Category Archives: Services

Designing for BPO and Shared Services

SourcingMag.com recently printed an article from Alsbridge on “Designing Your Organization for BPO and Shared Services”. With one exception, it was quite good.

According to Alsbridge, there are three main components to the shared services model:

  • the service management organization, or BPO,
    which performs the shared services on behalf of the retaining organization,
  • the retained organization
    which is the organization “left behind” that retains all tasks not outsourced to the service management organization, and
  • the governance layer
    that manages the customer/supplier relationship, including service level agreements (SLAs), performance reporting, billing, and issue resolution.

This is dead-on. It’s good to see someone making it clear that the governance layer has to be treated as a separate entity. Some people seem to think there’s only two components: the service management organization and the retained organization, and that the retained organization should be responsible for managing the service management organization. This, of course, is very problematic. Typically, your retained organization consists of employees who didn’t negotiate the contract and don’t have the authority to tell the service management organization to “do their job and get it right” if the service management organization isn’t performing up to expectations, and they definitely don’t have the authority to withhold payment until the terms of the SLAs are met.

Of course, the point of the article was how to go about designing the 3-part model. According to Alsbridge, you should use a top-down design that defines, in succession:

  1. vision and strategy
  2. design criteria
  3. operating model
  4. shared-services organization structure
  5. retained organization structure
  6. job descriptions
  7. role profiles

while simultaneously using a bottom-up design, guided by the governance council, to flesh out the organization structures and job descriptions – if you want to arrive at the proper model.

The article takes deep dives into each of these steps, starting with vision and design principles, for which it gives the following examples.

Vision
We will deliver a shared service organization that

  • increases the quality, efficiency, and speed of Procurement transaction services
  • improves reporting
  • delivers significant cost savings

Design Criteria

  1. organize to ensure flexibility and responsiveness to customer requirements
  2. minimize cost in delivering agreed service levels
  3. ensure clear roles and accountabilities
  4. structure to maximize work process effectiveness, quality, and excellence while exploiting economies of scale
  5. create a rewarding, challenging, and stimulating working environment

And, at this point, you realize that the article missed step 0, which I believe to be absolutely critical if you want to get it right.

Why are You Engaging a BPO?
Before you even start the process, you should have a good understanding of why you want to outsource part, most, or all of an internal function to a BPO. You need to understand what you are doing well, what you are not doing well, what could be done better, and why, and then figure out what tasks you plan to outsource and what tasks you plan to keep in house before you even begin the organizational design process. This is because the skill-sets need to do tactical procurement versus strategic supply-base identification versus contract negotiation are totally different and your organization design needs to reflect the tasks being done appropriately. How you plan to split up the work will affect your vision, your design principles, your criteria, your operating model, your shared-services organization structure, and your retained organization structure, because, let’s face it, sourcing and procurement is not like HR and Accounting.

IQ-based Navigation of Contingent Labour Sourcing

One of the subjects that is important to discuss from time to time on a sourcing blog is the subject of services sourcing. I’ve discussed the subject of Strategic Service Management a few times on this blog, along with the service management capabilities of Servigistics and Provade, but I’ve never dived into the subject of contingent labor force sourcing.

Although it may not be as universally applicable as the sourcing of marketing, print, and legal services, which every company needs, if you’re a call center, drop shipper, retailer, or seasonal manufacturer, for example, contingent labor services can be a very significant part of your budget. Furthermore, if left unchecked, these costs can not only soar out of control, but lead to significant losses through uncaught over-billing (and by the time you caught them in a properly executed spend-analysis project, it could be too late to get a refund if you’ve switched vendors).

That’s why, if you fall into one these categories, you really should have a good labor sourcing and management solution. One such solution that I would consider is the one offered by IQ Navigator.  I recently had a chance to walk through and discuss their SaaS-based services management solution in length, and while, like a few other offerings, it is flexible enough to handle multiple services category, it is particularly well suited to contingent labour force sourcing and management.

Contingent labor is a complex category. Sometimes you’re hiring by the hour, sometimes by the day, and sometimes by the week. Sometimes you’re hiring one person for a job, sometimes twenty. Each position has a different job description, and different requirements. And, each HR person usually has hundreds of jobs across dozens of positions across multiple locations to fill simultaneously in your typical multi-national. Furthermore, multiple documentation requirements, including resumes, need to be maintained for each potential resource.

