A Framework for Business Process Outsourcing Measurement Nari Kannan Organizations are attempting Business Process Outsourcing (BPO) at levels never seen before, primarily due to the widely advertised cost savings associated with moving them offshore. The outsourcing of business processes is not new. Insurance companies have been practicing outsourcing for about a couple of decades now, primarily to other companies within their country. What is new is the off-shoring of such business processes. Companies are spending billions of dollars on Business Process Outsourcing and off-shoring contracts. The first wave of advisory services addressed the legal aspects of such contracts but not the question of governing those processes in the long run. Companies are, as never before seen, spending large amounts of money on off-shoring, placing their valuable prospects and customers in the hands of companies, continents away. Very likely, they have lain off employees who have been performing these functions before, in-house. If these business processes are not executed according to expectations, the cost associated with change is enormous. The price of failure is very high. Bringing these processes back and rebuilding these teams from scratch is a very expensive proposition, not to talk about the jeopardy that faces the careers of the people who made those decisions. In our experience, we found that Business Process Outsourcing vendors have been much savvier about process governance issues than the buyers of such services. They have seen the necessity of proper governance of these processes, whether the buyer required them to, contractually or not. They know that if they do not execute these business processes properly, their revenues and even existence will suffer if the processes fail to live up to the expectations of the buyers. We found bits and pieces of process governance approaches that, when pieced together, formed a very sane framework for Business Process Outsourcing Measurement. This framework seems to represent a solid foundation for proper process governance. Our goals in this article are to present the following: The need for a disciplined approach to Business Process Outsourcing Measurement whether you are a buyer of such services or a vendor. What is bound to happen if this is ignored? Current practices that we found in use, both with buyers of such services as well as sellers. 1
A broad framework for setting up Business Process Measurement in the Outsourcing context. What are the dimensions of such a framework that will help you cover all bases, no matter what your organization is or what your set of business processes are? State of the art in implementation of such frameworks in practice. How do you go about implementing such a framework? What is a good phased approach to it? What are some of the process innovation and continuous process improvement opportunities that such a framework offers in the longer run? How would these help you become more efficient and effective than your competitors? Need for Business Process Outsourcing Measurement Business processes, whether they were core business processes like Loan Underwriting for a Bank or a Mortgage Loan Company or a non-core business process such as Accounts Payables in the case of most companies, need some kind of measurement in the context of outsourcing. How else would you evaluate the performance of the vendor if you are a buyer? If you are a vendor of these services, how else would you know whether or not you are meeting customers expectations? Technology in the form of digitization of paper documents, more powerful and inexpensive computing, larger and inexpensive storage, automated workflow and pervasive network bandwidth availability has enabled business processes to be executed in parts in multiple continents. When you call your Internet Service Provider it is not uncommon for your call to be answered in India and if necessary, transferred to probably a higher level of support in San Diego. If the customer is unhappy with the service that is provided how would you track down where the support process failed with the process outsourcing provider in India or the captive support center in San Diego? Increased fragmentation of internal processes among many parties makes measurement that much more urgent, crucial, and inevitable. With outsourcing, you may be placing your valuable customers or prospects in the hands of other organizations. How do you ensure that the people executing processes on your behalf share the same strategies and tactics as you do? You may have a policy of empowering your own employees to hand out a $100 credit for unhappy customers over the phone. How do you ensure that when this process is outsourced, the vendors also do this in a sane, considered and appropriate manner? Are they handing these credits out like candy or are they using this tool wisely and at the right time for the right customer situation? always drive behavior. If you measure phone agents by how short a time they spend on the phone with each customer, they will be having very short calls, whether the customer gets the service they need or not. How do you ensure a balance among many different competing metrics? Business Process Measurement in these cases becomes the art of balancing different metrics against each other. 2
Current Trends The need for process measurement was very evident when we interacted with both vendors and buyers of process outsourcing services. Companies that are outsourcing only one or two of their non-core business processes do not see this need as much as those that are already using multiple vendors for the same business process or outsourcing multiple processes. If they are using multiple vendors for the same business process what we found was that they do this to compare the performance of one vendor against another with the objective of diverting more business to the ones that meet their expectations consistently. When they are outsourcing multiple processes to different vendors they need to keep an eye on the performance of these processes. Vendors of business process outsourcing services often write a few metrics of each business process in the Service Level Agreements (SLAs). However, the SLAs usually cover only business process performance from the perspective of the buyer and does not help the vendor with a comprehensive enough set of measurements for employee evaluations or making sure that they are delivering outsourcing services properly whether the buyer asks them for such measurements or not! Many of them feel that many of these additional process metrics are useful for their internal purposes but sharing them with the buyer will only invite more micro management of the people who execute these business processes and so keep it an internal set of measurements! The Cost Savings argument espoused