Which Location Is the “Best Buy” For Outsourcing?

Posted on September 9, 2011 by Chris Niccolls

Not too long ago, the outsourcing of corporate office jobs was synonymous with India. Big news stories showed example after example of work successfully outsourced to India, yielding enormous savings.  Years ago, when IBM was the biggest and most recognizable name in computers, managers often chose IBM without even looking at the competition. “Nobody ever got fired for recommending IBM,” was once a common saying in corporate America. Once we were all aware that outsourcing existed, India became the dominant “brand”, and it dominated our thinking. Is India still the default choice for outsourcing? What about the rest of the world, including outsourcing to the US?

Over the past few years, outsourcing has become more sophisticated. Outsourcing firms have learned that economies rise and fall, and that different currencies can have very different exchange rates over time. Contracts now include many more clauses and conditions than they used to, so it’s a bit more difficult to compare a flat rate per hour. Still, there are definitely trends. Since India is still the world’s brand for outsourcing, let’s start there and look just a bit deeper than just the hourly rate:

  • India: India still offers positions at a fraction of the hourly US rates. Due to the
    downturn in the world economy, outsourcers have held back raising rates, even
    though inflation in India is two to three times greater than the US. Whether or not they will catch up for these “missing years,” we can expect Indian inflation to outpace the US for the foreseeable future. India also has a higher rate of promotions (on top of cost of living increases), and a very high attrition, leading to a higher cost of recruiting, training and employee incentives. While it is not unique to India, anytime you deal with another country you need to keep in mind that currency rates may change dramatically. If you sign a contract today under a favorable rate of exchange, by the time of your contract renew the exchange rate could be dramatically different. This is applies to any offshore location. Finally, India does not have a well-established “night shift” culture, and it takes dramatic incentives to get people to work at night for any prolonged period. Since “normal” work hours in the US are late night in India, your best bet is to outsource over-night work, or on work that can be returned a day or two later.
  • Other Countries: There are many countries with very specific value propositions: specific areas of expertise, better synchronized work hours, different language skills, and so on. Let’s use the Philippines as an example. While India’s culture is based on British culture, the Philippines follows American culture. Britain’s long history with India reduces many cultural barriers, especially since India follows British law (the Philippines follows American law). For an American, they will find it a bit easier to use the Philippines for tasks involving language and will require much less training for legal outsourcing. Their inflation rate is on par with the US, and attrition is also lower. There are similar (but not a severe) night shift issues, and you have the same currency exchange rate issues. However, comparable work in the Philippines costs about 20% more, and not all the established forms of outsourcing are available in the Philippines.
  • U.S. Outsourcing locations: These are smaller cities and towns with lower wages and operating costs than the big metropolitan cities where many outsourcing projects originate. Pricing here is a very mixed bag. It depends on the local conditions. If we look at Fargo North Dakota, which has a long tradition in
    outsourcing. In 2010, local unemployment was 5.0% and dropped to 4.2% by August of 2011. A busy local economy increases pressure for higher wages and raises your hourly rates. With greater cultural similarity, much less soft skill
    training is needed. Inflation is at US levels, there are no currency exchange risks and hours of work fit well with the rest of the US. Since Fargo’s greater Metropolitan population is about 150,000 compared to Mumbai’s 20,000,000, it
    often takes longer to recruit there. And the costs are much higher than India, usually 50% more. You can still save money and improve services, but the financial impact is much less.
  • US Major Cities: Why outsource to the same location (with the same basic costs) that you work in? You may need a skill that is only available in your local market, or the work process may require direct physical interaction. You may even host the outsourcer within your facility. However, even in the same location
    outsourcers may provide nuanced cost advantages: a document outsourcer lease a fleet of copiers at a better rate; outsourcing e-discovery proves staff that is more fully billable than internal resources; outsourcing of programming minimizes the number of programming skill you would need to hire and keep occupied. A good outsourcer may have slightly lower attrition and costs, but otherwise they hire and buy from the same market as you do. This is the highest cost market, but there are times when it can still the best deal.

There are many other details that will affect the real value of your outsourcing price. India continues to be one of the lowest per hour options. Even though costs and risks for India are often left out of the initial pricing, there are still opportunities to reduce costs and improve work. There are a lot of other countries that offer equally compelling options, but you need to know these markets to understand their real value. Outsourcing to smaller domestic locations is a very viable option, and there are still very many “undiscovered” locations that offer excellent value. Even local outsourcing in the big cities still has a place, and offers value, but should be used more selectively. Invest a little time to understand how to interpret the cost and value structures of each location, and it will pay a big dividend!  And that’s my Niccolls worth for today!

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How To Talk To Your Outsourcer

Posted on September 7, 2011 by Chris Niccolls

Outsourcing is a committed relationship. You have to work closely with the account manager at your outsourcer. Like every other committed relationship, you need to communicate with your partner. However, also like every other committed relationship, quality communication is very difficult. Your vendor probably wants to talk to you all the time, and some of these talks are going to be about things you don’t want to talk about: new sales, raising rates, staff leaving, and so forth. Likewise, you will want to have talks that he vendor doesn’t want and would prefer to avoid: lower rates, quality complaints, offers by competitors. You and your account manager have different needs and probably different personalities, but you both have a common goal… to make your outsourcing program work!  How do you work together and communicate effectively?

The two most important factors in good communication are: a commitment to regularly review your program and an agreement on the language you will use for communication. How will you do that? By following these five steps:

1.       SLAs and metrics: As early as possible  in the relationship… but not before you are ready… you need to agree with your vendor on what are the tangible, numeric measures that you will use to manage your program. Usually, they will include the meeting of deadlines, the level of quality and how utilized/productive your staff is. There are nearly infinite variations to these three measures. Decide what your metrics are, how you are going to capture them and then develop the service level agreement or SLA (ex. 95% of work will be delivered on time). These metrics form the basis of your common language. Metrics change the conversation from, “The service isn’t good,” to, “Delivery deadlines need to improve from 92% to 95% in the next three months.” Instead of a vague and emotionally charged conversation about failure, you engage in an unambiguous and dispassionate discussion about meeting measurable goals.       

