Posts tagged outsourcing

Internal Service Providers vs External Service Providers

Business Consulting Meandering Genius Process Improvement July 16, 2015 1 Comment

Here is a situation that keeps repeating itself everywhere I turn: internal vs external services.

When I am talking about service providers, I mean the activities that help the company run, but add no value to the product the customer buys. Things like HR, IT, Facilities Management, Finance, etc. There is a specific situation that plays itself out over-and-over again with these internal organizations.

A service–let’s use the example of payroll–is needed to pay employees of the company. When the company is starting out, employees are simply paid by the president or another random person working in the company. As the company grows, the workload increases and an office manager is hired to take care of these things. Over time an HR department is stood up with several related functions, payroll just being one of them.

Then, the company really starts to focus on their margin. Competition has stood up and offering the same cool ideas and the company needs to figure out how to cut costs to keep their prices down. The days of being the fat, dumb, and happy big kid on the block are gone. Normally cuts come from the services that support the company–places like HR. After all, they are non-value added in a lean environment, right and these people have been with the company for several years and now make pretty good salaries. Basically, they are a drain, and we need to keep them to a minimum.

Oh, the plight of the service organization…can’t live without em, but don’t want to pay them.

Because they are lean and mean (and maybe mad), the services that they always provided to the company start to get harder to accomplish. The company is growing, but their office is not. The results of their work suffer and it takes longer for them to do stuff. The company (internal customers) starts to get frustrated with the poor service. In some cases the company has become so big that no one even knows how this service is even done or who does it.

In order to keep up, the payroll service starts creating self-service capabilities to ease their workload. Essentially they start outsourcing what they do to the customer. They sell this as a positive thing, but it adds time and complexity to the employee and removes the level of expertise that the service was hired for. Imagine the frustration that is setting in.

Next, the internal customer, frustrated with long waits, lack of and poor service, and having to do many things themselves, decides to take matters in its own hands. The thing is, now the company is so big, that everyone has their own budget and can do what they want. So, factions of the company hire their own payroll person or even department. Of course this person doesn’t do everything but they start taking on the roles that the official department should be doing, but isn’t being very effective at. At first, the original payroll department doesn’t have a problem with this…good for them. But then people start questioning what they do, versus what this new person is doing and why are they even needed?

Next step, the payroll department figures out that payroll is their job and demand that the people doing the work in the company all work under the same department. There is a big effort to consolidate all these new positions paid for by the internal customers and the payroll department becomes big enough to handle the workload again. The problem is, these employees are now part of the payroll department and service everyone under the same flawed systems that was causing the problem in the first place. Internal customers quickly get upset because they lost their personalized service and the company decides, in its annual planning activity, that the payroll department is a good place to cut staff because it has become “too big.”

Again, the frustration sets in, and the next thing you know ABC Payroll Services, an outsourced payroll service, finds its way into the company. It might be a small engagement at first. In some cases, the payroll department itself might outsource non-core, busy-work functions to them. The thing is, they specialize in payroll, do it for many companies, and have cheaper labor that less benefits. Suddenly everyone is questioning the value (i.e., cost and ROI) the payroll department brings when this new and very efficient and effective service provider is doing such a good job for very little money.

To save money, the payroll executive decides to quietly outsource their whole department, saving a job for themselves to “oversee” the activity.

Are you an internal service provider to a company? What value do you bring to your company? Have you outsourced yourselves through customer self service? Are you already challenged by someone else doing part of your work?

This story is played out over-and-over again with every type of service in companies. There are ways to combat this, but many do not see them. Consider the situation above and what the service provider could do to make sure this doesn’t happen.

Application of Scenario Planning in Strategic Planning

Strategic Planning Think Big March 8, 2014 3 Comments

Strategic planning, as a structured and systematic process, is successful when it is leader-led and overcomes the five reasons 70% of all strategies fail. Learn how to see your plan through to success. The strategic planning process is where leaders of an organization establish the vision of the organization’s future and then develop and implement the actions necessary to achieve that future. This article expands on the strategic planning concepts addressed in Think Big, Take Small Steps and is designed to help you achieve success in your strategic planning process.

How Using Various Scenarios in Building Your Strategic Plan Helps.

“What-ifing” your current strategy or your strategic thoughts are a great ways to look for holes in your current strategy or the strategy you’re building–or both. I often use scenario planning–also referred to as “war gaming”–to get leaders to examine before they decide. It’s kind of like taking the strategy out for a test drive without putting a lot of miles on it before you buy it.