in Business Process outsourcing masks the fact that your competitors also are engaged in similar activity, wiping out any cost savings advantages you may have over them. More importantly, when business process outsourcing realizes immediate cost savings, not a lot of thought is put into measurement. However, cost savings or not, process performance issues arise sooner or later reinforcing the need for a disciplined approach to thinking about what metrics make sense and are important for any business process. A Framework for Business Process Outsourcing Measurement In our interactions with both buyers and vendors of outsourcing services we found a variety of approaches towards process measurement. However they all seem to strike the same notes no matter what they call the measurements internally. From this experience we have derived a framework that seems to cover all bases when it comes to measuring outsourced business processes. The broad classification that seems to work for type of organization seems to be one of People, Technology and Process metrics. You will also see that many metrics are very interrelated. Good or bad performance on one dictates good or bad performance on others. 3
Absenteeism People Training Turnover Business Process Outsourcing Technology Network Uptime System Uptime Application Uptime Qualitative Customer Satisfaction Survey Process Quantitative Effectiveness Sales Close Rate Sales Volume Average Handle Time Efficiency Average Wait Time Occupancy Per Hour Figure 1. A Framework for Business Process Outsourcing and Examples People Turnover in Call Centers in the U.S is estimated to be upwards of 30%. In other countries like India, the turnover with BPO vendors is at least 50% or above. So people issues affect the conduct of business processes to a great extent. So Personnel Turnover is a key metric that predicts the success or failure of your outsourced business process. Also, call centers engaged in business processes like phone-based help desks depend upon agents showing up on time and handling their processes. So Absenteeism is an important key metric. such as Average Waiting Time suffers if Absenteeism is high. Also if turnover is of concern, a constant stream of new recruits being trained is of great importance. Training metrics also become important in this case. People metrics tend to be more or less the same with minor variations depending upon the business process outsourced. However they are crucial for success of the outsourced effort in the long run, especially considering the high rates of personnel turnover in the U.S, U.K or offshore outsourcing destinations that have even higher rates. 4
Technology Technology metrics are also a key ingredient for good process governance. Almost always, technology integrating a company s systems with those of the outsourcing service provider is involved. Outsourcing service providers could be using the buyers internal systems through a browser or a dedicated network link interface. Many outsourced business processes involve scanning and digitization of paper documents that are manually processed at offshore destinations. In these cases, unless a seamless computing and communication is infrastructure is maintained at high levels of availability, business process execution will suffer. Outsourcing service providers could have their own systems, networks and applications for providing process services. Good examples of these might be outbound telemarketing services where the deliverables are qualified prospects and the service provider may invest in technology that is shared among many buyers of such services. Technology metrics such as System Uptime, Network Uptime and Application Uptime are all key technology metrics that need to be measured so that business processes can be executed without interruptions. If a customer calls and the outsourcing service provider is not able to access the CRM (Customer Relationship Management) system, your business process suffers. Technology metrics again are dependent upon how the business process outsourcing services are delivered. In many cases, the infrastructure of the outsourcing services buyer is used by accessing them remotely using a browser or access through a dedicated network. In those cases the responsibility for the technology metrics may lie with the IT groups of the BPO services buyer. They are worth keeping track of nevertheless, since almost all of BPO these days depends upon delivery over a network, whether they are a proprietary global network or the public internet, with or without dedicated high speed lines. Process Process are, by far, the most comprehensive set of metrics used in practice as we discovered. Each business process has its own set of metrics that are important to the Buyer as well as the vendor of these services. The perspectives of the buyers and vendors of BPO services regarding metrics is very interesting. To the BPO services buyer, overall high customer satisfaction is the end-goal of customer facing processes and other metrics are important but are subservient to the customer satisfaction goals. The BPO services vendor is interested in meeting and exceeding precisely those metrics that they are bound to meet contractually. Since many contracts include provisions for incentives and penalties for meeting and not meeting certain metrics, they are high on their agenda. However, many vendors go above and beyond these and keep track of other metrics that help them with internal agent performance evaluations as well as those that will help them make sure that the business process is executed properly whether they need to disclose these to their customers or not. They know that if these 5
metrics are not met consistently the entire contract may be in jeopardy sooner or later, whether the buyer needs reporting on them on not. A broad classification of Process is one of Qualitative and Quantitative. Qualitative metrics may deal with customer satisfaction issues and are determined usually by the BPO services buyer themselves using customer satisfaction surveys. This is usually the case, in case the processes are customer facing. In non-customer facing processes like Financial Accounts finalization, qualitative metrics may be linked to an assessment of how well the services were provided. Quantitative broadly deal with Efficiency and Effectiveness. Efficiency usually deal with time-related aspects of a business process Average Handle Time and Average Hold Time are good examples of efficiency metrics that deal with telephone support. Efficiency metrics may also be like Number of Loan Cases handled per hour, Number of Claims handled per hour, etc. Effectiveness deal with outcomes of business processes such as those that involve outbound or inbound selling. Percentage of outbound calls that resulted in a sale is a good effectiveness metric example. In our experience, we found Process only to be a handful in most cases but highly relevant to the business process in question. Many of the process metrics were also Currency Denominated such as Invalid Credits Issued, Improper Claim Items Allowed, etc. These effectiveness metrics directly impact the bottom line performance of business processes such as Credit Card Issues Handling, Insurance Claims Handling, etc. Upstream Vs. Downstream In real-life, business processes are hardly stand-alone. Outsourced processes invariably may have upstream processes whose outputs become inputs to the outsourced ones. For example, if you are outsourcing the payroll function to an external organization, printing of payroll checks depends upon someone feeding the necessary inputs to that organization, every pay period. In the case of the payroll process, the inputs may be vacation time taken by personnel and attendance information. 6
