[HROA Essentials] Buy wholesale sell retail - even in outsourcing

Sometimes the best lessons for an industry come out of the blue â€" from a completely unrelated sector. I am reminded of the inspiration for Southwest Airlines' vaunted short gate turnaround process, the Indianapolis 500 pit stop. The airline's adaptation of the tire changing and re-fuelling practices have had a major impact on its ability to reduce its ground time, ultimately improving air passenger miles flown.

Outsourcing and retailing? You probably think this writer is daft. But think for a moment about the focus of an outsourcing solution. The preponderance of the strategy for and structure of the solution is a merry dance between the corporate business process owner who is pushing to achieve the trinity of benefits â€" better, faster, cheaper â€" and his outsource provider. Months are spent developing process workflows, business cases, requests for proposals and contracts. In the meantime, the ultimate client â€" business line or user group, depending on the process â€" is merely advised of the progress without a seat at the solution table.

Right or wrong, corporate process delivery is the responsibility of the internal department; the "how" to transform â€" outsource, insource, consolidate or set up shared-services operations â€" is fully within its mandate. Yet, stakeholders sit at the sidelines, assuming that a change in the characteristics of delivery â€" for the better â€" is in the offing. And when they perceive no change in delivery or a worsening of service and the dust settles...all hell breaks loose.

An Apt Analogy

I stumbled upon this analogy while implementing a major business process outsourcing initiative. After spending months focusing on the solution, huddled with the provider, I finally turned my attention to the users when I was ready to flick the switch. And what happened? I found that best efforts to design the right solution to globalize, standardize and harmonize processes around the globe were conducted in a vacuum. The assumption was that the retained team could balance the needs of the department and the corporation, and that business lines and end users would just fall in line in support of the corporate good, assuming the new processes were clearly explained and communicated. As a result, the solution was continuously tweaked as new business-line issues surfaced and the change-management challenge grew exponentially.

The savvy retained team understands the wholesale/retail analogy, and is acutely aware that working with the outsourcer to bed down the solution takes less than half of the energy. It is a re-seller of business-process services to the business lines, a reality that is generally forgotten in finding solutions and sourcing. At the end of the day, the retained team remains responsible for delivery.

Several orthodoxies from the retail world can be applied to obtain better buy-in and customer satisfaction:

Know your Customer. Balance focus on the B2B solution â€" the pas de deux between the process owner and the outsourcer â€" with B2C solutions, in order to obtain and sustain user change.

Perception is Everything. Forget what behaviorists say about humans behaving rationally. Any hard-driving business line leader, under pressure for top-line performance, will evaluate delivery of any back-office process through his own lens, corporate good be hung. Make sure that the value he perceives is aligned with his specific business goals.

Ensure a good customer experience. Put yourself in the shoes of the customer. The benefit of outsourcing is not "mess for less," but a fundamental change in the way business lines and users obtain back-office process support. The effort of outsourcing must yield more than lower cost alone.

Invest in product development. Building measurable value over time is analogous to continuous product development. As sales, or in the parlance of an outsourcing contract â€" users take up the solution â€" continuous improvement and innovation in products and services such as better reports, increased self service and streamlined workflows should be rolled out on a regular basis.

The decision to outsource or offshore is analogous to a retailer's buying wholesale from one or more manufacturers. In order to stock his shelf with product, the retailer develops a specification based upon a range of business requirements â€" ability to achieve a mark-up, ease of managing a supply chain, limiting stock-keeping units in order to achieve buying power and reducing suppliers for leverage and administrative cost reduction.

However, a margin does not materialize unless the retailer sells something buyers want to buy; therefore without conducting market research and actively marketing the product, the retailer will not be able to sell the stock of three-inch black heels, when ballet slippers or pink trainers are what the market is craving.

Managing the wholesale component of the retail process is relatively easy. The retailer develops a specification and orders from a manufacturer. But actually moving the stock and keeping inventories at a manageable level is much more difficult. Crossing fingers and hoping that the stock will move because the retailer second-guessed the market becomes a fool's errand. Without a good sense of the pulse or the mood of the customer, the retailer fails.

Buying business processes wholesale from an outsourcer and selling retail â€" to the client â€" mirrors this analogy. The business sponsor often focuses most of his attention on transition, staffing, governance and similar tasks, in order to stock the store with new technologies, processes and players, but often forgets the test marketing, assuming that the corporate customer will automatically take up the change. Little attention is paid to identifying variations in process requirements, which may be material to the ultimate solution or selling the virtues of a new business process in terms that respond to "what's in it for me?" As a result, transformation does not occur as expected. And the industry rumors about yet another unhappy outsourcing client travel fast.

Why?

There are several reasons why the focus is on the wholesale component of business-process improvement as opposed to retailing change.

No business-led campaign to outsource. Most of the decisions to outsource are taken at a functional or departmental level in response to a corporate mandate, a move to cut costs or as an initiative to improve business processes. Seldom do business lines rise up and force a function to outsource back-office processes. As a result, at the outset, the focus of the solution is expressly internal â€" re-engineering existing processes, re-structuring a functional staff complement and cutting the cost of the status quo.

How does the retail analogy change as stores disappear, and we all shop in the comfort of our own homes via the Internet? Does the parallel exist for outsourcing?

A lead manager of shared services and outsourcing at one of the world's largest investment banks says, he takes advantage of labor arbitrage because the technology to manage processes as he envisages is not yet in place. Yet, five years from now, he expects that that his network of remote locations and outsourcing contracts will morph as more sophisticated outsourcing becomes available. Cutting out the retailer-cum-retained team? Alleviating the wholesaler-cum-outsourcer? Just wait and see…

Opening up Pandora's box. Face it, most back-office process owners are fearful of asking the business lines to re-define services or participate in solution development. The working assumption is that involvement not only increases the time involved in design and business-case preparation, but will result in the requirement for customized processes and interfaces. Far easier to deal only with a provider and hope that change can be mandated by corporate fiat.

Limited focus on end-to-end transformation from the outsourced process component. Solutions and change management often do not embrace the entire workflow â€" both upstream and downstream â€" rather just that part of the process is under the control of the sponsoring department. When the outsourcing solution is rolled out, difficulties in bolting on out-of-scope operating procedures become obvious.

The promise of outsourcing. An outsourcing announcement tends to raise customer expectations. Better, faster, cheaper…yet the end user asks better, faster, cheaper for whom? Most often the end customer has no say in determining what delights him. And when his corporate allocation does not change or his user fees go up, the grumbling starts.