Why…

Strategic planning, more than anything else, is positioning yourself strategically to take advantage of a predicted or possible turn of events. It’s more about preparing a company for the future versus putting something in place. Today, your organization has constraints that prevent it from achieving its vision and these need to be overcome, but many of these constraints might not exist today. Scenario planning allows you to recognize threats (even the invisible ones) as opportunities and be strategically prepared to adapt to them if they occur, while still moving steadily toward your vision.

When an organization has a solid strategic direction and is moving in that manner, things may appear to occur happenstance. However, in reality, the organization is preparing for opportunity to knock and they’re opening the door quickly to it. Without an effective strategy, the door will open and you’ll be unprepared. The door will open one way or another.

Some organizations, especially extremely large ones might have elaborate war games designed that really help executives envision the future. I recommend these being designed by firms that specialize in this type of activity. For smaller organizations, or ones that are really new to strategic planning, this blog can really help design effective scenarios that help build solid strategic plans.

Scenario Planning–the “planning part”–is done at the tail end of the Organizational Assessment. The application of this tool is actually in the strategic planning session that I will talk about in the coming weeks. There are two ways that I apply scenario planning and it’s based on the organization (note: I don’t always use scenario planning). The two situations are as follows:

The organization doesn’t have a true strategic plan at this point.
The organization you’re working with is pretty new to the concept of planning. They might have a mission and vision that they’ve come up with, but there really was little thought behind it and that’s about as far as they’ve come. In this case, I normally use scenario planning to help them think strategically about the opportunities and threats they face as an organization. Obviously I pull this information from their Robust SWOT Assessment that I talked about last week. This is more along the lines of a “what if” analysis (i.e., If this were to happen, what would you have to do about it). This tests their current environment and helps them think through organizational gaps and what would need to be done about them.

The organization already has a defined strategic plan.
You may be working with an organization that has taken some time, or a lot of time, to examine and develop their strategy. If I’m coming back a year or so later to help examine the organization’s strategic plan that I helped build and then update it, I use scenario planning to validate their current mission, vision, and goals, based on the Robust SWOT Assessment. In this realm, it’s focused on answering, “Does what we have today hold true in these possible future states,” versus, “What do we do about it?” The goal is to ensure that the key aspects of mission, vision, and goals for the organization are still valid and lasting, even if something strange, yet possible happens.

So, let’s talk about what scenarios look like and what they don’t look like. First and foremost, we’re not talking about some fantastic and non-plausible what-if scenario like extraterrestrials beaming into the lobby to say hello. Scenarios have to based in a possible and plausible reality, but isn’t happening today. They can be both positive or negative and in many ways, even positive scenarios can be a risk to a company that isn’t strategically prepared.

When doing scenario planning, try to come up with five ideas and then get the leader of the organization to whittle them down to three. Three fit nicely on one PowerPoint slide and three can effectively cover what you need leaders to think about. The purpose of the scenario planning activity is to drive discussion around whether the organization is prepared and/or if the current strategy needs to evolve. The actual scenarios should come from the organizational assessment and specifically the SWOT. Following are some ideas and examples of potential scenarios:

Natural Disaster. I worked with a housing privatization program that was providing long-term leases to developers to build and provide back housing to military. Part of their program involved a “lock box” that set aside monies for upgrades and improvements. Several of these privatized communities existed along coastal areas that could be susceptible to a natural disasters, like a hurricane. The threat of this occurrence had been mentioned more than once in interviews, so I had the leadership discuss how truly prepared they were for another Katrina-like hurricane, which significantly damaged several communities at once. It allowed them to examine their risk mitigation structure, their lock box strategy, and evolve their approach as a result of their strategic plan.
Government Interaction. Most (if not all) organizations are impacted by government regulations and more and more these cause challenges for companies. Specifically, financial and environmental regulations can challenge the status quo of any company. Those that are normally impacted, are adequately dealing with the “now.” In scenario planning, you could consider throwing in a government regulation curve ball that really changes the operational landscape and see if they are prepared for these types of changes.
Growth or Decline. Often we think commiserate over the potential quick loss of customers and market share, but quick growth can be just as difficult for an unprepared organization, even though it might seem like a good thing. Unpredicted growth and decline scenarios make the leadership think about how they will deal with this possibility and if they have the right strategies in place. Of course, I make these scenarios as realistic as possible, based on what I have learned in the assessment.
Budgetary Constraints. Every organization deals with budget issues, especially if you’re working as a subset of a bigger organization. A perfect storm example would be the result of the Troubled Asset Relief Program (TARP) and the Affordable Care Act (ACA) on government budgets. Organizations that didn’t strategically plan for this, say four years ago, now are being caught unprepared as things like sequestration and government shut downs occur. Those that looked at their crystal balls four years ago could have been planning to absorb the potential funding impacts through strategic positioning and planning.
Mergers and Acquisitions. I don’t care how good or bad your company is doing, this can almost always be a threat. If you’re part of a bigger organization and there is redundancy, then the threat can be very real. In today’s world, if I were working with say a governmental support service organization, I would definitely be examining the possibility of all military and government support services merging into one organization. This happened with the Defense Finance and Accounting Service (DFAS) back in 1991. With today’s push to downsize and cut, these types of mergers are very likely. Basically, if your operations has any redundancy or is aligned with another part of an organizational process, consider yourself at risk and scenarios can really help leadership think through the threat and possibly turn it into an opportunity.
Employee Turnover. An increase in employee turnover because of a lack of engagement or due to a highly tenured staff, will always impact an organization. If you are at threat because of these factors, things like single points of failure become a significant threat. If you have poorly documented knowledge, then training will be an issue. Aggressive hiring with a quick turn over can be costly and really slow operations. Obversely, an organization that experiences high turnover and suddenly sees a drop, can experience different issues.
Sourcing Decisions. What you do today might be ripe for outsourcing, or you may have all your outsourcing eggs in one basket. These types of threats are much more prevalent today than ever. Also, you may have outsourced too much and your culture and focus on the customer is starting to slip. All of these things can lead to some pretty interesting leadership discussions.