2.       Management reports: Once you identify the right metrics, report on them at least once a month. Don’t be surprised if the first report is wrong, or if there is disagreement over the details of how numbers were collected or reported, or even if the metrics or service levels are wrong. This is normal, especially if this is the first time this service has had a management report. Over time you will improve the report, and even change your mind about the importance of different metrics.

3.       Monthly meeting agenda: Once your program falls into a regular rhythm you need to meet with your vendor every month. When you don’t meet, problems build up and eventually develop into a crisis. Your monthly meeting should: review monthly metrics, dentify improvement initiatives (when metrics underperform SLA’s), and discuss new business not covered in the first two items. The monthly report is absolutely critical to the meeting, and should be delivered at least a week before you meet. 

4.       Other Meetings: You also need three quarterly meetings and one annual meetings (they can replace that month’s monthly meeting). You can review progress on initiatives during monthly meetings, but it is better to make the discussion of initiatives the core of your quarterly meetings. Why? Because an initiative probably takes more than a month to be completed, and month to month you don’t see a lot of progress. A quarterly makes progress more visible, and allows the time you need to go over details. The annual meeting is similar to the quarterly meeting, but looks at the entire year: what have we accomplished, how has the program changed or grown, and what changes can we expect in the coming year?  

5.       Attendees: Meetings are necessary, but so too are attendees. That applies to the vendor and the client. If the sponsors of the outsourcing program do not show up at the meetings, it is rarely a good sign. The monthly meetings can have slightly more junior attendees. The quarterly meetings should have all managers in attendance. The annual meeting should have at least the next layer of management above the “owner” of the program. The annual meeting is a great time for everyone to spend just a little time on what they have accomplished and allow everyone to get recognition from their managers.   

If you establish your common language and agree to a regular rhythm of meetings, you will identify problems in their earliest stages and prevent operational issues from damaging your vendor relationship. By everyone receiving the management report before the meeting  the fear (on both sides) of being ambushed with an unwanted issue goes away. If you already have difficult and stressful meetings with your vendor, you will be surprised how quickly you can improve the quality of your meetings by following this process. Remember, it may take some effort to get there but when both parties are talking it’s a good sign that the relationship is working! And that’s my Niccolls worth for today!

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4th Sigma: How To Listen When The Client Is Silent

Posted on September 5, 2011 by Chris Niccolls

If you’ve been following this Blog, you know that we have been discussing variability: how the products and services we provide can be better or worse at any given moment. We then created a tool for identifying and quantifying the variability in our services, the P Chart (take a look at the August 27th Blog, “4th Sigma: P Charts Made Simple”). That’s a pretty good start! Now, that you have a way of finding the variability in your services, what do you do next? Well, next you need to find out how variability affects your clients. And that, is what today’s blog is all about!

To start, let’s go back to another old discussion: client complaints. You probably have some process to deal with client complaints. When a client calls or emails with a service issue, you probably record that instance. You may reply with a feedback form or a survey, or you might have someone talk to the client and find out more about the issue. In any given month how many of these complaints do you see? Perhaps 5, or 10, or 100… maybe zero for some months? Did you once have a lot of complaints, and now they are declining? Does that mean that your service is improving? Unfortunately, if you just look at complaints you can’t tell if your service is improving. While it does not seem logical, a decrease in complaints may mean that clients are becoming increasingly negative about your service. However, if your metrics are improving and complaints are dropping, why would clients be turning negative?

Think about what complaints tell us. Details of a complaint provide the clients perspective on a problem with the service. But what do we learn from the complaint itself? We learn that the client, even after they have a problem, still believes in you and in your service. If the client doesn’t believe that you are listening, or that complaints don’t lead to improvements, or that complaints lead to retribution, it wouldn’t make any sense to enter a complaint… would it? However, there is a way to find out the meaning of your client’s silence. Go back to recent P-Charts. Let’s look at on-time-delivery as our example.

In previous blogs, I’ve said that on-time-delivery (OTD) is the most frequently mis-measured metric. We usually make all sorts of adjustments to OTD before we report it (it was just late by a few minutes, we re-negotiated the deadline and no one complained, if we counted OTD at shift change our metrics would be too low, etc.). Assuming that your metrics are accurate and you are reporting REAL OTD, then count the total number of times you missed the deadline. Got it, OK? Now, look at the total number of complaints you received. How do they compare? Remember, this is just one metric. Now add up all the missed metrics (quality errors, missed deadlines, and any other SLA’s), what is the total count every month?

Every firm, and every department is different when it comes to complaints. Furthermore, complaints can be recorded differently. For example, if you ordered 10 new computers and 5 were installed incorrectly, how many complaints would you get? If they were installed individually over a few days you might see a maximum of five complaints. If they were all installed on the same day and someone on the client side coordinated the installation, there might be one complaint for the installation (with the details of the complaint indicating that there were five problems). Alternatively, if there was a coordinator but computers were installed on multiple days, then the coordinator might enter two or three official complaints, but might stop after that… especially if the type of complaint (wrong version of Microsoft Office?) was the same for all instances. So, the way that people think and the way that you collect this information will dramatically alter your complaint levels. Having said that, let’s take a look at the ratio of recorded complaints vs. missed metrics:

  • 75% – 100%: If every mistake and missed metric leads to a complaint, they you have very good communication with your clients! However, it is unlikely that you will get a response level this high. A good client will forgive small errors that happen only occasionally, and may even be unaware of minor service level issues. For example, if a copy center agreed to drop off work on a client’s desk by 1:00, but the client doesn’t get back from lunch until 2:00, the client may not know nor care that it was dropped off at 1:30. So, kudo’s if complaints and  missed metrics match this well, but I wouldn’t expect it.
  • 25% – 75%: This is more likely to be the right ratio. You need to test this assumption based on how you collect data, but it’s a good starting point. Regardless of what you find is “normal” your next step will be to increase the level of feedback until you find the natural “ceiling” for complaints.
  • 5% – 20%: In this range, something is wrong. Perhaps your clients don’t understand that complaints are a good thing, and something that you need in order to operate your service. Alternatively, there may be real barriers to reporting complaints. Your P Charts will show you the degree of the discrepancy between the number of complaints you should expect, which you can compare to the official complain level. You then need to go back to the data to find the specific clients who should have complained, but didn’t. Find clients who have frequent reasons to complain but don’t (work repeatedly missed SLA’s, but never entered complaints). Understanding this silent population will tell you a lot about how your services are perceived.
  • Under 5%: Receiving only one complaint for every 20 (or 50 or 100, or more) reasons to complain, heavily skews the data. In this range, client complaints may appear to be random and provide little meaningful information about your service. Such low feedback levels are dominated by a few fearless (or cranky) individuals who speak up. By definition these individuals are different than their peers; not surprisingly, their feedback usually does not reflect your service as a whole. You need to get more feedback. At these reporting levels, it is not unusual to find that the clients either have a very negative view of the service or they believe that individuals making complaints will be punished (usually that they will get slower response times, still lower levels of service, etc.).

