1. February/March 2009
Scientific Management Tools Create Powerful Scorecard for Outsourcing
By
F. Stephen Olson, National Director of Best Practices, Océ Business Services
Increasingly, outsourcing is looking like a profession, much like accounting or law, from both the
client and service provider sides. IAOP, for example, has asserted that as a profession
outsourcing should have standards and practices and therefore, certification for practitioners. As
these notions take hold, both service providers and clients will increasingly view outsourcing as a
“management science,” with all the rules, practices, proofs and observations and tools that it
entails.
This article offers a general framework for managing the performance of outsourced services as a
science, specifically from the perspective of business performance management (BPM). BPM is a
systematic approach to performance improvement. Although originating in and popularized in the
highly quantifiable world of manufacturing, BPM is increasingly being applied to outsourced
services, and it is surprisingly adaptable.
The goal of BPM is to create what we’ll call an EKG (electrocardiogram) for business
performance. Just as a medical doctor and patient can view an immediate EKG readout of a
patient’s heart performance, outsourcers and service providers should be able to view current
business performances in real time, or nearly so. A doctor and patient can view one aspect of the
heartbeat over time, and outsourcers and service providers should be able to do the same with
discrete business processes. And just as an EKG tracks a steady stream of physiological data,
BPM tracks a constant stream of business data. Heart function is a strong indicator of a human
being’s health, and an EKG for business performance should give an outsourcer and service
provider good insight into the fitness of a business. In health and in business, ignorance is the
silent killer. BPM is the antidote.
BPM in outsourcing involves:
• Establishing strategic performance objectives;
• Breaking down every aspect of an engagement into vital processes that advance those
objectives;
• Identifying important variables in those processes;
• Defining acceptable performance levels at each variable;
• Crafting a service level agreement (SLA) that details processes, key performance
indicators (KPIs) and targets;
• Monitoring those key performance indicators in real time or nearly so; and addressing
any areas where quality is falling short.
Role of the Balanced Business Scorecard
Take all these steps and you will have a huge stream of data. This BPM framework rolls up into a
balanced business scorecard, the organization’s total bill of health. The balanced business
scorecard considers not only short-term financial performance, but also customer satisfaction,
human resource development and refinement of best practices.

2. Each of these four categories in the balanced business scorecard — HR, finance, customer
service and operations — encompasses a set of activities that take place in pursuit of strategic
objectives in those categories. These activities are what a BPM system is monitoring. Every BPM
metric that matters, every KPI, will ultimately affect the overall balanced business scorecard. This
scorecard and the activities that drive it also form the architecture of a BPM dashboard. The BPM
dashboard is a Web-based computer interface that managers on both sides of the outsourcing
relationship can use to monitor the current performance of the business, being able to drill from
the 60,000-foot enterprise level of a given service area down to the “atomic” level of a single
process.
If this methodology sounds familiar, it’s because it correlates directly to another important tool in
the management science toolbox, the Six Sigma quality management methodology. Six Sigma
involves defining an overall process and isolating the individual inputs that are causing variation
and defects. Invented by Motorola, the methodology (simplified) boils down to DMAIC: define the
business problem, measure the current process, analyze reasons for any defects, improve
relevant business processes, and control to prevent defects in the new process.
How BPM works in the real world
Consider the example of a company that is outsourcing customer service operations. The
average on-hold time in a call center might be one of 10 KPIs in a service level agreement
between the client and service provider. That SLA may be one of 10 SLAs in the customer
satisfaction quadrant of the scorecard. These abstract relationships between processes, KPIs,
SLAs and scorecards, are embodied in the structure of the BPM dashboard that complements the
BPM methodology. The four-quadrant balanced business scorecard could be the top-level
homepage view. If a manager sees customer service is slipping, he or she can drill down through
that quadrant into the SLAs and KPIs to discover the root of the problem – the process, location,
time and service defects. Actually, the manager would have been alerted to the problem, in this
case perhaps a longer-than-acceptable on-hold time.
A major benefit of thinking in terms of the balanced business scorecard is understanding that any
process in any division — in-sourced, outsourced or both — should find its place in this
framework. If not, the organization is simply building silos that will have to be integrated later.
