1. Industry Insight by FSOkx - A Data-Driven EKG for Business Simplifies Outsourcing Decisions
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Industry Insights
A Data-Driven EKG for Business Simplifies Outsourcing Decisions
F. Stephen Olson
06-April-2009
Just as a cardiologist can watch an EKG track real-time heart performance, so should a financial services company outsourcing a business
process be able to monitor the ongoing business performance of a vendor.
Deciding whether to outsource a key business function is always complex, but it gets easier when the prospective outsourcer knows it can monitor – with absolute transparency in
relative real time to a mathematical certainty – the performance of the outsourcing service provider.
Why should a client have to wait for monthly or quarterly hard copy reports, especially in this challenging economy, to get information it can act on? The accountable and trustworthy
outsourcing service provider should be able to provide performance data on demand to prove its value. If it can’t, the provider should be prepared to pay a penalty or lose the contract.
BPM: A Systematic Approach
BPM is a systematic approach to performance improvement. It involves tracking agreed-upon metrics in an interactive scorecard. Although originating in and popularized in the highly
quantifiable world of manufacturing, BPM is being increasingly applied to outsourced services. It is surprisingly adaptable to any operation that can be measured.
Getting to the scorecard requires:
q establishing strategic performance objectives for the outsourced service,
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2. Industry Insight by FSOkx - A Data-Driven EKG for Business Simplifies Outsourcing Decisions
q breaking the service down into vital processes that advance those strategic objectives,
q identifying important variables in the component processes,
q defining acceptable performance levels at each variable,
q crafting a service level agreement (SLA) that details outsourced processes, the key performance indicators (KPIs) and the targets, and
q monitoring those key performance indicators in real time, or nearly so.
An Organizational “Bill of Health”
By following these steps you will wind up with a huge stream of data. That’s why this BPM framework rolls up into a Balanced Business Scorecard, the total bill of health for an
organization. The Balanced Business Scorecard considers not only short-term financial performance but also customer satisfaction, human resource development and refinement of
best practices.
Each of these categories in the Balanced Business Scorecard – HR, finance, the customer and operations – encompass a set of activities that take place in pursuit of strategic
objectives. The scorecard helps ensure that operations align with strategy.
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. They can 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 boils down to DMAIC:
Define the business problem, measure and quantify process performance, analyze the root causes for defects, improve the process by implementing changes that reduce or eliminate
variance, and implement controls to ensure that the improvements take hold and that defects do not re-occur. The interactive dashboard can play a critical role in measuring and
monitoring process capability and performance.
BPM in Action
Consider the example of a financial services company 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 affecting the customer satisfaction quadrant of the outsourcer’s Balanced 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
Business Balanced Scorecard provides an effective top level homepage view. If a manager sees customer service is slipping, 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, she would have been proactively 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 new silos that will have to be integrated later.
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 regulators, be they the SEC, Commerce Department, EPA, FDA, Labor Department, HHS (for HIPAA) or Energy Department.
A BPM Case History Example
Organization: A life insurance company receives 40,000 claims per month on individual life and group life policies and annuities and 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 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. Led by a Six Sigma master black belt, the 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.
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3. Industry Insight by FSOkx - A Data-Driven EKG for Business Simplifies Outsourcing Decisions
A Key Finding: Objective measurement of KPIs indicated that work was in fact occurring within deadline, however there were other efficiencies to be gained. Instead of redesigning
workflow, the company could increase its claim 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 BPM was applied.
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
monitor and continuously 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.
Surviving and Thriving
Although business performance management is always valuable, the economic 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 doctor looking at an EKG, executives can monitor the pulse of their organization, beat by beat, and ensure it thrives.
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