We now know that a lack of official complaints could mean that your clients love you, or it could mean that they don’t trust you or believe that you will improve. If you want to find out the truth the answer lies in variability, and P Charts can show you what you need to find out. You’ll need to go back to the original data sources to find specific clients to talk to, and some may be very reluctant to provide information. Not everyone needs to participate, and at first you may not have the manpower to expand your customer service to handle this new definition of a “client with a complaint.” Identify the resources you can dedicate, and then target the segment of your client population that will yield the best feedback.

It is always very difficult to go after clients for negative feedback. The process makes many clients uncomfortable, and what they say can be very hurtful to you and to your staff. It often feels easier to leave these issues alone. But, when they’re left alone they always grow and become uglier. Get out there and start filling up that silence with truthful feedback… and that’s my Niccolls worth for today!

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The Global Revolution In Jobs: When Did This Happen?

Posted on September 3, 2011 by Chris Niccolls

As we continue our journey through the second decade of the 21st Century, we continue to bump up against of outdated definitions and old limits to how the world works. Even how we work. A few days ago I saw an interesting question posed on Linked-In. Anibal (Joe) Cardenas, set up a poll (three’s still time for you to offer your opinions!) and asked, “Should every qualified human being in the Planet be allowed to work in any part of the World without a Work Visa?” That’s an interesting and very controversial question! In a world where outsourcing is so hotly debated, and there is so much fear that our employers want to ship our jobs around the world, a lot of people don’t want to think about global competition that’s this direct. However, this isn’t a question that we should ignore. There are more people taking “global” jobs than you are probably aware of. And this trend is likely to accelerate. This is such a big topic that to do it justice, it needs to be dealt with in several separate Blogs. Let’s dive in and start with global jobs and see if we can figure out what’s going on.

The old world order was that the well-paying jobs and sophisticated work resided  in the “developed” countries, with other areas of the world providing resources: basic labor, raw industrial materials, food. Top-level executives, sales staff and a few consultants traveled around the world, but day to day work was generally performed according to the “developed” vs. “undeveloped” world roles, with little mobility for most positions. Different political factions consumed much of the last century arguing about which tweaks to this system would yield the best distribution of wealth, power and control… IF the world ran according to their system and followed ridged economic and political rules. Then a strange thing happened. The next revolution in work didn’t come from political parties, or governments or big corporations. Instead, the way we work, even where we work, has been shaped by the explosion in social media and the personalization of collaboration tools.

Over time, work has evolved. At the start of the last century most of the workers in the world worked on farms, including the U.S. The most technologically developed nations were just beginning to convert to manufacturing economies. As expertise in manufacturing increased, factories themselves (or oil refineries, or industrial processing centers) could be built and shipped to undeveloped areas. These isolated areas might lead to other developments, leap-frogging the development of the rest of the country. By the end of the last century, almost half of the world’s workers and many countries were still agricultural. The next stage was the evolution to service economies, based on the use of computers,
telecommunications and human brain power.

These “Intellectual labor” jobs are usually the highest paying and most desirable, as well as being the least anchored to any physical location.  And that brings us to the unexpected
revolution of the 21st century, the talent based economy. You need to have all the changes to the employment market that we discussed (and many others that we haven’t discussed), to move the focus of job evolution from governments and corporations to people. The new element that is fueling this revolution is social media and personal collaboration tools. For a number of years global talent… musicians, writers, graphic artists, software designers, researchers… have performed much or all of their work from their laptops and cell phones. People with these talents were the first to experience the
revolution because of three factors:

  • Intellectual labor: These creative professions are all forms of intellectual labor. It’s easier, faster and cheaper to move photons around the world than to move atoms. You don’t need special knowledge or expensive equipment to collaborate with other talented global workers. You can send work via email, or have meetings via Skype, or set up templates in a global repository using free tools from Google or Microsoft.
  • Project based: If you are an artist, a consultant, document editor or lawyer (to
    name just a few positions) you work on projects. Work has a specific start and
    end, with many processes in between that repeat from project to project. Often,
    project workers are employed for just the one project, and must hunt for the next job when it ends. You may own your own firm and hunt for new clients, or you may work as a freelancer and develop a list of firms that can provide you with projects. Either way, want what social media provides, a way to connect to a larger market place of potential projects.
  • Global Communities: By not being connected to a specific location, intellectual labor jobs allow more jobs to be available to more workers.  On the plus side, a difficult to find set of skills that could not be located through traditional searches in a local labor market, might be found globally. On the down side, assumptions about competency might be completely wrong. Someone
    contracted to do professional work (legal, construction, research, etc.) might be
    highly competent in their profession, but be unaware of local regulations or
    standards in another country or state. Likewise, if two artists collaborate on a project they can make their decisions about each other’s skills, but if they work in different countries they may be surprised about the differences in law protecting their rights and the ownership of their product.

The revolution in Work Globalization is underway! These are just the earliest steps in the revolution, but you can already see how jobs are breaking away from their traditional locations, allowing intellectual labor to be performed anywhere. In our next blog we’re going to about  the tools of the revolution: Social networks, collaboration tools and job bidding sites. But for today, that’s my Niccolls worth!

