After 20 years of working in the outsourcing industry both as a client, vendor and now adviser I've seen some weird, wonderful and downright crazy approaches to managing outsourcer performance.
It's understandable though, you've spent years of blood, sweat and tears getting your business performance to the right place. You're efficient, you're effective and most importantly your customers like you and you're making profit. It's your baby and you're not about to let some outsourcer reverse all of your hard work!
So what do you do?
Well you design a "balanced" scorecard and you measure everything. There will be no hiding place for corner cutting or pockets of poor performance lurking in a dark corner somewhere. You will have your finger on the pulse and have an iron fisted grip on performance through cutting edge real-time business intelligence. Everyone keep calm, it's going to be fine!
This sounds far fetched and exaggerated but not only have I done that very thing in my early days as an outsource vendor manager, I've seen really senior leaders who I have great respect for in very large global organisations approach outsourcing performance management this way more times than I care to remember.
But does it work? Hell no! it never goes well.
The client vendor manager insists on a laundry list of contractual KPIs and measures running into double digits (I think the record I've ever seen is around 64 KPI metrics) and then the outsource vendor spends a year trying to get the data from the client (as its generally the client tech stack that the data comes from) and then pulls it into a set of overly complex dashboards that Carol Vorderman would struggle to decipher.
There are constant debates over the accuracy of the data and eventually faith is lost in it all together and the performance of the entire contract becomes a matter of opinion rather than fact. This raises emotions and erodes trust and ultimately the outsourcing relationship starts to break down.
At best, the outcome is that common sense prevails and a joined up approach to developing a realistic scorecard is initiated, or at worst, its the beginning of the end for that outsourced partnership.
There has to be a better way!
The reality is that there is no perfect out-of-the-box solution or there would be no need for outsourcing advisers like BPM Advice. There is however a few best practice behaviours you can adopt to prevent the scenario above and get to a fair and equitable scorecard. That will result in your outsource partner spending more time maintaining and improving the performance you worked so hard to achieve instead of being stuck in "Analysis Paralysis" while that performance slowly descends into mediocrity.
Trust - You probably began outsourcing for two reasons; to reduce cost and to let the experts run your operations so you could focus your team on your strategic imperatives rather than the tactical day to day delivery. You have to trust your outsource partner to deliver the goods to the standard and with the pride you would have if you were doing to yourself. You don't appoint a lawyer and then check on their legal advice or question the bookkeeping of your accountant so why would you feel the need to measure every aspect of your outsource provider? Outsourcing means you have to let go of some level of control so your partner can take it to the next level. It's tough but it starts with you.
KISS - Keep It Simple Stupid! If you need to measure 29 things to know if your operations are performing, you have bigger problems than your outsourcer scorecard. Limit yourself to no more than 5 performance metrics that will let you see the areas that really matter.
Set It, Then Forget It - The key to measuring performance is to look at trends that develop over months, quarters or even years. Every time you change a metric or the formula for measuring it, you lose that super valuable historic performance trend.
Lead Not Lag Indicators - Try to make your KPIs reflect the things that will result in success or danger for your business moving forward. A really simple example of that is instead of measuring how many calls you answered, measure how many of the calls you received were repeat callers as this indicates a broken process and an opportunity to improve your customer experience.
Share The Risk & The Love - If your operational performance is not where it should be, your outsource partner should share the pain through poor performance penalties (often referred to as service credits). These shouldn't be punitive or used divisively but should keep your partner motivated. On the converse, if your partner is knocking it out of the park and exceeding your expectations, reward them with a bonus. This is easy to structure contractually and motivates your outsource partner to outperform in order to increase their profits. Remember, they have a business to run too!
So what does BPM Advice recommend as the ultimate outsource scorecard?
We'll use contact centre outsourcing for this example as that's the most common kind of outsourcing for our clients but this could easily be adapted to any kind of outsourcing agreement.
Firstly we're going to go with 5 KPIs and rather than pick specific metrics, we're going to create 5 performance categories:
Efficiency - This could also be described as productivity and encapsulates how efficient the service is including how hard and smart people work, how much leakage and wastage is eliminated, how much automation exists and how customer demand caused by process failures is reduced.
