June 2008 Business process innovation By Nari Kannan Process Innovation and Business Transformation are mentioned by buyers of outsourcing services as well as vendors. Often, the reality is that once the business process is outsourced, both buyers and vendors are more into stabilising the business process and making it work as it did before than they are in process innovation. Business Process Outsourcing is portrayed as a transformative activity, but that potential is ignored for the most part. Roadblocks to process innovation are many. Cost savings is only one of the benefits that can accrue from outsourcing. Efficiency and effectiveness improvements can also come if roadblocks are identified and removed systematically. Technology and other process innovation techniques promise a number of efficiency and effectiveness improvements that deliver true business transformation. Typical Roadblocks to Business Process Innovation: Resistance to Change: When a business process is outsourced it is usually executed the same way as before, even it is not optimal. In other words, they are paving the cow path. However, outsourcing presents a very valuable opportunity to change the way things are done currently. Resistance to change is a significant roadblock to be overcome. Disincentive for Transformation: Another major roadblock to process innovation in outsourcing is more of a people issue than a technology or a process one. It is understandable that an event like outsourcing a business process is quite traumatic for the people and the organisations involved. Changing the way processes are executed is often the last thing that organisations want to try in addition. This is a significant roadblock to overcome Emphasis on Cost Savings: Most outsourcing deals are done for cost savings, initially at least. This undue emphasis on cost savings masks the fact that at some point in time in the future, process innovation may be necessitated since all the competitors have the same cost savings advantage with their own outsourcing efforts. The cost advantage vanishes quickly and process innovation may be needed to compete effectively. Need for Stabilisation: Outsourcing, especially offshoring of business processes need to stabilise quickly and perform the same way as before since parallel runs are expensive and in many cases not possible, just because of the nature of the business process. Stabilisation becomes even more crucial when it comes to processes that involve end-customer contact. Process innovation hinders stabilisation quickly and so many organisations are wary of it in the context of outsourcing. Process Innovation Opportunities:  There are plenty of process innovation opportunities in the context of outsourcing. Some of them are: Formalising Informal and Undocumented Processes: Outsourcing and especially offshoring, forces organisations to document hitherto, undocumented and informal processes. Formal documentation of processes is done for legal reasons like outsourcing contracts. However the nice unintended side-effect is documentation and analysis of the current business process. This provides a good opportunity to ask why processes have been executed the way they have been, so far. This identifies obsolete and unnecessary steps in these business processes.  In practice, process analysts are always surprised by obsolete and unnecessary process steps that they unearth, just because that’s how things have always been done before. Benchmarking against competitors:  Online providers of products and services are use very innovative business processes that improve efficiency and effectiveness, sometimes, by an order of magnitude. Entire business processes are implemented online. Online loan processing is a very good example. Business processes that are not as effective and efficient are begging for process innovation, especially at the time of outsourcing. Exploiting Service Provider Expertise: The outsourcing service provider may have the knowledge, experience, infrastructure and people trained in performing these business processes in ways that more innovative than how it is being executed currently. Outsourcing provides a good opportunity to exploit the capabilities of the service provider. Exploiting Technology Improvement Opportunities: Outsourcing service providers are increasingly becoming adept in using digitisation, document management and automated workflow to execute business processes. Outsourcing provides a great opportunity to exploit these capabilities of the service provider both in terms of expertise, people, technology as well as the cost savings in using shared investments in these systems by the service provider.    Improving Security and Compliance Aspects of Business Processes:  Outsourcing provides a great opportunity to upgrade and validate the security and compliance aspects of business processes. Off-shoring of business processes forces this on buyers of outsourcing services, just because of the potential legal complications of moving the business process to another country. If these aspects have not been addressed before thoroughly, outsourcing provides a very good opportunity for organizations to do them. Process Innovation Techniques There are a number of process innovation techniques that could be used in outsourcing. Process Streamlining:  Mapping a process and analysing the rationale and contribution of each step in the process identifies obsolete and unnecessary steps that could be eliminated.  Asking the question – why, identifies process steps that need to be streamlined. Value-Added Analysis: Value-added analysis identifies process steps as value-adding or non-value adding depending upon whether that process step adds any value to the end customer. For example, picking and packing a shipment in an online store adds value to the end customer. Filling out an internal form does not add value directly to the end customer. Sometimes some process steps may be mandatory if they are required by governmental agencies. Value adding or mandatory steps are shortened or optimised while non-value adding steps are eliminated. Service Blue Printing: In the 1980’s Lynn Shostack invented a process documentation tool called Service Blueprinting. This maps a process in terms of the end customers and touch points that involved them. These are potential fail points in that the organisation does not meet customer expectations. Minimising these touch points and making sure that touch point expectations are made explicit and met consistently is a very good approach to process innovation. Process Metrics Tuning: Process metrics in the context of outsourcing often involves three classes of metrics – People, Technology and Process metrics. For example, people metrics ensure that enough trained agents are available to answer customer phone calls. Technology metrics ensure that they have available at their disposal, the right information systems when customers call. Process metrics ensure that all aspects of the process relevant to providing service over the phone are covered appropriately. Process innovation need not only focus on efficiency aspects of a process, but a broad variety of appropriate metrics. Digitisation and Automated Workflow – Digitisation and automated workflow tools are optimising a number of business processes, especially in the context of outsourcing. When the outsourcing buyer and outsourcing vendor are located in geographically distributed locations, digitisation and automated workflow enables work to flow seamlessly, and without delays, across large distances. No process innovation efforts would be complete without considering if these techniques are appropriate. Change Management Solutions – Process Innovation approaches are most effective when they are implemented in a way that facilitates continuous improvement. Change management solutions are excellent tools to deploy once processes are improved and documented properly. Change management solutions track and document even minor changes in the processes. They are also useful for tracking and managing issues between the buyers and vendors of outsourcing services.  Process innovation opportunities present themselves when processes are considered for outsourcing. However, there are a number of roadblocks to process innovation that come up. Once these roadblocks are overcome, process innovation has the potential to deliver an order of magnitude better, efficiency and effectiveness improvements. There are a number of very interesting approaches and tools that deliver process innovation in the context of outsourcing. Nari Kannan is CEO of Ajira, a company that designs and develops Service Process Management Tools. He can be reached at nkannan@ajira.com