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When Is Disaster a Disaster? Understanding Trigger Events…

Posted on August 30, 2011 by Chris Niccolls

I’ve worked with a lot of firms on disaster plans. And I mean A LOT of firms. Some firms have built truly excellent disaster plans, but very few have built good triggers for their disaster plans. I’ve seen controls to prevent the trigger from being pulled accidentally. And I’ve seen guidelines for evaluating the aftermath of a disaster (and deciding on pulling the
trigger).  However, what I almost never see is a real plan to pull the trigger before the disaster strikes. These plans usually just push the decision in front of a manger, but don’t lay out how the decisions should be made. This decision-making process is the subject of
today’s Blog.

We know the size and shape of potential disasters. They are so recognizable because we regularly see them on the nightly news: a hurricane flooding a town, the aftermath of an earthquake, perhaps a building exploding when a Tornado’s cone touches down. A disaster’s aftermath is easy to recognize, but what does it’s… umm before-math look like? Most announcements of disasters never actually happen. Conversely, some disasters are events that we knew about but failed to understand the true magnitude. If it’s your job to
decide when to pull the trigger on a disaster plan, you’ve got to know what it is that you’re supposed to be looking for or you’ll miss that trigger event and the disaster will overtake you.

Some disasters happen with little warning, such as an earthquake, a terrorist bombing, or an accidental building fire. These have virtually no “before” stage, or at least no before stage that you are likely to know about at the time. We know about the disaster in the aftermath. If you’re the one to pull the trigger on the disaster plan, you will make your decision after the disaster is a disaster. Maybe the disaster struck a couple of hours ago,
and you only found out when you turn on the TV or read your first email. There may be some question about whether  the event is over (aftershocks after an earthquake) or its scale (a water pipe blew up, but was asbestos present?), but you have objective (but perhaps conflicting) information on which to make a decision. The trigger is in your hands, and you need to decide what to do about it.

If the disaster you’re facing has a long warning period, the triggering process can be very ambiguous. Take a look back at Hurricane Irene. Before the storm began, you had the obligatory newscasts from the beach: people still sunbathing, the occasional blue skies, and a weatherman with a microphone saying, “It’s hard to believe that the storm of the century will be here in just a few hours!” The governor of New Jersey was yelling at people on the beach telling them that they need to get out of there. When it’s not absolutely bvious that disaster is just around the corner, we all tend to delay making a decision or changing our behavior. Maybe the storm won’t happen, or will be smaller than predicted. If you’re responsible for triggering the plan, and the expenses and disruption that it will bring, what are the physical signs you are waiting for to pull the trigger? Do you wait until the first drops of rain or until the first house is swept into the sea? There are costs if you trigger, and costs if you don’t. Does your plan tell you how to balance these costs?

Let’s take a typical disaster situation and do a walk through and see how we would deal with the events. Let’s say you have a work center that manages half of your IT helpdesk calls. Around your center, the rivers are swollen, and it continues to rain; a flood is predicted near your center by mid-afternoon on Thursday. It’s early Sunday, and you are calling together your team to review the disaster plan. If you choose to activate it, the plan is to move some or all of your staff to a corporate center 500 miles away. That means that any costs the plan incurs… moving/housing/feeding… will need to be paid for. Activating the plan with a minimum staff of 10 for five days will incur a cost of at least $30,000. Since you’re not allowed to put “potential” events into your annual budget, you want to be very sure that it is a real disaster before you run up costs. Let start our hypothetical countdown to disaster:

  • Day 5 (Sunday): While the disaster is a long way away, you need to know what you’re going to say to the staff on Monday. Do you just pull your own thoughts together, or should you talk to the local manager… even though this is his day off? You decide to let the manager have a peaceful Sunday, but you do send him an email with questions that you need to review with him before your Monday morning staff meeting, tomorrow at 10am.
  • Day 4 (Monday): All the weather reports agree that it’s going to continue
    raining, and the rivers will continue to rise. If you’re going to move people out, you need to get them moving pretty soon, or you’re not going to be able to book any flights. Still. The last five times there was a predicted flood, the disaster never happened. You waited out those situations and you were right. Maybe this is another false alarm. If you trigger the disaster plan, you’re going to create downtime as you shuffle people from one site to another. It doesn’t look that bad yet, and you don’t want to look like Chicken Little. From years of experience you’ve learned that almost all disasters are false alarms. Almost. Better sit tight.
  • Day 3 (Tuesday): More rain. The center is begining to have workers out, as they deal with problems at home.The big flood hasn’t started yet, but individual problems are making it hard for your workers at their usual work site. The news says that the rains may stop. It’s a close call, but you decide to break with the plan and send just a few managers to the backup site to check out the site and see if
    everything works as expected.
  • Day 2 (Wednesday): Still, no flood. But there have been increasing problems in staff getting to work. No one is in danger, but many of your workers need to
    negotiate low-lying areas between their homes and work. Schools are closing, and
    family members may be in high threat areas. The loss of workers is starting to cause a problem. You decide to pull the trigger and send 10 workers to the backup site.
  • Not everyone is ready to relocate.
  • Workers need to turn off the gas and electric, the kennel cannot take their dog, someone has a sick child.
  • You shuffle a few schedules and end up with only seven people who can leave today.
  • Your center is in a small city with a small airport, and only full price 1st
    class tickets are still available. Ouch!
  • Day 1 (Thursday): The rivers are  getting close to the flood level, and travel to the work site is getting dangerous,  and too many workers are drifting away as they deal with their own flooding  issues. Workers are told not to come in that day, and are given instructions on  how they will be contacted as the disaster progresses. The backup center is  coming on line. Later in the day there are breaks in the levies in one area,  and rising rivers in another area. You hear conflicting reports about what’s  happening to your center.
  • Aftermath:
    Electricity, land lines and most cell phones are out near your center. Your
    disaster plan includes communication with your staff… how will you keep in
    touch with everyone? The small staff at the backup center has started to ask
    questions: How long will we be here; if we stay through the weekend, do we get
    paid for those days;  I took a child with  me, how will I be compensated for childcare; managers want to know if the staff  should just work on one shift, or have thin coverage on multiple shifts; users  are calling to complain about slow responses when they can n for PC support. No  one knows when the rivers will recede. In a couple of days some of your staff  is going to want, or need, to go home. To get any more workers you’re going to  need incentives…. Higher pay, a stipend, something! How do you get  authorization for that? You don’t have confirmation yet, but one manager said  that local news showed a mudslide near your center and it looked like the building took some damage. A number of workers may lose their homes. You need  to book a flight and see what’s happening yourself, and “show the flag” for  your workers.