IQ Navigator’s solution not only allows each job requisition to be customized by type, requirements, and process flow, but it supports the entire process from job definition, advertisement distribution to staffing agencies, resource resume review, resource selection, time and rate approval, project tracking, billing, matching against approved rates, and alerts if a resource comes close to their approved hours. It also supports job type templates, project and process templates, and calendar based definition of resource requirements. This last capability is well thought out and rather unique – it allows a supervisor to load up a single monthly-calendar based screen, and, for each job, specify how many resources are needed for each shift in that month. All the supervisor has to do is enter numbers – and the system enables the HR manager to take care of the rest – automating the distribution of the advertisement to staffing agencies, the collection of resumes, and the matching of experience and certifications against job requirements.

IQ Navigator’s product is also quite configurable. It supports the definition of projects with multiple statements of work (SOW), where each SOW has multiple deliverables, and every SOW can have different terms and rates, tied to a contract, which can be incorporated as a key field or as an attachment. It also allows mass approvals, which can be done by e-mail or mobile device by a busy manager in the field.

And it works. IQ Navigator has over 50 clients, including a couple dozen Global Fortune 500s, processes over 50,000 thousand contractors weekly, from over 4,700 staffing agencies in over 15 countries which represent over 3 Billion in spend under contract annually. Furthermore, over one quarter of spending by its global multi-national clients is outside of the US.

Consultants are Cheap!

Last month, over on the CNet blog, Steve Tobak posted a great entry on “when to hire a consultant”. However, instead of repeating all the reasons why you should hire a consultant, I want to echo his sentiment that too many executives still think that consultants are parasites that charge ridiculous rates, waste precious time, and present obvious conclusions when, in fact, good consultants can be the most cost effective business saviors you’ll ever have the good fortune to hire! But I’m not just going to do the traditional “soft-sell” and wave rhetoric. I’m going to put some hard numbers behind my justification of why hiring a consultant, even at thousands per day, is not only a great deal, but maybe even a better deal then what you get when you hire a senior director or vice president.

  1. A top performer demands a high salary.
    Usually 200K to 300K for a high-performer. Let’s say $250K.
  2. A top performer demands pricey benefits.
    Health insurance (10K+), life & disability insurance (5K), 401K matching (10K), and a performance bonus of at least 10% to 20% (25K to 50K) in a good year. This will cost you another 50K to 100K. Let’s be very conservative and say 50K .
  3. A top performer comes with overhead.
    First off, there’s all the standard overhead of maintaining the nice office, the telecommunications equipment, and the IT equipment. There’s also a share of an administrative assistant’s salary, a transportation budget, and a reasonable expense account. This could easily eat up 25K to 50K (or more). Let’s be moderate and say 30K.
  4. A top performer needs a decent vacation to recharge.
    Depending on how long this performer has been with the company, we’re probably talking 4 to 6 weeks. This is a hidden cost, as it means you’re only getting 46 to 48 weeks of work, at most.
  5. A top performer needs to keep his skills up to date, and this will require good training.
    You should allow at least two weeks for any employee. For a top performer, I’d highly recommend three or four weeks of training and education related activities. Let’s be conservative and say this person is an extremely fast learner and you can get away with two weeks. Now your top performer is only working 44 to 46 weeks, at most.
  6. Training costs money.
    Whether it’s courses, workshops, conferences, or self-study guides, expect to shell out for this. A couple of conferences and a couple of courses could easily run you 15K to 25K to keep your top performer at above average performance levels. We’ll be realistic and say 20K.
  7. There will be other costs that arise with respect to raises, promotions, recognition, and performance.
    However, since you can always make them next year’s budget problem, we’ll ignore them for simplicity.

