Tag Archives: Outsourcing

The Real Core Competency to Drive Performance

Good service costs lessI still hear a lot about core competency and outsourcing what you are not competent at in your government and business.  There are certainly advantages and disadvantages to such thinking, but what is often missed is the end-to-end system.

Bill recently purchased a music mixer for his band .  Bill had not used a mixer before, but felt that he could learn from friends and YouTube videos.  He purchased a mixer from a distributor of the product manufacturer.  He had difficulty in following the instructions provided with the mixer for set up.  He went to get some help from the outsourced contact center and upon calling the contact center he discovered that they knew less than him.  In fact, Bill frustrated with the support returned the mixer believing there was something wrong with the unit.  He agreed to return the mixer for a replacement unit.  Bill enlisted the help of friends to follow the instructions and discovered that the instructions for set-up were incomplete, but the unit itself was fine.

I have listened to similar stories in every industry.  Product manufacturer outsources there service to a “competent” service provider.  Only to discover that they can pick up the phone and smile and run cool reports, but the ability provide knowledge and end-to-end service is lacking.

There are costs associated with the “core competency” thinking when it is rooted the functional separation of work.  Returns, lost sales (present and future) and the opportunity to help customers and get direct feedback on the end-to-end service.

The manufacturer and the service company have to work as one system because that is the way customers see it.  You lose business quickly with the power of social media when the manufacturer and the service provider blame each other.  Quite frankly, customers don’t care about the service provider contract and the blame game . . . they want their problems solved and to receive good service support for the products and services they buy.  If you can’t deliver end-to-end service you may find customers going elsewhere.

Take a look at your organization as your customers see it –  our 4-day workshop has been called “an awakening experience.”  You will understand the customer view of your organization and take inventory of the assumptions, beliefs and perspectives that drive performance.  Tripp Babbitt is a service design architect and organizational futurist.  His company helps service organizations understand future trends, culture and customer.  The 95 Method designs organizations to improve the comprehensive customer experience while improving culture and management effectiveness.  Read his column at Quality Digest and his articles for CallCenterIQReach him on Twitter at www.twitter.com/TriBabbitt or LinkedIn at www.linkedin.com/in/trippbabbitt.

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Management’s Predictable Response to Trouble

Management with a conventional perspective in their approach attack problems predictably .  .  . predictably wrong. If revenue is the problem, set a target for more revenue.  Expenses to high set a target for to lower costs.

The real question that eludes such approaches is ” by what method?”

Subordinates are left with new targets and no method.  This is not good management.  Can we even call this management?

Conventional methods for increased revenue call “pushing” sales to customers.  Some so dysfunctional in one telecomm that customers are pushed products for mobile phones that don’t even fit.  However, revenue gets recognized and the cost problem created (returns)  is for another month or another group that is responsible for costs.

Reducing expenses?  Cut back on travel, office supplies, maintenance, outsourcing and if things are bad – heads must roll.  All short-term thinking and lead to increased costs later.

They above examples are the scarcity mentality we live with today.  No real growth or understanding of where costs manifest themselves.  Innovative methods to address revenue and cost issues are lacking.  Yet, the more service organizations that I study I find literally hundreds of opportunities.  However, most organizations don’t know how or where to look.

Work design, flow and an understanding of customer demand are where the hidden gems lie.  Six Sigma and Lean have  tools to get to these gems, just they are usually the wrong tools for the job.  Knowing how and where to find the gems allows you to go find them and quite simply  . . . pick them up.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Read his column at Quality Digest and his articles for CustomermanagementIQ.com. Reach him on Twitter at www.twitter.com/TriBabbitt or LinkedIn at www.linkedin.com/in/trippbabbitt.

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Onshoring, Offshoring or Outsourcing – The Reasons Matter

The last American election “exposed” outsourcing as an evil, and in part, a reason one presidential candidate defeated another.  The belief is that outsourcing – foreign or domestic – helps to optimize a business function.  I heard this argument for the hundredth times on the Washington Times Communities website in an article titled, Outsourcing vs. Offshoring.