How this will turn out? Will there be extensive damage at  the facility? How long will workers be able to work offsite, especially when  they or their families have problems of their own back home? And does your  disaster plan give you the ability to authorize all the special expenses that  you’re going to need to keep everyone working? A disaster plan is a great first  step, but few plans get into the details that you’ll need to make it work in  the real world. Take a look at your own plan and see how it measures up. At  least, that’s my Niccolls worth for today!

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Blue Skies, Black Swans and Backup Plans

Posted on August 28, 2011 by Chris Niccolls

As Hurricane Irene passes through lower Manhattan, there is  a tinge of panic but not the full-on disaster that has been expected. Wall  Street will be a bit mussed up, but open for business on Monday. For many in
New Jersey and Pennsylvania this was the disaster of a lifeline, the airlines and  passengers have taken a very painful punch, but for the rest of the country it  was certainly less of a disaster than was expected. Over the next few weeks, we  can expect to hear the Democrats say that Obama was swift to act and preventative
measures were effective. Likewise, you can expect the Republicans to say that Obama
spent money he doesn’t have too freely and they will undoubtedly pick out  individual cases of incompetence, corruption or just plain stupidity. And of  course, there will be much comparison of the Bush Hurricane (Katrina) vs. the  Obama Hurricane (Irene). But in the end, the message that matters is… disasters  happen, and when they do you will be much better off if you have a plan!

What were your plans for the last disaster… what about the next  one? Do you have a disaster plan? What about a backup center? Do you know what plans  your firm has in place, and… dare I ask?… have you ever rehearsed your plans  with your staff? By the time you read this the sky will be clearing, and everyone  will be letting out a sigh of relief. This is a good time to look at where your  system showed weakness. Maybe something ALMOST collapsed, maybe it just came  close. However, learn from this and figure out some fixes. When you do examine your operation, look at it in terms of these three issues:

  • Site:  Even if Hurricane Irene didn’t blow away your building, your work site might be  inaccessible because all the roads around you are closed, even if they aren’t  flooded. However, your basement could be flooded, or a small fire may have gotten out of control because the fire department couldn’t get to your site, or
    salt water might have gotten into equipment or blown out power in your area. Other  very localized disasters, such as an exploding water or power line, may prevent  you from getting to your work site. If there was asbestos in or around the conduits,  it could increase the time that your site is inaccessible. Whatever your
    disaster planning, what is the length of time that you assume your site is
    inaccessible… a day, a week , a month? What sort of disasters does this cover?
    Do you have a backup site to send your workers to? How often do you test that
    this site is still working?
  • Staff: A plan for your work site is great, but what about your workers? Even if there  is power at work, what if the disaster hit before everyone got into the office.
    If you have multiple shifts, how does the NEXT shift get to work?  Some outsourcing firms will offer to keep  workers onsite, and have power, food even cots to sleep on. This is great for a  disaster that last up to a day, but after that… not only will you have a very  tired, very stressed (and therefore error prone) team but eventually even the  most dedicated team s going to start worrying about children, spouses and  parents. If a disaster lasts for days, you are going to be very disappointed if  the plan is that staff will stay at work for that long. Alternatively, if the  disaster is as simple as a prolonged transit strike, does your plan provide a way to get staff to your work site?
  • Sources:  If you have a place to work and workers, the only remaining thing to work about is your sources of input for your work. This probably includes some sort of data feeds and internet connections. It may also include telephone access. Other things you may need could be access to your clients. Do you speak to them over the phone, via email or MUST you work in person with them… a big problem if you and your clients are no longer working at the same location. Do you consume physical resources, such as paper, and how much do you have on hand?

Once you are comfortable that you are getting the right answers for these three categories, there is one other factor you should consider. When an event or trend happens that is completely unexpected (or is the opposite of what should happen), it’s often called a “Black Swan”. Since all the swans you see are white, the next swan you expect to see white. You might see (and ignore) a white swan that is off-white or has a small patch of color, but the swan you don’t expect is completely black… clever, right? One of the reasons that we’re
seeing so many Black Swans, why the news is full of unprecedented and unexpected changes, is that our perspective has changed from very local to very global. Years ago one of the most memorable (and parodied) covers from The New Yorker magazine showed a “global” map with Manhattan’s 9th and 10th Avenue covering half the cover, New Jersey to the Pacific ocean covering another third, and the last sliver of the page showing the rest of the world. Change the map slightly, and that’s the way most of us used to think of the world. Used to. Now, we’re all working in a global world and we need to think globally.
Some of the bizarre things we see on the global stage are as strange to the locals as to us. I remember a few years ago that a ship in Egypt dropped its anchor and cut not one but TWO of the world’s most heavily used fiber-optic lines. Of course, some of the things we think are bizarre are perfectly normal to the locals. Did you know that in Australia, more swans are black than white?

Wherever you work and wherever your backup site, make sure that you have a plan for the site, your staff and the sources you need to do your work. Keep dry, and that’s my Niccolls worth for today!

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4th Sigma: P Charts Made Simple

Posted on August 27, 2011 by Chris Niccolls

It’s been a while since we spent any time on the 4th Sigma, so let’s take a few minutes today and talk about using the 4th Sigma process to address some problems in your operation. If you’re a regular reader, you’ll know that a recurring subject is that Six Sigma doesn’t quite work for corporate services (for the list of reasons see, “The 4th Sigma: Is It Time to Rethink Six Sigma?”). The 4th Sigma is intended to be a “dialect” of Six Sigma, a very familiar set of tools, ideas and processes… but simplified and designed for managing service quality in service organizations rather than manufacturing facilities. Manufacturing facilities need to tweak processes to gain hundredths or thousandths of a percentage of improvement; corporate services still have projects on their list that can yield 5 or 10 percent changes.  When we put away our very finicky high-powered astronomical telescopes and pull out our handy binoculars, we become mobile and very flexible. So, let’s take those binoculars and see what we can find!