Customer Experience - Did the customers enquiry get resolved in the most efficient and positive manner? Will they continue to be a customer and did they become more loyal to me as a result of the interaction?
Compliance- Are we acting responsibly and with integrity? Are we meeting all of our regulatory and legal commitments? Are we being fair and supportive to our customers? Are we simply doing the right thing?
Growth - Did we increase the lifetime value of the customer? Did the customer become more "Sticky" and more loyal to our brand? Will the customer be an ambassador for us and recommend people buy our products? Did we generate more profit or revenue as a result of this interaction?
Transformation - Did we improve or fix any of our processes? Did we eliminate non value adding activity? Did we innovate to give us a leading edge on our competitors? Did we add value?
So we've come up with our categories, we can now allocate a metric or formula to measure it. For example NPS is often (perhaps overly) used for Customer Experience or Percentage Of Repeat Calls as Efficiency. Cross sell or Upsell Conversion can be used for Growth and Annual Contacts per Customer can be used for Transformation.
The point is that by having categories instead of metrics, you can change the metric if you need to without losing the historic tracking of the category. I prefer to measure every category as a Percentage Of Target Achieved to keep absolute consistency and historic trending. A simple example of that would be if you were measuring Sales Conversion against the number of calls received and the target was, 3%. If your performance was 3.5% for the month, the Growth category would have achieved 117% of target (3.5% performance divided by 3% target). By measuring all of your categories this way, it's easy to see how each area is doing but more importantly, it's possible to see an overall balanced performance by taking the average percentage across all categories. .
The next thing is to allocate a weighting to each category. Businesses change and what is mission critical today can fall into second place to something else tomorrow. There is likely to always be flavour of the month or an edict from the board that shifts focus. By allocating percentage weightings to each category, you can shift focus without changing your scorecard.
Lets use a practical example. You start your scorecard with an equal weighting of 20% to each of the 5 categories as at the point of creation, everything is equally important. A year later the regulator is having a crackdown on companies who are not following the rules and your annual sales value was down for the previous year. You need to put extra focus on compliance and increase your customer base. Using the KPI weighting principal, that's easy. You simply raise a change request to amend the scorecard weighting as follows:
Efficiency 15%
Customer Experience 20%
Compliance 30%
Growth 25%
Transformation 10%
Without changing a signal KPI you send a clear and effective message to your outsource partner to place more focus on Compliance and Growth and reduce the pressure on driving Efficiencies and Transformation for the current period. Your monthly service penalties and reward payments are also adjusted to reflect the new weighting to provide additional motivation to your operational leaders.
So now we have a truly "balanced" scorecard with 5 categories and metrics, a focussed weighting mechanism and a "Risk & Reward" commercial incentive program to keep everybody focussed. All that's left to do is setup the governance and review process.
I'm a firm believer in not looking at metrics on a daily basis, especially in contact centres. Way too much happens to sway performance on any given day to make it a good use of time. A transport issue, seasonal effects, public holidays, even the weather can affect the daily stats! Rather look at month to date compared to the previous month and the same month of the previous year. Look at the trend over the last 3, 6 and 12 months and the year on year performance. Operational performance reviews should happen monthly and use trended data that has been consistently applied. Monthly Business Reviews should be performance focussed and based on fact not feeling, if the numbers are accurate, the performance speaks for itself.
The Quarterly Business Reviews should have more of a strategic focus and should avoid anything more than a quarterly snapshot of performance metrics lasting no more than 10 minutes. The rest of the time should be spent on strategic direction, looking forward and identifying opportunities for your outsource partner to add more value to your business. If your QBR is primary performance based, either things are going badly or you're forgetting rule number 1; Trust your outsource partner!
Based on our experience, we firmly believe that this approach to outsource performance measurement and management drives tangible value and results. It takes effort and trust to build, but the rewards outweigh the effort by a factor of 100.
Are you struggling to get to implement an effective performance management framework with your outsource partners? Are you considering outsourcing your operations but worried about performance? Is your outsourced operation going badly despite implementing performance management scorecards?
If the answer to any of those questions is Yes, then we can definitely provide independent and impartial advice to unlock the benefits of outsourcing for your company. Why not reach out to BPM Advice today for a free and without obligation discussion on how we might be able to help.