Innovation has always been a top buzz word of outsourcing, often mentioned but rarely achieved. When outsourcing was in its infancy everyone perceived that innovation was just another deliverable to be defined in the outsource contract. When it was never actually delivered upon the clients blamed he vendors without asking themselves tough questions. If innovation is to be fostered by clients internally, management must set aside resources, perhaps the most valuable being their own time. Without this focus the status quo will continue. Clients are now realising that the same is true of outsourcing vendors.

Innovation can be talked about but if you ever want to achieve it there are a number of things that must happen. Many of these have been discussed in previous blogs but in summary. Sharing of any profits should be set up in ways that encourage vendor innovation. Resource should be set aside and specifically earmarked for innovation. Risk taking should be encouraged as innovation is inherently risky and finally, the right people must be on the projects, people that see options to innovate.

Get these factor right and there is a chance that innovation will follow. The next step is incorporating innovation into the day to day running of the project. This could mean fundamental changes to operational procedures which have to be transitioned towards, much in the same way that work was transitioned to the vendor in the first place. Even the smallest innovation will probably require some sort of operational change. Operational change can often mean governance change which will require executive signoff.

All these things mean that change costs money. This then begs the question. Is innovation worth it? Of course ROI projections will have been done to ensure that any innovation introduced does not loose money but the innovation effort as a whole must be justified. Perhaps innovation is not required in all cases. Perhaps managing the relationship and maintaining SLAs is enough. Perhaps clients should be steered away from innovation in some cases.

I am not arguing that innovation is unnecessary all the time. Often it is highly desired and both parties should continue to strive for it. what I am saying is that innovation doesn’t belong in some contracts and should be removed from the expectations of senior executives. The overall cost of innovation may not be something an organisation is ready to pay or experienced enough to handle.

Accidents and Traffic Jams have a lot to teach about Capacity Planning for Business Processes!

Whether it is Claims Processing or Home Loans or Help Desks, processes invariably deal with traffic jams.

Usually, there could be long, serene periods, when things are flowing smoothly; no customer is waiting on the phone long enough to be annoyed, and the people providing the service are not overworked and cranky!

Then there are peak periods in a Year when processes see Peak Volume - Day of the week, Month ending, Quarter ending crush or Annual crush (like Tax return time for tax preparers!) when peak volumes of work are seen in short bursts confounding the most diligent of capacity and work force planners!

Traffic Jams have taught traffic planners that when 70% to 80% of the capacity of any road is fully used, any small perturbation will cause massive slowdown for everyone. If an accident happens in one lane, every lane slows down because cars in the lane where the accident happens slow down to merge with the lane to their right or left whichever is available. This makes the entire traffic slow down even if you have five or six lanes each way!

The effect of any perturbation is less and less felt as the capacity utlization at any time is less than 70%. There is enough spare capacity for the other lanes to take up the slack and you may not have a traffic jam that requires everyone to slow and stop.

In a Business Process, capacity planning can always benefit by keeping the overall utilization less than 70% at any time. Novice managers may look at this and say that this is a waste of resources. But compared to the agony and customer dissatisfaction that may be caused by traffic jam equivalents in Business Process, and the consequent delays and waits you may subject customers to, this may be a small price to pay.

One of the things striking about Toyota or even many other Japanese automobile factories is that for the first two years they really do not care about the production throughput that much. They are using that time to fix problems by addressing root causes permanently!

When these factories are in full production, unlike other automakers they may not run their assembly lines in three shifts! Most of these plants do only two shifts and the third shift is used for finishing up planned production for the other two shifts as well as addressing root causes of problems faced in the assembly line as well as preventive maintenance of the facilities.

This ensures that everyday’s production schedule is met, you may have fixed problems before they occur, permanently. Preventive maintanance ensures that machines are inspected, lubricated and ready for the next day!

Business Processes should use the same concept and never plan for using capacity any more than 70%. This way, in the long run they may come out ahead rather than attempt for more utlization than the 70%. You may come out ahead on efficiency, but your effectiveness may have suffered irreparably!

Something to think about!

He who fails to plan, plans to fail - Proverb

In the first generation of outsourcing contracts this term was a bit of an oxymoron. If it was mentioned at all in was purely as a side note in the contract. Neither party knew how to, nor planned on delivering this aim, but the lack of achieving it is still mentioned as a contributing factor in the dissatisfaction of many executives within the client. Things are getting slightly better in some of the more forward thinking relationships but there is much still to do before both parties can truly deliver on this aim.

Some of the problems are in the pricing structures in any contract. Innovation costs money it is often expected that the vendor will foot the bill. What is even worse is that there are clauses that state that any savings in innovation will be shared between the client and the vendor. So, not only will the vendor pay for it, but they will share any rewards. Innovation in inherently risky so if the vendor has to fund it and there is a chance it won't work and their margins will be further reduced for no compensation. As you can see this is not attractive for the vendor and so most didn't actually put any effort into innovation. If any happened it was more as a consequence of changes in the operating norm during the lifetime of the contract. These could be technology or infrastructure improvements brought about by a requirement to upgrade to the latest version of a particular piece of software.