Time for a quick side-bar! Starting with an all-encompassing toolset and then looking for something easier to use is nothing new. Over on the project management world, the counterpart for Six Sigma would be PMP, a highly detailed project process that started in the IT world and expanded into general project management. Like Six Sigma, it’s a very good system with lots of tools, but many practitioners in the field felt that it was just too much documentation for certain types of projects (because they were small or on very tight time lines). For example, when Microsoft releases a new version of Windows, they
need to follow a very detailed project management process. Skipping steps and releasing a very flawed product will be reflected in Microsoft’s stock value within days of the software release. On the other hand, a small application for internal use by the accounting department doesn’t require the same level of documentation or internal planning. As a result of this debate, two of the newer schools of thought were created: Agile and SCRUM. They don’t really object to the older PMP thinking. They just shifted their focus to whatever generates usable code. So the 4th Sigma is coming along at just the right time.

OK, what is the most useful yet simple tool that the 4th Sigma can give you? I think the answer to that question is: P Charts! Do I hear a, “YEAH!” out there? P Charts are simple. They tell you about variability in your services. When you read professional articles on variability or P Charts it seems like it’s something only rocket scientists can understand. Not at all true! Variability is just a way of saying that there are times when your service is better and times when it is worse. However, most corporate services just report metrics on a monthly basis, blending good days and bad into a single number. Without more specific information, you’re not getting a lot of information on the variances in your services. You won’t know that services are always bad on Tuesdays between 3:00pm and 4:30PM, and you won’t know why every last Saturday of the month your service is spectacular. More importantly, if you don’t know when these highs and lows happen, you will never be able to focus on these times and find out how you can consistently exceed or fail to meet service levels. If you knew this, you could make big improvements in your operations. So, how do you find out where you should look?

It’s easy, or at least it can be easy. Let’s assume that you are already reporting metrics, such as on-time-delivery (or any metric). Let’s further assume that your goal is 95% on-time-delivery. When you look at month to month numbers, you may see something like… 95%, 96%, 94%, 95%. Looking at this you may think, “Looks pretty good! We’re meeting outnumbers most of the time, exceeding it sometimes and when we miss… it’s just by a tiny bit. Not bad!” However, the reality is that when you’re off by just one percent on your monthly metrics, it usually doesn’t mean that every day was off by 1 percent. It is far more likely that there were large changes on one or two days where this metric fell to 80% or 70% or lower. The monthly figure says that services were good and consistent, but the people who use your services remember suffering through a couple of really bad service
days. This could be happening every month, but the evidence is obliterated when you read the monthly average number. All we need to do is to look at the detailed data, and these patterns of variability will suddenly “pop.”

P Charts were invented for the industrial application of Six Sigma. Even in a very advanced Six Sigma facility (say, a car factory) not every Six Sigma practitioner is a professional statistician. The “house statisticians” would create specific charts that other Six Sigma trained managers would use to identify the specific data that they would focus on. What does a P Chart look like? It looks like today’s graphic. It’s just a simple chart that graphs day by day (or hour by hour… whatever), and then draws two lines across the chart. The
one on the top is the upper limit and the one on the bottom is the lower limit. Every day that your team performs above the upper limit is a day where you have exceeded your agreed to SLA’s; if you poke around a bit on what happened on these days, you may find a simple reason why your staff performs better. Maybe one of your managers has found a better way to perform work or a different way to staff your service. Likewise, on days when your service falls below the lower limit, a critical staff position may be missing, or someone may be working who isn’t fully trained. You just need to ask the simple question, “What is happening on these days that doesn’t happen on other days?” Collect enough of these specific “variant” days and you will find a pattern.

The only missing piece of information… is where do you draw your upper and lower limits? You need to have some limits, because you don’t have the resources to deeply investigate every slight variation from your 95% target, and days with a 94.9% on-time figure won’t tell you very much. However, since we’re talking about corporate services all of our SLA targets are going to look pretty similar. Unless you are very different from your peers, you will have SLA’s that range between 85% and 95%. We could feed your data though a few formulas and develop upper and lower ranges, or you can just follow the chart below. If your SLA is:

  • 85% – Set the upper limit at 90% and the lower limit at 75%
  • 90% – Set the upper limit at 93% and the lower limit at 85%.
  • 95% – Set the upper limit at 97% and the lower limit at 90%.

It’s that simple. The range of the upper limit is smaller just because there’s much less headroom up there (and more room below the lower limit). We’ll spend more time on pursuing P Charts in another blog, but if you just do this much, you’ll be on your way to identifying and eliminating sources of variability. At least, that’s my Niccolls worth for today!

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Everyone Bow Down: Quality Control Has Conquered America!

Posted on August 9, 2011 by Chris Niccolls

Just a few blogs ago I said that with the debt ceiling silliness in D.C. resolved, we might have clear sailing until the next crisis. Who knew that the credit downgrade crisis was just a few days away?  Of course, no one can say that this is completely unexpected. If S&P was rating was a corporation instead of a government, what would they have done with the same data? Massively increased debt, no real plan for paying off the debt, barely a plan for paying this month’s bills, many missed deadlines to complete a budget, and the top officers too engrossed with complaining about their fellow officers to develop a financial plan. When the rating is dropped on Friday, what is the reaction on Monday… more blaming your fellow officers? Is this the kind of firm you would invest in? Why wouldn’t a rating agency drop their credit rating?

There will always be challenges to the economy, some legitimate, some exaggerated and some just plain old ridiculous. However, the hidden story about this historic event is… this is really about Quality COntrol. A credit rating is, after all, a measure of the quality of an organization’s operations and planning, and how this affects their ability to function. That’s not all that different from how the Regulators in your organization are using management reporting and quality improvement projects to understand the quality of your products, and the risk you represent to the firm if you are producing a poor-quality  product. If, like the U.S. Government, your organization is found to be lacking, what happens next? I think that we can expect was laid out a long time ago in  the 7 Stages of
Grieving. Ever hear of it? These are the stages that we all go through when we are lose something important.. someone we love, the job you loved, even when a child grows up and moves away. I’m not sure if Washington will grieve because of the damage they’ve  done to the economy or because their opponents refuse to drop dead, but here is how corporate grieving works:

  1. Shock and Denial: The government has been in denial for months now, while news report after report has talked about the possibility of a credit downgrade. In the corporate world sometime we try to ignore the coming of the regulators, hoping they will go away or that their negative report will not have any consequences. Most of the time though, it gets worse rather than better.
  2. Pain and Guilt: I think Washington has already passed through this stage, sometime between 9:00am and 9:01am. You, on the other hand, may linger in this sweltering hell of guilt forever. At least it can seem forever. I’ve worked with people who have had big quality problems, and almost always there was some knowledge that something was wrong, before the Regulators found the problem. Maybe they only had an inkling of what was going on, but not the metrics to identify the specific problem. The manager may have had bigger problems to pursue or maybe just didn’t want to deal with the issue, but he knew the issue was there. Now that the world knows, it’s a bit embarrassing, and it doesn’t feel very good.
  3. Anger and Bargaining: This is what Washington does best! Scream, yell, blame everyone, claim that the analysis by S&P was wrong (already in progress!), or just slamming S&P for making a bad decision to change the rating regardless of the analysis. You can expect this to the longest and most active stage of government grieving. For the rest of us, we may be allowed to have a bit of anger, but anything more than “just a bit” and you look unprofessional and perhaps a bit foolish.
  4. Depression, Reflection and Loneliness: When Washington grieves it’s the American public that gets depressed. When a manager has a problem, they usually need to suffer in silence and deal with it.  Managers that partnered with other groups, worked with early regulatory projects and improvement initiatives will be jointly responsible for problems. True, one will be the most responsible for a given issue, but you’re not completely isolated or completely responsible when something goes wrong. In a big corporation, no one person or group is usually completely responsible for anything, since any significant issue requires multiple areas of expertise that are not contained in any single group. The bottom line is that things go wrong, and as your career advances the magnitude of what could go wrong… that you will be responsible for… will increase. If you consistently work and compromise with other parts of your firm, especially regulatory groups, you may be able to avoid or at least minimize this stage. If Washington could re-learn how to compromise, it could have avoided the downgrade entirely!
  5. The Upwards Turn: We can expect the markets to bounce up and down for this week, and probably next week as well. Before S&P officially downgraded the government’s credit rating, the downward slide since early July was an “unofficial” lowering of the credit rating, by the markets rather than by the raters. Soon, do not expect this on day one, but soon… Washington will ask the all-important question, “What do I need to do to get back a AAA rating?” As a manager, the sooner you ask, “What do I need to do to fix my service?” the sooner you will be able to move yourself personally and your group as a whole back on the road to normalcy.
  6. Reconstruction & Working Through: Fixing the problem, and not fixing blame has got to become the 1st priority. In Washington there are some people who will get this and some who never will. Depending on how the nation learns from this experience, either we will continue to vote for people who say that they
    will never compromise, or we will vote for people who know how to work together.
  7. Acceptance & Hope: Few in Washington have yet accepted responsibility or is ready to believe that “the other side” has a position they can live with. In
    Washington or in your own firm, those who are not willing to change how they
    work today are not going to be able to improve the way they work. Moving from
    being told you have a problem to finding out how to fix it, is essentially the story of how you will move from your last failure to your next success. The best advice is… do it as quickly as possible and everyone gets a chance to be happy again!

Will the Washington crowd learn to fix the problems that they created? Until now, Washington wasn’t ready to make any sort of long-term budget deal. The credit downgrade is bad in the short run, but it’s providing a very effective incentive to make a deal. It’s the same in Corporate Services. We may convince ourselves that any number of our current problems are survivable.. until those problems become public. Sometimes, that’s what it takes to make us focus on what needs to be done. At least, that’s my Niccolls
worth for today!

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Is Your Staff About To Run Away?

Posted on August 3, 2011 by Chris Niccolls

The debt limit nonsense in Washington seems to be over, at least for now. While there are many arguments and much confused information about the national debt, we know that $200 billion of the TARP loans have been repaid, and more is being paid every day. There is softening in Energy, but a downturn after so many months of record prices is hardly unexpected. And there’s always the Middle-East to worry about. Aside from that, there’s not a lot of new news on the economic horizon, and no looming disasters… that we know
of. With no major obvious downturns around, it looks like the economic recovery
is likely to continue. What does that mean for the operations you manage?

First of all, you need to cut through the clutter of information on the job market. Ultimately, all knowledge is local. Having data on national employment trends is useful, but it may not tell you very much about who will quit and how hard it will be to fill your next job opening. Which is what you really want to know. The problem is that without a strong trend in any particular direction, you’re going to hear from one source the economy is up and from another the economy is headed down, and from yet another source you hear that this is the best/worst job market in years. Wouldn’t it be much better if you had your own custom reports on the job market? Well, you can!

Do you have an account with Linked-In? If you do, have you entered all of your contacts? Good! I assume that your contacts are mostly people something like yourself… those that work in your industry, worked in firms that you worked for, held positions similar to your own, worked for you, or that you worked for. In other words, the most important group of people in your world. No single group ever exactly matches the group you want when you’re looking for information, but these will be a very informative group if you want to know what is going on in the larger world that will most affect you. If you keep this group in Linked-In you will get regular information on job changes, promotions and other critical  employment data. For example, every week you get a list of changes (including job changes). In July, I got a message from Linked-In that gave me a semi-annual update on the changes that happened to my contacts.  I counted the number of individuals who changed jobs, and doubled it (since it was for six months) and then compared this to my total number of contacts. Here’s what I concluded:

  • From the general buzz and communications with my peers, bonuses and raises have been way down for a lot of groups.
  • In the press, every survey I’ve seen says that today’s job market has the lowest  level of job satisfaction ever recorded.
  • What do my own contacts show? The annual “job change” rate is running at over 25%, based on the first six months of this year. (What do your Linked-In numbers show?)
  • By the end of 2011, I expect that the rate will be even higher, since the market is continuing to improve.

The Bottom Line: An unprecedented number of employees want to move to new jobs, but the managers I know have more latitude in offering money to new employees than to existing staff… a common situation after an economic  downsizing. That makes for a perfect storm of job changes, not just moves to other firms but also job changes within your firm. After a couple of years of cutting staff and reducing costs, the mechanisms for retaining staff may be rusty and slow to respond. Normally, you can at least expect that staff will stick around until after they get their bonus… but with unpredictable bonuses, not too many employees believe that waiting will be rewarded.  So, get ready to spend a lot of time this coming year as people look for promotions and swap jobs just because they had enough of what they’ve been doing. The increase in job swapping will pressure your resources: more time spent searching, interviewing, training and weeding out bad hires. So get ready for change… and that’s my Niccolls worth for today!