My company has implemented BPM programs and software systems for the past five years. We
provide outsourced services in the areas of mail, print/copy/fax, records, eDiscovery and
traditional office services. Document processes are an area that benefits heavily from BPM.
Every business has a document process management challenge, and for most businesses it’s a
growing one. In addition to standard document management activities, every business is subject
to potentially document-intensive legal action, and most are under increasing pressure to respond
more quickly and precisely to one regulator or the other, be it the Securities Exchange
Commission (SEC), Commerce Department, Environmental Protection Agency (EPA), Food and
Drug Administration (FDA), Labor Department, Department of Health and Human Services (HHS)
(for the Health Insurance Portability and Accountability Act, or HIPAA) or the Energy Department.
A BPM case study: life insurance company
Organization: A life insurance company receives 40,000 claims per month on individual life
and group life policies and annuities. It scans the claims into images, making them easy to
process. Quick claims processing is a critical differentiator for the highly competitive word-of-
mouth driven insurance industry. Processing claims in hours instead of weeks makes a big
impact on customer satisfaction, market share and profit.
Problem: The insurance company was reporting substandard turnaround for the first part of
processing, i.e., receiving mail and scanning it into the database. Poor grades were based on
anecdotal feedback from employees who had no involvement in the scanning. No metrics

3. were in place to measure scanning timeliness or accuracy, nor were there any consensus
target service levels.
Solution: The insurance company decided to outsource the scanning process to us. Led by a
Six Sigma master black belt, our team applied BPM principles to the problem and
documented all processes, implemented performance tracking and reporting, helped the
client define an objective scorecard and associated metrics, analyzed true cycle time
performance, recommended changes and kept the client apprised of progress.
A Key Finding: Objective measurement of KPIs indicated that work was in fact occurring
within the deadlines, but that there were more efficiencies to be gained. Instead of
redesigning workflow, the company could increase its claims processing productivity by better
aligning staff with mail volume and eliminating interruptions. This was a simple solution but
one that did not become apparent until we applied the management science of BPM.
Results: Better staffing saved the insurance company more than $150,000 annually in labor
expenses. Staffing was reduced from 28 to 21 full-time equivalents. Cycle times were
reduced from four hours to two hours. The client is now able to manage by an objective and
balanced scorecard and has decided to outsource all of its document processes.
BPM helps organizations take business benefits like these and standardize them across all sites
and lines of business. Executives can manage aggregate performance through the intelligence-
packed dashboard 24 x 7 x 365. They can drill down to the device, staffer or resource level, and
drill horizontally back and forth through time. As a result, companies can continually monitor and
improve their performance.
If performance in a particular site shows up as “blue,” or excellent on the dashboard, the
company can replicate this best practice across all sites and functions. If, on the other hand, one
site or process is struggling in the red zone, the company can pinpoint the problem and launch a
quality initiative — anything from a short staff meeting or revision to a form to a full-fledged Six
Sigma project — until the process meets standards.
Conclusion
Although business performance management is always valuable, the recession intensifies the
need for organizations to do everything in their power to cut costs and improve business results.
Consequently, ensuring that all operations, including document processes, are objectively
managed with near real-time reporting can be a matter of survival.
To survive, an organization must deeply analyze business processes; extract quantifiable metrics;
define key performance indicators; consider customer, HR, finance and operations concerns; hold
service partners accountable with SLAs; monitor performance in near real time; populate a
balanced scorecard; and aggressively tackle deficiencies.
Like a manufacturer collecting data from the production line, an organization that takes these
steps will be able to monitor its own performance much as an EKG indicates overall heart health,
beat-by-beat performance and everything in between. In many cases, processes once dismissed
as fixed costs can make a direct, positive impact on market share, profit and business
performance.
Whether survival or simply shareholder value is at stake, an organization can reap surprising
benefits by confronting their business challenges scientifically. BPM is a good way to start. And
though any service provider can take on tasks, a service provider with a comprehensive BPM
approach can guarantee those outsourcing decisions pay off.