The Inevitable Optimization Need

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The Inevitable Optimization Need

The need to avoid excess staffing costs, improve productivity and climb the value chain has always been important for the outsourcing industry but now it is the very oxygen to the survival of the business. We have seen in the last couple of years the aggressive moves of organizations to do more with less, and the price war in pockets of the outsourcing industry is known to all. This has put a lot of service providers to test the elasticity of their efficiency and also potential?learning on where to draw the threshold for a sustainable efficiency target.

?The continuous need to shift the equilibrium between CX, cost, and Margin sustainability from what it was before, based on the need to bring a competitive edge on just one variable. i.e. Cost/price has accelerated in the last 2-3 years. This obviously has brought some ripple in the market since everyone is looking for a sustainable strategic approach to lower their spending while improving all other aspects of the business. This definitely has pushed a lot of us to look beyond the general industry cost optimization practices and of course, there is always going to be success and failure while learning through it. It is a very broad area, my attempt is to look at areas relevant to ?WFM and outsourcing.

Precision and calculated Risk in Demand Forecasting:??

Fluctuations are inevitable in any business. Make upside demand forecasts only based on hard facts and focus on short-range trends. We are not Nostradamus, however, the volatility of business for some of the industry has time and again taught us that not everything can be predicted through statistics and there is a need to truly understand the part of the business that brings those uncertainties, and drive improvement in the precision of all the assumptions that would decide the statistically insignificant part of the projection process. This doesn't guarantee the usual margin of error, there is always a question of what if it doesn't or it does, the important aspects are, what is the risk we are picking up for both scenarios and how much can we de-risk it and what is the cost involved in it. The idea is to have a clear, precise map of how the plan manages and mitigated the identified risk, if the effort and the cost associated with it are reasonable. There is going to be always a deviation from the plan and more so in the current business environment, hence to be in the game, the focus should be equally put on how to bring agility and flexibility to the system in a way we have never done before.

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For example, how can I scale up/ scale down x% in the shortest possible time, How much can I improve in terms of additional work hour sourcing within 1 day as a sustainable model, what is the current capability of the organization in managing large scale temp resources? What is the maturity level in terms of cross resource pool skilling capability etc.

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The importance of Tollgates in all areas of the staffing lifecycle:?

Staffing costs normally range from 40-60% and it is the area where efforts make the biggest difference. Optimization is generally the next step after the demand and supply are in equilibrium hence it is important that there is minimal to no delta between Supply and Demand to begin with. While it may sound easy, there is enough work and effort to attend to the equilibrium first and it is not a one-step process but a multiple-point check and intervention process. Broadly we all know the lifecycle of staffing, however, the effectiveness of managing the stages of the life cycle efficiently with minimal delta requires enough understanding of the business, process challenges and inflexibility of the system we work in. Depending on the effectiveness and maturity of the organization, a broad-level suggestion would be to run a continuous predictive exercise on all the stages of Staffing by setting targets for margin of error for projection and a tolerance target of staffing excess close to zero at each stage. The intent is to have enough time to go through continuous efforts to narrow down the excess/ shortfall.?

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For example: How deviation at each stage can lead to if not intervened on time.

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Let's start with a requirement of 100 FTE. OOO shrinkage10% + other buffers 5% - 117(round up), Training throughput 85% - 138, Hiring throughput 90% - 153.

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If Hiring throughput goes 100% we would have 15 HC additional entering the system, if Training throughput gets us 100% we would have additional 20 excess getting into the system making it 36 excess by the time the batch hits production. 36% is a number that can eat up 10-15% of your Bottomline easily, while all the above assumptions may sound reasonable. The above range at which we plan though may be a range that we experience in reality, however, the potential exposure to O/U is quite significant. Even with a normal deviation of 5%, it would still be a significant impact.

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• Planning assumptions Toll gate (Know and put control on what is going to happen):?This is where the discussion begins, to put the line between reality and where we need to be and the subsequent actions that assure the delivery of the Planning assumptions we signed up for. It is important that there is presence of a checkpoint that would measure the risk and set the planning for success with unbiased inputs. This toll gate needs to keep a reference of what those planning assumptions translate to in terms of financial output and the risk associated. This Toll gate would set the tone of what it would look like for all the quantitative output for the month. It is where all the innovation takes place to bring out the most efficient staffing models. In the above example this is where it gets decided if it is requires 153 or less/more to deliver 100 FTE.