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How Modern Guns Conquered The Old West

Posted on August 1, 2011 by Chris Niccolls

No single story defines America’s Old West. Instead it is a series of individual stories… Big stories about Big characters doing big things. Usually with big guns. The West and the Gun are inseparable. “God didn’t make men equal Smith and Wesson did!” and Winchester, “The gun that won the West!” are two typical sayings that give a glimpse into Old West thinking. The gun was an equalizer that let any man stand tall and stand alone. The West is where America forged the idea of the American as the rugged individualist. Just one man with a gun could do just about anything. The well-armed individualist could free a town from oppression, take back stolen land, right wrongs and in the end marry the town’s school marm. While the hero of each story was always a one of a kind, the second banana in the story was also more interchangeable, not just one of the guys but someone who came off the assembly line. I don’t mean Scruffy the loyal sidekick, or Lightning the
trusty horse,  I mean… the gun.

In the early days of the west, a gun was one of the most complex pieces of technology around. Clocks might have more complex workings, but they weren’t built to stand up to the explosive punishment of gunpowder. Guns needed to be built in large numbers, and they needed to be repaired in even larger numbers. If guns were still handmade, they would have been too expensive and too fragile to play the pivotal role they did in the West. Even before the days of Old West, gunsmiths understood this problem and pioneered
the use of interchangeable parts. Interchangeable parts made guns easier to make, which in turn made them affordable. Where interchangeability really counted was when the gun had a problem. Without interchangeable parts gunsmiths were too few and far between to maintain the millions of guns scattered throughout the small towns of the West. Perhaps most importantly, the gun industry established some of the earliest industry-wide manufacturing standards. One of these standards was ammunition; regardless of the model or the manufacturer, any gun designed for 44-40 caliber ammunition could use this ammunition regardless of which company manufactured it. That was a huge advantage, whether you were an army officer or a gang of cattle rustlers.

But let’s get back to our own Wild West. We each work for firms that developed their own standards for internal services. Some believe that their services are proprietary, and that they shouldn’t share information or standards. Others just don’t see any value in shared standards. Even within the same firm there may be different standards in different departments. Think of the software used in each department, the types of furniture used by different groups, the hours of operation of different services. When groups don’t have reasons to interact, they don’t have reasons to develop common standards. But just as America’s West helped to accelerate many trends, not the least of which was the use of
interchangeable parts, so too will the coming of Cloud based sourcing make our work environments more similar, and more efficient. As each firm absorbs “interchangeable parts” from the Cloud, they will move towards greater standards and efficiency.

Just to understand how this will work, let’s take a look at a typical corporate service and see how it has evolved so far, and how it will continue to evolve. In this case, let’s use a document center as an example:

  • Software: Once upon a day only firms wrote their own word-processing software. Later, they bought third party software. That was a step in the right direction, but products were incompatible. Almost all word-processing software today is based on Microsoft Word, or actually bills itself as a “Word Clone”. Other types of document editing software all offer some form of MS Word compatibility.
  • Add-In’s: As document centers spread across investment-banking, legal and other industries, some of the individuals working in these centers developed strong technical abilities. They created macros and custom shortcuts to increase their personal productivity. As these centers grew in size, these individual
    productivity tools became a problem; while individuals may have worked faster,
    the custom code in the macros made future editing by other operators more difficult. Centers developed their own “standard” macros, purged any individually developed software and increased efficiency. Still later, Microsoft introduced similar macros in periodic updates. Still other macros were developed by numerous third party groups. Standardizing the “custom” aspects of each document center made the centers (and software upgrade cycle)much easier to manage.
  • Training: With more standard software, the training burden is reduced. We still need an training group, but most work can be handled by outside groups. With greater standardization, a new worker can reuse more of their experience and get up to speed more quickly.
  • Hiring: Positions within a document center are highly specialized, but not so numerous that a typical HR officer understands the difference between an experienced secretary and an experienced document processor. In the past, a secretary may have performed similar functions, but would not necessarily have the skills or inclination to work in a modern document center. However, document center job descriptions have followed the same direction center functions, becoming more similar from firm to firm. Because of this, an HR department today can quickly find the right fit for a new position.
  • Storage: Creating document is one thing, finding a document when you need it is quite another. Individual centers have each taken a stab at developing or customizing document storage systems, with mixed results. Just a few years ago,
    corporations developed their own software, but today virtually every firm buys third party document management software. Once Cloud based storage becomes
    dominant, document management products will advance quickly. Just like changing a cell phone provider, I will also be much easier to migrate from one provider to another, allowing you to test different providers and quickly find the one that best meets your needs.
  • Security: Document centers create files with information on client deals, awarding of contracts, hiring and firing decisions, legal decisions, and other confidential actions. A document center cannot operate if it is not secure. Yet, firms usually assume they are secure without true testing of this belief. Cloud based services use 3rd party firms to test and verify security, simulating cyber-attacks and break-ins. Also, by dispersing data through different providers, any single breach cannot expose an entire firm’s data. Keeping all data on a single network is like building a bank robbery in the old west. The bank may be relatively secure, but it stands out on a map of the town and it tells the robbers where the money is. If you’re in the business of robbing banks, knowing the next bank’s location is key to staging a robbery.
  • Access: Cloud carriers are all about access, they want the largest number of users. That’s why they exist. In a corporation, some groups pursue greater access and some pursue greater restrictions. That’s why Cloud services will be the first to develop new solutions to access issues… more of their resources are dedicated to
    finding access solutions. Expect a larger number, and more elegant,  solutions from the Cloud. Over the next decade documents will become universally available. This will revolutionize editing and “consumption” of corporate documents… just as the digital consumption of news stories and books have been revolutionized in the last decade.

Interchangeable Cloud services will “conquer” corporate services, just as interchangeable parts allowed guns to conquer the Old West.  It’s time to check out the Cloud, and make
sure that you’re packing the biggest guns you can find… and that’s my Niccolls worth for today!

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