last for more than 6 months in Indian traffic !! Impossible situation!! How did we resolve it? Through a detailed data analysis of field failure of horns, customer preferences, driving patterns and horns usage, we were able to arrive at an alternative solution. The solution involved changing the frequency (Engineering design), making a small change in the user manual (marketing/service folks), a few changes in the GPA (legal team) and a small change in the price - all this was led by the sourcing team because somebody in the sourcing team thought there was a way to change everybody's stance and making adjustments on the expectations front. One move led to a series of difficult and time consuming moves. But a resolution was found successfully with a change from the original objective. One has to at least make a move - a 70% correct move is alright. There is no 100% information available to make a move - one has to only make it.

Next, let us look at simple cycling. You can glide only on a downward gradient. The other times you need to be pedaling, and it is pretty hard when on a upward slope. But most of the times it is the upward slope. The underlying aspect is that you need to keep pedaling. This is particularly the case when you are handling an outsourced piece of client procurement or sourcing. You need to demonstrate value and dollar benefits in good measure all through the engagement, day in and day out. You need to keep showing value by pedaling continuously - there is no respite here!

How about archery? Till the last decade, OEMs were unwilling to look at raw material prices going through the roof. The supplier was expected to supply radiators and wiring harnesses with a 3% Y-o-Y cost reduction even though aluminium and copper prices went up 200%!! Was it still possible to obtain a cost reduction - yes! Provided a cost increase was given. Eventually organizations started to refer to authentic raw material price standards such as the LME and linked their price points on a quarterly or half yearly basis so that whenever prices went up, they got the relevant increase from the OEMs and passed on reductions to OEMs, whenever material prices went down. However, the point is they were still able to give productivity and other improvement cost reductions by separating raw material costs from the other costs. Hence they derived a new way to capture a (net) 0.5% cost up : a 3% cost down and a 3.5% cost up. This is just like the wind correction an archer has to make to hit the target. He might hit the target but the wind may play the spoil sport.

Last but not least, how many times have we not heard that a hockey team has not played to a strategy to be able to pull off a win? All stakeholders have to be aligned to a common objective as far as execution is concerned to be able to achieve the desired outcome from a sourcing project. Alignment is key - that is what Toyota's Hoshin Kanri does to a sourcing organization. I like to speak exclusively on this in one of my upcoming blogs.

Please feel free to add in a few more analogies that come to your mind - waiting to hear your perspectives.

August 8, 2012

Theory of Constraints (Part 4) - Reasons for delay

In this post, I shall be giving some points due to which the projects get delayed in spite of the use of tools such as Gannt chart, etc. So here goes;

 

Protection of buffers during estimates of work - When estimating the time it will take to complete the work, generally a buffer is kept in the estimates to make sure that the work gets completed in the time that has been estimated. It is empirically seen that when there is a 50% chance of the work getting completed in a particular amount of time, to be 90% confident that the work will get completed, the time estimate has to be 2 times the amount of time estimated with a 50% confidence.

To get over this issue, there has to be a change in thinking between both the person giving the estimates and the people to whom they report. In order to give a 50% confidence estimate, the person who gives the estimates must be confident that he/she will not be penalized if the deadline is missed around 50% of the time. Hence the person to whom the estimate is sent to must make sure that no penalty occurs due to the missing of the estimate.

TOC4_1.png

Now once all the estimates for the individual pieces of work are taken into account, there has to be a buffer kept at the end of the total estimate. As only 50% of the work can get delayed, a 50% extra amount of time can be kept at the end of the total estimate. Even then there is a 25% amount of time which is saved by this over the previous method which is currently used.

Student Syndrome - This occurs when a person allocates a due date to complete the work and then works on the project with 100% focus only when the due date is near. This is very similar to how students put off their homework till the last minute and hence the name. One can imagine how this behavior along with the previous behavior is quite dangerous to a quick delivery.

Starting the work immediately - Though this sounds directly contradictory to the above law, it is not. This delay occurs when the work starts without having all the inputs in place. Hence in best case scenario, when the particular input is required, the work stops and does not proceed until the input comes in. In the worst case, when the particular input comes in, it is found that the work done so far is useless and it is to be done all over again.

Parkinson's Law - This law states that "Work expands so as to fill the time available for its completion"
For example, a work has been given which is to be completed in 5 hours. In case, the person doing the work is able to complete it in 3 hours, the result will not be passed on. Instead, more checks, more processing of the work takes place until the 5 hours are used up.
This along with student's syndrome explains why only the delays in work are passed on and no savings of time is passed on inspite of having big buffers.
As an aside, this Parkinson's Law is also used to explain how bureaucracies expand irrespective of the work assigned to it until the organization it supports collapses.