As you can see, there are many things that you could discuss as long as you have done your organizational assessment homework. Just coming up with fantastic scenarios without understanding the current situation won’t really be helpful to leaders. These were simply examples of ones that I’ve used before–there are many other possibilities.

One of the important and difficult things about scenario planning is that it will probably make leadership uncomfortable. You’re probably highlighting a risk that they would rather ignore. Good strategic plans put all the issues on the table and require intestinal fortitude of leaders to openly examine and prepare. This tool helps them make the harder decisions.

The bottom line to scenario planning is that it is a tool for the organization to prove or disprove their current state and then decide what to do about it. I present it for discussion near the front part of the strategic planning session, but I build it here in the organizational assessment phase.

So, 70% of all plans fail to some level; however, by following these guidelines you can help ensure your strategic plan will be one of the 30% successes that everyone reads about.

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Skill requirements for today’s workplace

Meandering Genius February 28, 2014 1 Comment

Information Technology skills have been in high demand over the past ten to fifteen years and countries like India have capitalized on this, leveraging their people’s desire to grow and their low labor rate.

IT will remain a high demand field into the future, especially with app development and miniaturization of electronics to get everything to the wearable market.

However, IT is a commodity today and the market of IT professionals has become over saturated with available talent, especially with business process outsourcing companies literally knocking down your door to get at your work.

This issue really pressures employees today, especially the Baby Boomers and Gen Xers, to fear daily for the job their doing today and future prospects. Let’s face it, almost anything repetitive is at risk of both outsourcing and automating. And, both options are cheaper and normally improve the service.

So, today, what are the things that are much more difficult to outsource and automate?

That would be Analysis and Problem Solving.

To gain a competitive edge in today’s job market, whether you’re in IT or not, is to build skills in data analysis and problem solving. IT systems can evaluate large pieces of data, if it’s structured, and data can be reported in predetermined manners, but the employee of today can truly demonstrate value if they have the skills of analysis and problem solving.

Additionally, these aren’t overly obscure skills for employees to learn that you have to earn through a degree or spend hours going to training. With a little bit of education, and a fair amount of common sense, you can apply these skills.

Also, these are the type of skills you can apply today in the job you’re doing. You don’t need to find a job somewhere that fits these skills…every job today needs these skills and often we outsource the job because it lacks these two capabilities.

So let’s look at these two items:

Analysis. If you haven’t heard the words Bid Data by now, you’re living under a rock. Companies today aren’t looking at just one piece of data to make decisions anymore, they are tying together everything they have in their company and whatever they can get their hands on to make much more informed decisions.

I’m not proposing you become a big data wizard…that is a specialized capability, although I think that is the new frontier in business. What we lack in most companies is armies of workers who can analyze the data they have in front of them every day.

This means they understand one of the most basic of tools most people have–pen and paper–and can organize and collect the right information to start to make decision. Additionally, workers today don’t need to know any in depth data analysis tools like Minitab that your local process improvement expert uses, but the everyday Microsoft Excel program is your powerful weapon in this new normal.

To properly analyze data, all employees today need to have a small, but effective tool bag to work from. They need to know things like affinity and tree diagramming…sounds difficult, but it’s a simple skills. This works well with data, information, and ideas. Additionally, there are seven basic charts that every employee needs to be able to create, read, and understand: bar chart, line chart, histogram, Pareto chart, control chart, box plot, and radar or spider chart. The Pareto chart is a type of histogram that combines both bar and line charts together. Pareto, box plot, and radar charts allow you to compare data for deep analysis. Control charts are much more powerful line charts. Along with this skill, you need to learn the anatomy of charts and how to use multiple axis’ to analyze and report data.

