As a specialist in lean thinking, I naturally work with organisations that are keen to be more efficient and effective. They are looking to increase the gap between their costs and their income, generating an increase in profit. Naturally, ‘offshoring’ work to a national or international company that promises to process the work at a reduced cost can seem very appealing. However, John Seddon, a key thinker in the world of organisational improvement, has a saying “if you chase costs, costs go up”.
Let me explain. First, we have to be very careful about how we assess ‘cost’ in an organisation. John Darlington, a former colleague in the Lean Enterprise Research Centre, used to say that if you managed your home in the same way that most businesses are managed (through traditional cost accounting methods) no one would ever buy a new kitchen because the one off cost of such a purchase, when calculated over the course of 1 financial year, would be too expensive a transaction to justify. A conclusion would be drawn that it would be more ‘cost effective’ to order takeaway chips every night of the week. Traditional cost accounting would not take into account the fact that the kitchen would add value to the value of your home for the next 10 years, that it could possibly encourage the family to eat healthier by introducing an impressive new environment and that the new kitchen could enable the family to eat together, bringing them all closer together.
This analogy brought things into stark contrast for me. We have to be careful that decisions are not being made on simply a ‘lowest unit cost’ basis, because you can forget about the subtlety of a myriad of other ‘more difficult to quantify’ benefits of a product or service. The most important thing that businesses need to protect is their customer base. If they want to survive and grow, they should seek to grow this customer base, therefore any intervention which potentially damages that customer base is a disaster. And that’s sometimes what an insensitive, ill thought out, ‘decision made purely on cost’ business process outsourcing initiative can be.
Lean is a methodology which is obsessed with delivering increasing value to customers. One of the key ways it achieves this is by constantly seeking to reduce the lead time from customer order to delivery. By reducing this end to end time, capacity is freed up so that companies can do more i.e. they can grow, or they can do more for the customers they have. Another benefit is that being able to deliver things quickly pleases customers, and so they are often more loyal, tell their friends, and again, the business grows. Sometimes, an ineffective BPO decision fights against our pursuit of a quicker lead time, actually increasing the amount of end to end processing time.
A customer interacts with the primary business, the business then passes that transaction onto the BPO to process and then the work is returned back to the parent business and then back to the customer. If these transactions occur seamlessly and quickly and, most critically, accurately, then no problem. However, if there is a delay between each stage (travelling in the mail, or overnight data download, in a supervisor’s workload queue to be allocated etc. etc.) the customer begins to wait. If people are involved in every stage of the process, the more stages, the more the transaction is exposed to the opportunity for human error, reducing the probability of the work travelling through the system ‘right first time’.
When work is waiting, customers are waiting. They start ringing in trying to find out where their work is. If work is going wrong, customers start to complain. They start ringing in trying to correct what is wrong, becoming increasingly annoyed. John Seddon calls this work “failure demand”. It’s demand because every call or correspondence is ‘work’ that the company has to deal with. Often however, this work is the very type of work that has been outsourced. Perhaps outsourced to a country where English isn’t an operator’s first language and where workers have little control in designing a process that actually works. This situation can become a spiral of doom, customer satisfaction ever plummets and organisations wonder why their profits haven’t increased the way they expected and so perhaps again, seek to lower costs.
Many companies are wise to this problem now, even declaring on adverts that ‘their call centres are based in the UK’ because they understand how frustrating it can be for customers, trying to navigate processes that are complex, lengthy and don’t work.
Lean recognises the power of what we call “supply chain integration” and so a well thought out process involving partners who are all invested in delivering common goals, can be hugely powerful and profitable for all companies involved. What’s essential is that such BPO arrangements within these integrated supply chains seek to focus on increasing quality and reducing the end to end lead time: delivering simple solutions that work, rather than fragmented ‘cheap’ solutions, that don’t.