This says that your 250K top performer, that you believe is only costing you approximately 1K a day is actually costing you over 1.6K a day in a conservative estimation, and possibly over 2.1K in reality. (350K to 450K+ over 220 days, vs 250K over 260 days)

Now, it’s still less than a consultant, but let’s not forget the following:

  • Your top-performer will have most of his or her time consumed with the tactical day-to-day operation of the business.
  • If your top-performer is struggling to complete two weeks a year of training or education related activities, he or she is not going to be up to date on new ideas, technologies, and movements within the marketplace.
  • If you’re starting to run into stiff competition or problems within your business, you can be too close to the problem to make good, objective decisions.
  • Even a top-performer can only be an expert on a handful of technologies, processes, or business functions. At least collectively, outsiders will always know more about the best way to run your business with today’s technology in today’s market than you do.
  • It’s an innovate-or-die marketplace out there today. And if we’re in a recession, that’s doubly true.

In comparison,

  • A consultant can focus purely on the strategic, and purely on the problems you need help with.
  • A consultant will spend a considerable portion of his or her time keeping up to date on new processes, technologies, and advancements. Their knowledge is there to be used.
  • A consultant can be much more objective. Furthermore, a consultant probably has a better comprehension of the state of the market you compete in than you do.
  • Even though, like any top performer, a consultant can only be an expert on a handful of technologies, processes, or business functions, you are free to pick the consultant with the skills you need to advance your business.
  • When a consultant puts in a day, a consultant puts in a day. Usually 10 to 12 hours, compared to the 9-5 with a 2 hour lunch an employee will often try to get away with when he or she can. Plus, a good consultant can’t stop thinking about your problem until she goes to sleep at night, and usually starts thinking about it the minute she wakes up.
  • Consultants live by the innovate-or-die mantra.
    and, most importantly,
  • When the project is over, you can cut the consultant loose without any additional cost. In contrast, it could easily cost you six figures to cut a top-performer loose. Furthermore, if you’re smart and do a short initial engagement with a new consultant before agreeing to a long term engagement, the loss associated with hiring the wrong consultant is next-to-nothing. In comparison, the loss associated with hiring the wrong person for a director or vice president job will be hundreds of thousands by the time you add up the losses with dismissing the current employee, finding a replacement, and getting that replacement up to speed.

So, given that a consultant can bring you the badly needed 1) expertise, 2) objectivity, 3) credibility, 4) leadership, and 5) time that you need to be successful, don’t balk at standard consulting day rates. It’s a bargain compared to the value they can bring, especially when you remember that it’s not tactical day-to-day operations that bring you substantial cost savings and new markets, but strategic improvements that consultants can bring with them.

Services Sustainability

Today I’m pleased to welcome John Martin of and Building SaaS.

Sustainability and social responsibility aren’t often associated with services purchasing, as most people tend to think of social responsibility in conjunction with the performance of manufacturing and resource extraction in lower-impact and more-sustainable ways. However, especially with the recent trend toward low-cost-country sourcing of services, the concept of “socially responsible outsourcing”, as one example, is taking root.

Companies buy services to utilize expertise they don’t have internally, to access a different talent pool (at an offshore location), to match their workforce to workload variability, or to take advantage of a supplier’s economies of scale or scope (though this is far less achievable or important for services than for most goods, as many outsourcing buyers have found out the hard way).

Most large companies use a large and growing group of external providers for a broad range of services, from thousands of temporary workers around the world to high-end consulting services. Services are inherently tied to the people that deliver them, and so the key sustainability concept for services is talent pool sustainability. To purchase services in a sustainable and responsible way, companies should adopt practices (and engage with suppliers who adopt practices) that don’t negatively impact the talent pool.

For example, a large employer in a cyclical business has been a significant employer in dozens of small towns for over 50 years. To ensure the development of a talent pool that can support their seasonal business long-term, they have several types of contingent workers such as long-term temps, temp-to-hire, day labor and seasonal part-time temps, each with different responsibility possibilities and education investments. Known as a preferred employer who invests in people long-term, they have worked with their staffing providers to ensure a sustainable talent pool for their highly seasonal business.

Engaging services responsibly is especially important for low-skill services and temporary workers, since they typically receive less training than employees, and hence are more easily left behind by shifts in technology or skill requirements. Responsible companies extend skill-development practices (via their suppliers or sometimes directly) into their contingent workforce. Wages, benefits, and training for temporary workers can often be directly controlled by buyers, and other “Labor Practices and Decent Work” guidelines of the Global Reporting Initiative can also be extended to services suppliers.