• Hiring excess Tollgate:?This is where the journey into reality starts and the possibility of deviation also starts. It is important to have a control mechanism deployed that brings the intelligence of predicting more accurate and precise Hiring throughput. The attempt should be to ask and assess all factors of possible deviation from the target threshold before the supply is onboarded. Apart from all the practices of projecting hiring throughput, If we keep assessing the probability, the uncertainty usually reduces as we come closer to the timeline. It is also important that the Hiring pipeline is somehow linked to the process of excess identification in all the stages.?In the above example this is where check points and efforts are put in to make sure that nothing more than 138 HC is handed over to Training by the Hiring team.

• Training excess Tollgate:?This is another important step before the excess Headcount finally makes it to Production. There are many participating factors influencing the Training throughput. Excess handed over from Hiring, quality of the Resource pool, Trainer, Environment etc. Any instance of throughput projection during the training period that deviates from the target/Plan throughput should trigger a need for action to mitigate the potential gaps. It can be more effective when there are scenario-based SOPs inculcated in the Tollgate reviews. For a relatively large organization, a strong process of timely excess detection and transfer to the upcoming supply pipeline should reduce excess moving into Operations. In the above example this is where Training team assess and project the graduation rate and work along with other Dept to mitigate risk of excess/deficit, Anything above or below 117 HC is to be managed.?

• Production excess Mgmt. Tollgate:?Once Excess HC gets into the production pool, the natural reduction can only happen through attrition, movement from excess to deficit supply areas, increase in demand or through a performance management process. Once we have excess in Production, it is a complex barter between training & hiring cost and effort, knowledge leakage vs short-term cost savings through excess shredding. It makes the decision process complex and on most occasions would result in carrying a month or two excess before it becomes backfill for the natural attrition. For mid to large organizations this is when the Enterprise level resource management and inter Lines of business or channels movement strategies solve some of the problems. Organizations must develop and mature the capability of a multi-skill resource pool with an intraday movement model that is sustainable as a long-term solution. Optimal HC excess Mgmt. is not all about Shredding HC permanently, it also can be a healthy cost avoidance strategy through voluntary methods like Voluntary time off, Long leave options, Unpaid knowledge enhancement programs etc. In the above example this is where check points and efforts are put in to make sure that no excess or deficit exist against the 117 HC needed.

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Commercial restructuring – Value enrichment with mutual benefit.

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While cost reduction is at the core of everything right now with value as a dominant theme, and it is obvious, at a time like this client/buyer looks for the best price, it is also important to look at a holistic view of what are the most top critical problems the client is trying to solve now. Price is definitely a deal differentiator however it also directly impacts the Revenue and the Margin hence existing customers who have historic price points and who are looking to reduce their spending do put you in a spot. There is always room for improvement, yet, it is more difficult in quantitative areas beyond a certain point and hence it is important to put up the real question of what is that we can solve additionally that would allow us to ring-fence the price point. For example, is lowering cost a sustainable cure to the depleting customer base/sales for the client? What is the investment risk we can pick up that would help solve the real problem and in return what is the payoff we can get? It is always Low Risk and Low Rewards, High risk and High Rewards.?

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FTE-based, Hourly, HC based which are pretty straightforward commercial constructs have very limited areas to look for when it comes to restructuring as any workload optimization is a double-edged sword, it cuts both cost and Revenue to a service provider. Output-based commercial constructs are all about driving optimization and reaping until rebaselining is done and new targets are assigned. Outcome-based are relatively new and more complex in nature and it's usually a high risk and high reward. Any output base model which carries a long experience of the business should look for opportunities in turning into an Outcome based model provided the relationship is mature and strong enough for any empowerment shift to make the model work. What works for some may not work well for others hence the best is a customization that clearly and tangibly depicts the competitive advantage with specific success measures that justify the price point. Further, it can be bundled with other additional commercial constructs of shared Risk and shared Benefits Models. In all of these, it is important to fully understand the capability of delivering such a model and the sustainability of the effort required to make it happen.