It is the wrong thinking.

However, organizations continue to perpetuate the “optimize each function thinking” as blindly acceptable.  Sub-optimization results on a large scale.  Locking in waste for short-term profit games has become a national pastime in the US.  It is hard to find organizations that don’t lick their chops when they see the reduced costs in the form of lower wages in outsourcing.

Political and consumer backlash seems to be bringing back the jobs . . . and again for the wrong reasons.  The problems with outsourcing go beyond politics.  This is not to say that consumers should be ignored as they decide what organizations to place their business with.

The deciding factors need to connect with the waste service organizations are outsourcing.  When the design of the work prevents customers from getting their demands satisfied – we get failure demand.  When phone calls run 40, 60, 80% and higher of these types of demands -which I find in almost every organization – why would you outsource this much waste?  It is more prudent to redesign the work.  Service organizations that outsource this much waste are locking in costs, not reducing them.

So few organizations know what to measure that reduces costs and the result is managing by costs alone.  The result is always increased costs.

Before the next onshoring craze let’s address the problems first . . . the right ones.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Read his articles at Quality Digest and his column for CustomermanagementIQ.com.  Learn more about the The 95 Method for service organizations.  Reach him on Twitter at www.twitter.com/TriBabbittor LinkedIn at www.linkedin.com/in/trippbabbitt.

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GM and the “Frozen Middle” – What We Can Learn

Interesting article in the WSJ today called, GM Chief Labors to Get Rebuilt Carmaker into Gear which outlines some of GMs difficulties.  There is a little bit of everything:

  • Functional separation of work leading to in-fighting
  • Outsourcing
  • Performance rewards that cause internal competition
  • The bureaucracy created by those in support functions
  • Economies of scale thinking

All of the above perpetuate the problems of GM.  Economy of scale thinking has long been replaced by economies of flow.  Remember the US had all the scale after WWII and lost manufacturing to a country with little or no natural resources or scale – Japan.  The scale thinking has to go, before the country does.

However, I see more of the “frozen middle” than anything.  Support functions and middle management that stagnate whole organizations.  They are people that cannot say “yes” and add costs and bureaucracy to organizations.  Like a boat anchor to ships these folks eat resources and ruin whole financial budgets.  The need to get these folks jobs that create value or enable those that create is a daunting task.  Most people in non-value adding roles see themselves as adding value and often so do the executives that put them there.

So, the frozen middle remains frozen.  Incapable of creating value and there unintentionally to thwart innovation and invent hoops for those that can create value to jump through like policies, entrapping technology, standardization, rules, etc.  The problem with the frozen middle is irony.  It is ironic that it freezes progress, but as the dysfunction grows so does the middle expand its activities.  Organizations intending to reduce costs, increase them as they add more folks to the middle ranks.

GM is not unique in this problem.  All organizations have a frozen middle, they are there to make things run smoothly.  However, counter-intuitively they make things much worse.

Come hear me speak at the CAST conference in San Jose, California!  Re-Thinking Management . . . Re-Thinking . . . IT!

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Read his articles at Quality Digest and his column for CustomermanagementIQ.com.  Learn more about the The 95 Method for service organizations.  Reach him on Twitter at www.twitter.com/TriBabbittor LinkedIn at www.linkedin.com/in/trippbabbitt.

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Cheap Labor – Not the Answer for Government

I follow a l0t of the conversations going around on the web comments pages.  An article about contract labor and outsourcing for government showed up on CNBC’s site.  The high wages of government workers are cited as a reason for our deficits . . . can’t be the politicians.

These governments workers are making the budget busting amount of $15 – 20 per hour plus benefits.  Bastards!  Greedy, aren’t they?  This bothers me in light of the government bailout poster children – Fannie and Freddie – whose top execs got over $2 million in bonuses (each).  This for such well run organizations that just borrowed $169 billion more.  When do we get the well run organization first, before we pay the big bonuses?  I am still waiting for the previous execs for Fannie and Freddie to go to jail.

