Most signs for the economy are looking up, and the pressure to reduce costs has reduced. However, as business is rising and new income producing staff is being hired, the new pressure for Corporate Services is to support these new users without raising costs or headcount. If you don’t already produce basic metrics (on-time delivery, quality, productivity, utilization), now is the time to roll them out or clean them up! As your work load increases, there will eventually be an opportunity to add staff or resources, but you need to be able to show how that affects your unit cost (cost per hour of work, per user supported, per completed product… whatever you have identified as your critical metric or metrics). The clearer your definition of unit cost, and the more that you understand the levers that drive unit cost, the better you will be able to defend your decisions and gain support for changes to your budget (or even authorization to take action on already budgeted events). At least that’s the way it normally works.  However, the last few years have been anything but normal.

If you’ve managed operations for any period of time, you know that business works in cycles. There are parts of the cycle  where you need to build services, parts where you downsize to match a declining economy, and even tiny little parts where you can pause for a breath. This recent down cycle started like most others with non-specific reduction goals that were communicated with statements like: “Cut costs 30%… somehow… and try not to impact services.” What happened next, though, was different. Most of you have (if only recently) been introduced to Six Sigma, Lean or other “improvement” systems, as well as Outsourcing as a method of ensuring cost reductions.  By now many of you may think, “The economy is rebounding. Shouldn’t we put away these tools and get back to our normal business processes?” Not this time. Purchasing departments have transformed into Procurement, a group that is responsible for ongoing improvement in the cost and quality of purchased items. Procurement has been very successful, and has been gaining power in corporate decision making. Procurement may use Six Sigma, although it has its own quality improvement process, which… pretty much use the same tools.  

Originally, Procurement was focused on traditional purchases (paper, filing cabinets, pencils, business cards, etc.). As time went by, Procurement’s structured approach showed improvements in quality and cost over the old purchasing process. An increasing number of firms are involving Procurement in the acquisition of temporary workers and other staffing services. As Outsourcing joined the mix, Procurement was often the only group that knew how to effectively collect outside pricing information, so they became a permanent part of the Outsourcing process. Additional improvement groups have either spun out of Procurement or were developed from other Corporate services, especially IT, which had its own procurement type processes and project management disciplines (Agile, Scrum, etc.).  The regulators are everywhere.  At least for the next few years you should assume that regulators will examine your services and question whether everything is running as well as it should. They may still be looking for new Outsourcing targets or they may want to identify groups that can be improved. However, you may not become aware of these initiatives until they are in the very late stages of development.  

In this more regulated world, just how do you effectively manage your services? The key is to run your operations as efficiently as possible, so that there are few targets for outside improvement initiatives. That’s not to say that you should hide information or evade firm-wide initiatives… with the level of transparency in corporations today, you couldn’t hide from the regulators if you wanted to! Instead, you need to understand what drives the regulators. These groups have a mandate to find and fix problems. Do you look like a problem to a Regulator? If you want to see how your department looks to the regulators, consider these three questions:

1. Cost: Often cost is the only “hard” piece of information that internal auditors have access to. Not surprisingly this is where they focus their efforts. Cost alone is important, but by itself it doesn’t tell you much. Is your service too expensive… it depends on your service levels, and how well you are achieving them: how often do you meet deadlines; how much capacity is needed; how great is the training burden; what is the quality of service; what are your hours of operation; etc. Without these service levels, you don’t know which model is appropriate for cost comparison. You, on the other hand, are knowledgeable about the service levels needed for your products. It’s good to know what your competitors charge for their services, but corporate services rarely charge based on actual cost, so the rate they charge may not tell you much. A better comparison can be found in outsourcer pricing. Some services outsourcers might say, “We can just take over your services and charge a management fee”, but this gives you a poor number. A better way to approach this is to provide information on your products and your volume, and ask the outsourcer how they would staff it and what it would cost. If every firm you talk to consistently tells you that they would require “X” workers and “Y” managers…. does their staffing model look like yours? Are they saying that it would take significantly less staff? Consider if they are right or wrong, and why? Remember, these are the questions that the Regulators are asking suppliers all the time. Understand how well priced your services are compared to the competition.
2. Client Feedback Report: Do you have a process for collecting feedback every time your service is used by your clients? Are you collecting useful information? Having someone rate how good you are on a 5 point scale, or even if the service was  acceptable is a start, but it doesn’t give you actionable steps to follow up on. Asking which area needs improvement (intake, customer support, automated phone line, etc.) is more valuable. Be prepared to answer the question, “How has the feedback process changed your service?” If there aren’t major, measurable, changes that you can cite that resulted from the feedback process… you need to change the way you collect feedback from your users!
3. Client Survey: Most feedback forms get a response level of between 1-2%, if you put in a significant effort. This sort of feedback process is important, but it ignores the vast majority of your clients. This “silent majority” may be very unhappy about your services but may not see any value in telling you that you need to improve. Likewise, they may love your service and even think that you provide more services than they can use… which could be an opportunity to reduce cost or redeploy resources… but they may have not told you so. By conducting an annual survey you can collect information that verifies the appropriateness of your services, provides more support for the quality of your services, and will provide you with information to develop a prioritized list of what needs to be fixed.  00

Regulation is here to stay… at least for the next few years. You’re going to see more Regulators, so understand what they’re looking for and try to get a few steps ahead of the game. Understand your service costs in the context of the larger market, and understand what your clients think about your services. Add this to the information you already produce for your monthly management reports and you have a pretty rounded view of your organization, and how the Regulators view it.   Get that information! And that’s my Niccolls worth for today!