Q&A: Andrew Muras, Vice President at BAE Systems
SSON: What are the key benefits of outsourcing?
Andrew Muras: The keys to an effective outsourcing practice are: management and cost-control. Management, in that there may be some reasons for internal perspective: you cannot do things the way you would like. Therefore, you may most likely hire a contractor over whom you would have better control —regarding how he/she does business — than your own internal staff, department or division. Also, from a cost perspective, you would hopefully get some better ideas and better control from a contractor.
SSON: What are the key elements of effective performance management for an outsourcer?
AM: Clear communication in terms of service levels and metrics. If you don’t have criteria associated with metrics, then you don’t have a good contract or service-level agreement. You need to set some type of punishment for failure to meet goals.
SSON: What are the basic tools for process improvement?
AM: The basic tools for process improvement are: Activity-Based Management, Lean and Six Sigma from a cost, quality, and time perspective. Although you can use all three as a combined baseline when you are looking at any process, system or analysis, you can evaluate cost from an ABM point of view. Similarly, cycle-time can be assessed from a Lean perspective, and quality from a Six Sigma standpoint.
SSON: Where do you begin the steps for process improvement?
AM: You can begin process improvement anywhere in the SS and outsourcing framework to try and achieve scale. It doesn’t matter what functional area or process you are going to use, but what you are actually going to evaluate. Typically, you’ll need to know the baseline where you are, currently; so if you make any improvements you can demonstrate it.
SSON: How can a company implement a successful tops-down/bottoms-up approach that would lead to desired results?
AM: When you are looking at metrics and performance management, you need to do so from both a strategic and operational standpoint. Strategic in terms of: what is the strategy of SS or other groups from a tops-down perspective; what is management expecting of us; what do we need to do to survive in the future? These are the top-level ideas on which the organization or group is focused. The challenge in often doing the score cards from a tops-down approach is the difficulty cascading that all the way down to the bottom. Therefore, you also need some approaches and that’s where you typically use your ABM, Lean and Six-Sigma from a bottoms-up perspective to determine the activities and processes that people are doing on a daily basis, and how you can improve those and put metrics around them. When they converge in the middle and you have metrics from the bottom from an operational standpoint, and from the top from a strategic perspective, they meet in those intermediate score cards.
SSON: How important is benchmarking and why?
AM: Benchmarking could be an Achilles heel. There are two types of benchmarking: external and internal. External benchmarks play a role in business, but it’s not panacea. It is very difficult to make apples-to-apples comparisons, and you have to be very careful. You need to look at what you can do to improve and make things happen, as well as how you compare to others. On the other hand, internal benchmarks can be measured with multiple groups, such as SS in different areas. In terms of internal benchmarking, you can establish your own set of benchmarks and compare year-to-year, quarter-to-quarter how you are doing and improving. When you are using your own internal data, you know that you are comparing apples to apples and you have specific references on what you should be improving. For instance, you may have multiple groups working in different regions sharing services so you can compare how one business unit performs against another.
SSON: Have you seen any innovations on the radar in outsourcing?
AM: There is a constant trend toward getting better contracts and service levels that are good for both the client and outsourcer — that’s a constant struggle. Companies need to understand what they are outsourcing versus what they should keep in-house, and the impact of those handoffs.
SSON: What are some of the challenges companies face in achieving economies of scale in pooling everyone together in a shared services group?
AM: Some of the challenges in gaining economies of scale in a SS group are:
- many business units do not want to give up their people
- in some cases, companies often think they have done it better in the past
- others may not have metrics and understanding of how the organization is operating and performing currently, so they can’t show that they are doing it better
- some companies do not have a good understanding of cost involved — what it takes to do their processes now, and in comparison to different locations versus if they pooled it altogether.
If you do not have a good cost number, you cannot make a good ROI decision. Also, if you do not have a good C-level executive driving the initiative, it is difficult to make things happen.
SSON: Could you provide a scenario for best practices in SS?
AM: We use the "Fast Track Assessment" that encompasses nine specific areas:
- Governance: in order to govern effectively, you have to set up a process and manage it. Get everyone on the same ‘sheet of music’, whether it is setting up counsels or through your monthly meetings — whatever you might need to do. Also ensure that there is a very clear structure, in that your SS also has a fairly high-level of reporting: either it is governed by a VP and/or hopefully reports to a C-level executive.
- Performance Management: look at how you are performing, what you are doing, and show where you are going. If you can do that, you can often help to solve some of the service definition, customer relationships and other issues.
- Service Definition: define service, quantify in terms of cost and metrics to clients and see if they agree with the service they were expecting. If they can’t see it, then you cannot value it, and you can’t qualify and quantify if you cannot value.
- Chargebacks: the idea of chargebacks is to create an avenue to open communication with customers and develop service level agreements.
- Technology and Systems: you have to decide if you want to be top-tier and invest in really good technology and IT staff specifically dedicated to that effort.
- Workforce: you have to ensure that you recruit and retain the best people to make your SS a viable option. When people become disenchanted, it results in a high rate of turnover, so you have to manage the situation.
- Continuous Improvement: this should be part of the culture — a mindset that should be established to improve the business. For example, a manager’s criteria for raises and/or metrics associated with cost per transaction.
- Customer Relationship: you need to document and define what you do. Keep conversations with customers about cost and quality associated with it.
- Implementation: putting the SS into practice to add value for your organization.