When working with services suppliers, some key metrics help demonstrate their commitment to a sustainable talent pool:

  • Staff Turnover: Turnover is the ultimate measure of good employment practices. The specific rate is highly industry-specific, however, so compare suppliers within the same service category.
  • Training Investment: Good training will result in higher productivity and lower turnover – both positive results for the buyer. While training investment is fairly easy to game, it’s still helpful to track it and the positive results that derive from it.
  • Pay Rate: Especially for lower-skill services, many buyers negotiate and track the actual pay rate to the individual worker, to ensure that the worker is getting not only correct pay, but sufficient pay. As a beneficial side-effect, this can also help ensure a sufficient quality level in the work force.

In short, work with suppliers who invest in their services delivery chain – their people.

Supplier development is also important, just as it is for goods. Some types of services that have more innovation are also sourced quite frequently (e.g., consulting engagements, legal services, marketing services), which allows finding and rewarding the innovators who deliver more value.

Part of working with responsible suppliers includes engaging them responsibly. Many services businesses are cash-flow businesses, required to pay their workers weekly, long before the terms of their invoice – so paying them on time can be even more important.

In short, sustainability in services revolves around sustaining and growing the talent pool, which requires responsibly engaging and working with services suppliers who engage in positive practices for their talent.

Is This The Year Austin Tetra Breaks Out?

Austin Tetra has been relatively silent since their acquisition by Equifax a little over a year ago. And it’s not because Equifax is in a hurry to dissolve the name (unlike D&B who appear to be trying to dissolve the Open Ratings brand as soon as possible), but because they want their new division to be well prepared with a solid offering for the B2B and B2C communities before they re-launch the service offering.

the doctor had a chance to catch up with the business leaders of Austin Tetra, Equifax’s commercial business unit, last month and it sounds like they have been making a lot of progress over the last year. They’ve been busy helping Equifax build a unique global identification system that will compete against the as-to-now relatively unchallenged DUNS # of D&B and Austin Tetra has been making good progress integrating the US, Latin America, European, and other global databases in Equifax’s arsenal into one universal database with one universal classification scheme – a task they expect to complete in the first part of this year.

They’ve also been making great strides in their service offering that pulls business and consumer data together for businesses that need to deal with small businesses on a regular basis and need to determine the risk, especially where the financial stability of the business often comes down to the financial stability of the owner. They can now, for a given small business, pull together the credit history of not only the business, but the owners as well and give you a combined risk or credit score where they have the data integrated.

They’ve also been making strides in compiling their supplier master and customer master databases where, for any given business, they can give you its performance history both as a supplier and as a buyer, as well as their employee master, where they can tell you how much the individual earned at his or her last job if his or her previous employer submitted information to the TALX database (another recent Equifax acquisition) – which has income, salary, and compensation information on approximately 150 M employees in the US.

They’ve also made great strides in their balanced scores, which aren’t just about diversity anymore. Their blended financial / risk scores now take all of the following information into account:

  • public filings (which they monitor and append regularly)
  • denied / debarred party tracking
  • blended score on individual & business credit history for small, private, businesses
  • customer credit risk based on past payment trends
  • diversity information
  • predictive supplier business failure score
    the chance of failure over the next 12 months using all available information

In addition, they’ve been extending their web services platform to make the data instantly available through customers’ current platforms and their current customers are now able to access all this data through multiple platforms that include Oracle, Siebel, and SAP.

In other words, now that they have the support of a 20B business behind them, they’ve been making great strides. However, given that they still believe in the “crawl-walk-run” philosophy when it comes to development and release cycles, they believe that it will likely be the middle of the year before everything is complete and tested (by current customers) to their liking, and hence likely the summer or fall before they attempt to make a big media splash. But that doesn’t mean that, if these are the types of solutions that you need, that you can’t start talking to, and evaluating, them now – or that, if these are the types of solutions that you might need down the road, you can’t keep a watchful eye out to see what they announce this year. Regardless of what happens, now that D&B is about to have a major competitor, I bet you’ll see a lot more innovation in this space over the next few years as the new contender in the space begins its fight for dominance – and that’s a good thing.