Multitasking - This phenomenon is often seen as a time saver and not a time waster. Unfortunately in the real world, this is one of the biggest time wasters. To explain this further, kindly check the diagram below and read on.

TOC4_2.jpgConsider that each color shown here is a different task. Hence as observed in the first bar, there are 3 tasks which take equal amount of time to complete. In case the tasks are done one after another without any multitasking, it is observed that the first task completes in around 1/3rd of the total time, the second task in 2/3rd of the total time with the last task completing at the end. The little white gaps in between is the time taken to shift from one task to another. In manufacturing industries, this is known as setup time.

Now when multitasking is used (The second bar with each of the colours split in three equal parts), it is noticed that the first task takes more than 100% of the time that it would have taken if multitasking was not done. Even the second task takes more time to get completed. The total time to complete all the tasks also increases, as the number of times shifting between tasks (The white space) multiplies by as many times as the tasks are split. This total time increases so much more when this setup time (The amount of white space during each shifting over from one task to another) also increases.

Improper use of the constraint - It has been seen how critical the constraint is to produce the output in an optimal manner. So if this constraint is used improperly, the delay will increase. Here are some ways that the constraint is used improperly.

  • Sending bad quality inputs to the constraint. This can be avoided by having a quality check of the inputs which go to the constraint. 
  • Sending unimportant work to the constraint. This happens when the inputs are sent to the constraint in order to produce an output which will not be required right now and there is an output currently required which is not processed as the constraint is now working on the unimportant task. 
  • Making the constraint work on general processing. The constraint is generally a specialist in some task. In case the constraint starts working on a task which can be done by any other non-constraint (A general, non-specialist task) then there is a waste of time which could be better utilized.

This brings us to an important point of Theory of Constraints. An hour wasted in a non-constraint is no time wasted at all. An hour wasted in a constraint is an hour wasted on each and every part of the whole system.

August 6, 2012

The Procurement Olympics - Only a few win and stay ahead of the others

Managing a procurement function and proving its value to the organization continues to be like participating in the Olympics. Procurement teams across all industry verticals (automotive or pharma or healthcare etc.), face the competition every day from internal stakeholders and suppliers like any Olympic Games event. All three wanting to beat each other in deriving positive value to their organizations akin to the national respect athletes long to create by winning Olympic game events.

Like Michael Phelps, only those procurement teams win and continue to win who put in years of planning, execution excellence and finishing with support from their leaderships and extended organizations (most often, procurement outsourcing & transformation support partners). Top-notch athletes start preparation just after one Olympic ends and go on till the next one comes after 4 years. Winning procurement teams behave similarly. For them, achieving the next procurement performance level is always in the line of sight as the next Olympics. They plan their moves carefully and work every day, month to make that happens with inclusive support from their procurement outsourcing & transformation support partners.

So if you are part of a Procurement function in any organization, charge up and seize the infinite opportunities that lie before you to grab, like Olympic medals. You can be the next winner and imagine how it feels to be a winner with a podium finish. Take help of your partners to chalk out a plan and execute or go solo - choices are aplenty. Good luck for your plans ahead and may you win handsomely.

August 1, 2012

Sustainable Sourcing - Towards Greener Pastures

With rising commodity & energy costs coupled with government regulations & the increasing awareness of the end customer, green or sustainable sourcing has become the need of the day.

It has a twofold impact on the company, not only by leading to sustainable sources but also improving the company's goodwill in the market. It can help in deriving cost saving opportunities sometimes such as usage of substitute materials, lower usage of the material by formulation alteration, reduced consumption of other resources such as water, energy etc. and waste & emission reduction. Many organizations now have environmental related clauses in their corporate procurement policy.

Green sourcing is not a new sourcing process, it is just a modification of the existing sourcing process to include parameters of sustainability. However, since it contains using substitute materials or modification in the formulations, it would involve a bigger percentage of internal stakeholders including R&D, product managers, engineers, production managers, marketing etc.

View image

Capturing the benefits related to green sourcing might be complex and long term as compared to the normal sourcing levers however green sourcing is the need of the hour now. The developed countries have already implemented measures towards attaining this (such as REACH in Europe) and the developing countries have started realizing the importance of this initiative. The introduction of low VOC (volatile organic content) & heavy metal free paints in India few years back, is a classic example of this. What steps does your organization take towards attaining sustainable sourcing? Let's continue the discussion.

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