Figure 2. Inputs, Processing and Output for Upstream and Downstream Processes. The outputs of the outsourced process may again be the inputs to a business process within the company. If the payroll function is outsourced, the payroll numbers handled every pay period need to be fed back to the accounting and finance function that may not be outsourced. Recognition of upstream and downstream relationships between outsourced and non-outsourced processes becomes very crucial in measurement of outsourced business processes. When measuring the efficiency and effectiveness of any business process, outputs and inputs from other business processes, upstream or downstream may need to be considered for proper governance. Implementation of Framework of Business Process Outsourcing In our experience, implementation of monitoring and analysis of metrics in BPO really varies whether one is a vendor or a buyer. Buyers of BPO services concentrated for the most part, on the contractual details, risk reduction strategies and legal issues related to outsourcing. These contracts included some level of Service Level Agreement (SLA) metrics and for the most part, BPO vendors submitted weekly or monthly reports on the performance of the business process. 7
However, what we found was that many BPO vendors monitored and analyzed many more metrics than they shared with their customers. They usually went beyond the contractual SLA metrics but monitored and analyzed a lot more Process metrics. These are necessary for them to measure their own people for performance evaluation purposes. BPO vendors monitor some other metrics since they think they are necessary for the continued excellent performance of the process. These metrics may not be reported to the BPO buyer but never the less, monitored and analyzed, since the vendors know that if they do not govern these processes well, the contracts may be cancelled, notwithstanding excellent performance on the SLAs that the buyer identified and mentioned in the contract. A suggested implementation road map for BPO that could be effective consists of the following steps, whether it is a BPO vendor or a buyer: Identify and Document For each business process outsourced, identify key Process, People and Technology using the framework discussed in the previous sections. The framework will ensure that the set of metrics identified is comprehensive and addresses all aspects of the business process and its execution. Identify Key Inputs, Processing and Output - When identifying metrics it may be important to identify metrics that measure the inputs to the outsourced process. If the outsourced process is not performing up to expectations, this will help assign responsibility to the correct process, in-house or outsourced. Prioritize Process, People and Technology Prioritizing Process, People and Technology metrics helps in striking the balance between the utility of the metrics monitored versus the effort, time and money expended on instituting the monitoring and analysis. Determine Monitoring and Analysis Periodicity Prioritizing the metrics also helps in setting how often reports for each of the metrics are generated High priority ones may be monitored weekly, while lower priority ones may be monitored monthly, for example. Assign Responsibility and Implement Reporting Responsibility for measuring customer satisfaction metrics usually rests with BPO buyers while the responsibility for the others may rest with the BPO vendors. If possible, web-based and internet reporting helps overcome time lags in reporting. 8
Planning for Continuous Process Improvement and Process Innovation Process monitoring and analysis over a sustained period of time affords a number of opportunities to put in, process innovation and continuous process improvement efforts. Continuous Process Improvement Continuous Process Improvement focuses on picking one or more metrics about a process and targets them for improvement. These could be qualitative or quantitative metrics. Analysis of process performance over a reasonably long period of time could point to issues in capacity, agent training or the need for improved software or computing systems for agents to perform the business process better. Process Innovation Process innovation goes farther than continuous process improvement in that it tries to shorten or eliminate entire steps in a process or radically alter the way a business process is executed. Process Innovation is aided by collecting the metrics about a process for a sustained period of time like 6 months to a year and asking the question why? for each and every step in the process. Conclusions Business Process Outsourcing promises cost savings, especially with off-shoring, and use of shared resources and resulting efficiencies, if not. However, only process governance using an appropriate set of metrics will ensure that the benefits of such outsourcing are fully realized. More importantly process metrics provide an excellent way to manage the risk with outsourcing business processes. A systematic approach with a framework of metrics enables organizations to select the right metrics and implement proper monitoring and analysis of business processes. Sustained collection of process metrics enables process innovation and continuous improvement. Outsourcing and off-shoring are risky ventures that promise a lot of benefits to organizations. These benefits may be quickly lost if the right performance measures for each business process are not chosen wisely, and then measured and analyzed. The cost of BPO failure is very high both to the organizations as well as individuals who make the decisions to outsource or offshore their business processes. The Business Process Outsourcing Measurement framework offers a disciplined approach to risk reduction. Nari Kannan is CEO of Ajira, a company that designs and develops Service Process Management Tools. He can be reached at nkannan@ajira.com. 9