Back to the task at hand – cheap labor in government.

I worked as a CIO for a year in government, government is full of waste.  It is everywhere you look.  However, the workers in government are not to blame for the poor design of the work.  Political ideology vacillating back and forth over the years is what created our current problem with government design.  No one in government knows how to design good work.

Politicians go immediately to the “technology well” to modernize and automate.  No evidence or knowledge this is the right or wrong thing to do.  The design requires many times the number of workers that are needed for a well-designed system.    But between the functional separation of work and keeping labor costs down, government management instead “dumb’s down” the design to keep costs down.  Ridiculous? Yep and it is costing us in the way of huge deficits for government.

What this means that if design work that adds value to constituents that maybe workers are paid a wage of $30 – 40 per hour or more.  As a taxpayer, I would gladly pay these wages for a system that isn’t full of waste.

We are missing a great opportunity to change the system that is more full of blind political ideology and misguided legislation.  Making the government workers a part of the solution rather than pointing a finger at them as the problem would be useful . . . that would mean that politicians would have to point the finger at themselves (sigh).

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Read his articles at Quality Digest and his column for CustomermanagementIQ.com.  Learn more about the 95 Method for service organizations.  Reach him on Twitter at www.twitter.com/TriBabbittor LinkedIn at www.linkedin.com/in/trippbabbitt.

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Technology – A History of Increasing Costs

The problem isn’t technology alone when it comes to costs, but more the thinking behind it that increases costs.  The transaction costs are very visible and for the gullible represent quick savings for companies.  And companies laden with rewards and pressure to reduce costs “quick” is an embraceable proposition – it becomes a way to achieve instant gratification and survival in organizations.

I recently had a phone call with a technology company that assured me that IVR systems – that I loathe – were saving companies millions.  No evidence but the reduction in visible transaction costs – this means each transaction cost is lower.  Systemic or total costs are completely ignored.

No one asks about how many transactions that come in the form of customer demands are actually value or failure they just look at the transaction alone . . . not whether the transaction should have occurred in the first place or not.

Reducing failure demand (demand caused by a failure to do something or do something right for  a customer) becomes a huge area to make improvement and does not involve any IT.  As part of reducing failure demand, we are improving the flow . . . as economies come from flow and not scale.

Looking at the history of reducing transaction costs with a flawed mindset, we see that in the good old days we would get service face-to-face.  Telephony advances in technology allowed for a cost reduction in centralizing customer demands through contact centers.  Now, we have websites to reduce transaction costs and avoid the contact center.

The result has been worse service and more costs.  A natural extension of when the focus is on reducing costs . . . costs increase.

Outsourcing and shared services have been enabled by technology – couldn’t have either without technology.  However, both perpetuate the reduction of transaction costs as a form of improvement and ignore the systemic customer demand and flow that really are behind reducing costs.  The management paradox is that the transactional mindset is increasing costs in the form of lost customers and acceptance of a poor service design.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Read his articles at Quality Digest and his column for CustomermanagementIQ.com.  Learn more about the 95 Method for service organizations.  Reach him on Twitter at www.twitter.com/TriBabbittor LinkedIn at www.linkedin.com/in/trippbabbitt.

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Seeing is Believing

Evidence . . . the one act that can counteract a thousand assumptions.

Faith seems to have been lost over the years and replaced by the pursuit of profit.  Can you really trust anyone these days?  Politicians, plumbers, sales people, attorneys, mobile phone companies, investment bankers, car repair are all professions and industries that we don’t trust – and I certainly don’t mean to say these are the only ones.  They seem to be in it for themselves or what ever profit they can get no matter what the consequences.

However, if I can see evidence that can convince me, but only if I understand what I am seeing.  Knowledge plays a huge role in my understanding.  Most executives lack knowledge these days.  This gives them limited perspective on how to solve today’s business problems.