Lastly in the analysis realm, the employee of today’s workplace needs to know root cause analysis. It’s one thing to be able to review and report data, but to truly use data to dig to the root cause is powerful.

Problem Solving. The start of problem solving is problem identification. Being able to even see that you have a problem is the first step in problem solving.

Problem solving, to be effective, must follow a repeatable process. There are many problem solving approaches that people can learn, but understanding the core of PDCA is pretty powerful. Once you understand how all–and I do mean all–repeatable methodologies are based on PDCA, you’ll have cracked the base code on the problem solving system.

Another key component to problem solving, which is in line with following a problem solving approach, is to be able to establish and follow a project. A project is a series of steps that have a beginning and an end. Effective and efficient problem solving works best when performed in a project. Once you can think in project speak, you can plan out how you will solve any and every problem and you’ll be able to tell anyone how long it will take and where you are in the process of solving the problem.

The biggest key to problem solving is being able to define the problem and the goal, without trying to solve the problem up front. Many of us think that we are really good problem solvers, because we jump into a problem once identified and immediately put a fix in place. I’m here to ell you that you are part of the problem. Learning true data-driven problem solving and applying it, is a skill. Fighting fires is not.

These two skills of analysis and problem solving are key in today’s workplace and they are also very absent! Both compliment each other and they are fairly easy to learn. Mastery is another thing, but with time everyone can get there. Be a data-driven problem solver and you’ll never fear again the threat of outsourcing and automation. You’ll have a skill set that you can apply in any job anywhere.

I am going to start a weekend blog much like my Think Big, Take Small Steps, weekly blog to focus on this topic. I will walk through both of these skills and feature a specific approach or tool. I plan to post this blog every Sunday and apply graphics and screen shots to help with the understanding. Follow my blog to keep up with the story.

Is outsourcing destroying your culture?

Meandering Genius Organizational Commitment February 25, 2014

Tell me again why you are outsourcing your work? Oh, yea, it’s cheaper. But what are you losing?

Over the years many US businesses and the US Government have been outsourcing their work. This outsourcing comes with a cost…

Businesses outsource for one or more of the following reasons:

1. Capacity: They cannot hire anymore employees because of the color or money, because of lack of space, or because of the limited duration of the work, but they need more capacity to get the current or future expected work done. Outsourcing provides scalability.

2. Capability: They lack a specific skill set within their current pool of employees, like strategic planners, process improvement experts, education and training, scientists, project managers, etc. This requirement, although normally needed for the long term, is often sourced for short term engagements. Normally these people come in to provide a service, but the business can’t afford what they really need so they tend to accomplish much less than desired or required.

3. Cost: It is cheaper to outsource work to a third party on shore, near shore, or off shore. Why, because they turn the process that you have seasoned and higher-paid employees doing into a manufacturing-like process with high turn-over potential because of a low pay. These companies operate on a margin that is extremely tight, so they are focused on leaning out the work as much as possible. This is seen as efficient, but doesn’t always end up as effective.

4. Not Core: Sometimes, an organization wants to focus on only the core work that their company does and turn to experts in the non-core space. For instance, accounts payable is something that every company has to deal with, but a single company can only be so good at it. A third party that specializes in accounts payable work; however, does this for many companies so they have expertise in this work and know all the industry-leading and innovative approaches to the work. Outsourcing to them allows the organization to focus on their products and services versus some other common process across businesses.

So, as you can see outsourcing has valid and perceived lucrative reasons. However, what is the one thing that you’re outsourcing when you turn over work that will never exist in this line of work again?

Your Culture.

Let’s say your company today is all internal employees. Everyone of them is working’ theoretically for the benefit of the company and specifically for your customers. They are, hopefully, focused on your mission and vision and delivering value that your customer expects.

Outsource that…

You will not get a third party to buy into your mission and vision. They won’t connect with your customer. They have their own mission–normally it’s to provide whatever services you desire because they can always hire more people when you can. Their vision is to get bigger off of your work and the work of others. Their customer is you and every other company that has outsourced to them…not your customer!

Yes, there are benefits to outsourcing–especially short term benefits–and the reasons can be valid and strong. However, every employee or potential employee that you replace is one that could be focused on delivering on your mission, meeting your vision, and connecting with your customer.

Even if your employees today are not doing those three things, that can be fixed. It takes leadership to drive those behaviors, but you can still get that from your employees. Outsource them and you’ll never get that from the third party.

Outsourcing is a short term solution with long term effects. Beware!