To actually make innovation work, there are a few options. Assign a certain proportion of the cost of the project to innovation. This innovation budget will then be spent in agreement with both parties towards the benefit of the project as a whole. The vendor will actually have money to work with and the client will have a sense of ownership of any work which is undertaken. It could be the vendor's responsibility to identify and propose areas of innovation investment as they are closer to the day to day running of the project. An alternate benefit is to have the vendor pay for it, but they see all the rewards. In other words, any cost savings or efficiencies as a consequence of the innovation will not reduce the costs to the client.

There is an added benefit to innovation which is often overlooked and that is staff retention in the vendor. Attrition in vendors is often a massive issue, especially in tier 1 markets like India. If staff have an opportunity through innovation to learn new skills or participate in innovative but possibly risky projects then their interest level will be retained and there is more chance of them staying for longer. This is of course a benefit to both the client in that the people delivering the project are retained and the level of service maintained and a benefit to the vendor as they have less cost in continuous training for new members of staff.

Both of these options listed above have to actually make it into the contract. As long as the contracts only mention innovation without actually explaining how it is to be delivered on executives will continue to be disappointed with the results.

Automobile Design is a very intense process in a very intensely competitive industry. Design of new cars used to take five years plus, even as far back as ten years. Now the industry average is becoming around 3 years and the Toyota Prius design cycle was slightly less than two years end to end.

These days, automobile design has been greatly helped by building different versions of cars on the same standardized, tested, proven platforms of chassis, engine, etc, The design is more about mixing and matching slight variations of basic designs with more expensive cars getting better fit and finish, reduction of noise with better mountings, door being more flush in its place etc.

Design tasks for completely new automobiles are mixed in with updates for current model years, and you can see that the design people are kept busy throughout the year. Plus, it is a highly sequential process where the basic design paper is converted into clay models, the specs for different sub systems worked out and then the setting up of the manufacturing preparations like stell sheet stamping Dies (for doors, body panels, etc), etc to be done before production starts. So just like a business process, different steps are very sequential and deadlines are to be met without any letup. Missing any process step may mean others downstream may miss their own crucial deadlines putting an entire product line in jeopardy.

This is where project management systems like the Toyota Product Development System can teach us two major lessons:

a. Interveaving of Process Steps Reducing Waste of Time of Resources, especially people’s skills.

b. Multiskilling and emphasis on Breadth of skills in addition to increase in Depth of skills.

When one specialist in Die design is done with the design of a totally new stamping die for a new model, may immediately get a die review and redesign assignment for a Model Year update (minor changes if at all from one model year to another). This is to ensure that the resources down the Design Production Line always have something coming down the assembly line for them to work on.

No waste of time of highly skilled, valuable resources.

The second major aspect about the Toyota Product Development System is the incredible DEPTH of skilled people in one discipline plus increase of the BREADTH of skills in other automobile disciplines also, without fail. This will ensure decrease of mistakes in process handovers and also incredible empathy for the downstream people, A design engineer may have also spent lots of time on the manufacturing floor before coming back to design. So when they pass on designs on to manufacturing they are already aware of the potential problems and pitfalls in the next steps.

What does this have to do with Business Processes, especially in Services? Everything. These lessons are very applicable and valuable in any business process. Most business processes are like assembly lines in that they may already be using a queue approach to managing peoples’ time within the business process.

However may call centers’s holy grail is First Call Resolution - resolving the customers’ problem over the phone, chat or email, the very first time. This is not possible without multiskilling. If the first level call taker can resolve problems also in addition doing call routing, in case they don’t have the skills to resolve a problem. Many problems are repetitive ones with simple answers that can be closed by the first or second level support people.

Providing more autonomy and equipping them with multiple sets of skills goes a long way in achieving First Call Resolution.

Nothing is a waste of time if you use the experience wisely. - Auguste Rodin

Apparently a Sapporo based company, Digital Technologies Corp, has developed a software that can analyse the mood of callers phoning into call centres. According to a report on Nikkei.net, the software can establish whether the person on the other side of the line is sober, slightly outraged, or simply barking mad It bases its analysis on biometrics and divides the results into whether a caller is happy or displeased, on a scale of one to seven. The report doesn’t relate whether if things go to the top end of the scale, whether the call centre will put them on hold indefinitely and refuse to engage with them any more on human rights grounds, or assign them to an anger management course. (Sponsored by the Call Centre of course) Lets look at this from a broader application, and first up.. could it be scaled up to avert those occasional domestic ‘disagreements’ caused when our wife or girlfriends claim that men are empathy black holes when trying to gauge their all to frequent mood swings...?