Indeed this is due – in part – to having come up through a functionally separated organization.  Sales, marketing, finance, operations, information technology, human resources, etc. an executive has a limited view.  Also, the focus on finances clouds the ability to actually see.  Executives are flying their businesses in a fog, blind to the reality of what is.

The biases from years of functional, industrialized thinking and outdated education leads us to a place where we follow what we know, even if it ain’t so.  Outsourcing, a shared services strategy, cutting costs from a budget, standardizing processes are examples of things that business executives embrace . . . until they can see evidence of the damage these things almost always do.  These are profit reducing activities where the evidence demands a verdict.

If there is a skill I have been honing it is to be able to view an organization and spot the problems of an organization.  Finding them is simple, finding one that will get an executive to go look and experience the agony and waste that comes with poorly designed systems constructed from the wrong perspective and assumptions is much harder and personal.

Evidence . . . where seeing truly is believing.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Read his articles at Quality Digest and his column for CustomermanagementIQ.com.  Learn more about the 95 Method for service organizations.  Reach him on Twitter at www.twitter.com/TriBabbittor LinkedIn at www.linkedin.com/in/trippbabbitt.

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Why “Buy American” Isn’t Enough

USAToday’s article about Roger Simmermaker and his buy American movement may indeed garner support – even Diane Sawyer has challenged Americans to “buy American.”  Seems a patriotic and viable way to bring jobs back to the US.  I do not see this lasting for very long.

Why?

Quite simply, Americans want to buy the best products for the money they put out.

For years of my youth I heard about Jap junk.  Along came claims that Japan was “dumping” cheap products on the US to get market share.  I even remember a time when a foreign car being driven in Detroit was shot at.

The truth is that Honda, Toyota and Nissan make better cars at a lower price.  This is a not a scale (volume of production) problem, if it was the Big Three had all the scale after WWII.  This is a problem of flow and thinking.  The Japanese wanted to build a better car and American’s want more profit.  Buying American indeed may just make executive’s richer and few jobs added.

To compete against anyone for jobs, we have to change our thinking about making products and services that people want to buy?  Will you really give up all those Apple products because they are not made in America?  Ultimately, consumers will go where the best value lies for any products and services.

This is not a worker problem.  Management designs the poorly conceived systems that workers have to endure.  Different thinking about the design and management of work is needed.  The short-term profit and industrialized approach have run its course to predictable ruin in America.  “Every man for himself” will not get the job done.

Our poor management thinking has created crisis after crisis, yet they refuse to budge.  Much of the outsourcing and off-shoring is done because of flawed management thinking about costs – as are many other poor management decisions based on cost.  Economies of flow, not scale.  A focus on costs, always increases them.

If we want to “buy American” let’s start to build products and services in America that consumers wants to buy.  This begins with a change of thinking, not just a patriotic mantra.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Read his articles at Quality Digest and his column for CustomermanagementIQ.com.  Learn more about the 95 Method for service organizations.  Reach him on Twitter at www.twitter.com/TriBabbittor LinkedIn at www.linkedin.com/in/trippbabbitt.

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IT Workers – Let’s Get the Outsourcing Argument Right

Former IT workers at Molina healthcare have started a firestorm with a lawsuit (see Outsourced and Fired, IT Workers Fight Back).  The article is an interesting read and I side with the former IT workers . . . but not for the reasons that keep being used.  They claim discrimination and they may be right, I don’t know.  The court will have to sort this one out.

Regardless, discrimination or even the patriotic message of protecting American jobs will not resonate with corporate America.  Heartless . . . maybe.  But workers – and not just IT workers – need a new tactic.

Plainly said, almost all outsourcing I have seen in contact centers and IT is not profitable.  Yep, that is correct . . . it is NOT profitable.  This is a message that corporate America will understand.

Yes, I know the wages paid to foreigners is much lower.  However, reducing wages 30 – 50% or more isn’t enough to make up for the poorly designed IT when you separate developer and the work that IT is supposed to enable.

IT executives have made IT in the form of production plants in manufacturing.  I even hear words like “software factory” when I speak to executives.  Software is not manufacturing and to treat it as such is foolhardy.  This is economy of scale thinking and is used in an IT outsourcing strategy.

So what is wrong with the design?  The flow of the work – economies of flow.  Traditional software process: project planning, feasibility studies, systems analysis, requirements definition, implementation, integration, testing, installation, deployment and then maintenance.  There may be derivations of this, but who came up with this crap?  Why has this become best practice or the “one best way.”  IT projects have stunk up the place for a long time.  New thinking is needed to save jobs, profit and improve IT in general.

The traditional approach allows for the functional separation of work.  Project managers, business analysts, testers and other roles for the most part are non-value adding.  Most outsourcing seems to go after the developers, because they are expensive in an executive’s mind.  But developers are the only ones that do the work that adds value.  They have been hidden away as too expensive to interact with those workers that add value in the eyes of customers.

Developers are the only workers that can add value.  Having them away from the front-line employees that interact with customers is expensive.  Instead they have phone calls, meetings, requirements documents to facilitate their work.  Flow is disrupted and costs are increased . . . a lot!

Functional separation of work and economies of scale thinking leads to higher costs.  Outsourcing the pieces makes sense with this line of thinking.  This is why executives embrace it.  It is wrong thinking familiarize yourself with the arguments I have linked to in this article.  If you are in the midst of having outsourcing companies learn your system to get rid of your job, give me a call.  New thinking that is more profitable may be your only chance.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Read his articles at Quality Digest and his column for CustomermanagementIQ.com.  Learn more about the 95 Method for service organizations.  Reach him on Twitter at www.twitter.com/TriBabbittor LinkedIn at www.linkedin.com/in/trippbabbitt.

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Eating Our Own Dog Food

I spoke to a couple of auto industry engineers while flying not long ago.  They lamented about all the outsourcing that the auto industry has done.  Mexico, China, South Korea and many other countries all make the products that the US used to make.

The Big Three (Ford, GM and Chrysler) were on their heels since the 1970s.  Japan still owns the auto industry market, but their slip ups have given competitors a window of opportunity.  American manufacturing management is still in their stupid phase since the 70s.  Chrysler was beginning to be feared before selling to Daimler.  GM has wasted billions and the jury is till out.  Ford seems to be in the best shape . . . today.  However, Fords products either need greater improvement or the likes of Toyota to keep stepping on themselves.

My engineer friends see the waste everyday.  They are powerless over command and control management or better labeled the management factory.  Management’s job is to make decisions based on financials, not what makes sense.  Too many former engineers brain-washed into the management factory.  The financials override evidence.

W. Edwards Deming used to talk about our biggest export to Japan being scrap metal and they would buy this for pennies and turn it into a microphone and sell it back to the US for $50.  Japan knew how to create value.  American management outsources instead of using US labor to create value.  China’s dog food must taste better . . . it is cheap.

This is not a patriotic tale.  What American management misses is total system costs.  In manufacturing its in shipping and other costs that add costs that get lost in translation.

In service, it is the service design of the work.  Total systems costs are not realized in most outsourcing arrangements.  No one questions whether we need a back office or another call center.  In most cases I find that back offices can be designed out.  Contact centers are full of failure demand that when reduced gives the contact center fewer calls.

China owns a lot of  US debt.  To be honest if the US economy has problems they lose a big customer.  However, they are selling products to the US and taking wealth away.  American management has to wake up at some point that this whole outsourcing thing is not creating long term profit.  Again, not because we need to be better patriots, but because we have to open our eyes to total system costs.  A management paradox  . . . yes, but our own dog food may just save us.

Tripp Babbitt is a speaker, blogger and consultant to service industry (private and public).  His organization helps executives find a better way to make the work work.  Read his articles at Quality Digest and his column for CustomermanagementIQ.com.  Learn more about the 95 Method for service organizations.  Reach him on Twitter at www.twitter.com/TriBabbittor LinkedIn at www.linkedin.com/in/trippbabbitt.

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