Volume No. 53

Managing Performance in an Outsourced Environment
(Are Our IT Systems Up to the Task?)

Let’s face it, competitive outsourcing is here to stay. We don’t have to agree with it politically, emotionally, or theoretically…it’s just a fact of life in today’s business environment…which begs the question whether our performance management process and systems are up to the task.

For all that has been written about the practice of outsourcing (and there’s no shortage of writings in this space), precious little has been said about if and how our PM processes and systems will need to change in a heavily outsourced environment. Perhaps this is because many companies still see an outsourcing relationship as just another vendor to be managed – a key vendor or strategic partner perhaps, but a vendor relationship nonetheless. But is it really that simple? To answer this question, it’s worth looking at a couple of key aspects of performance management that has shaped this landscape in recent years.

On one hand, there is the reality of outsourcing, and the overwhelming complexity of dealing with an overextended network of information flows, many of which will ultimately exist outside of your corporate information portfolio. On the other hand, we’ve had the significant growth of ERP and other corporate wide reporting systems – an IT “wave” that is replacing our legacy mainframes with the latest and greatest in enterprise reporting technology. The operative word here is “enterprise” – and what that word really means to the future of performance management.

While the wave of ERP systems has driven some well needed perspective and improvements to our performance reporting environment, it has also created a level of “structure” that may be difficult to maintain in tomorrow’s business environment. The reality is that hundreds of millions of dollars has been spent in this transformation, an investment that could soon end up in our museum of IT history if we are not careful. Outsourcing poses the biggest risk in this arena, as it will quickly challenge the very structure that these latest and greatest corporate applications set out to achieve.

Let’s look at a typical outsourcing context.  Take a function like facilities management…stuff like corporate security, catering, janitorial services, equipment maintenance and the like – a function that was once one of many departments that make up our internal organization. Only now, this function has become heavily outsourced because of the scale and unit cost efficiencies achieved by shifting these services to a best-in-breed provider (an obvious end state for all “non core” function like this).

On the surface, the outsourcing of a function like this appears to be a significant “win-win.” That is until the company tries to roll the management of this function into the corporate IT fold. What was once a simple task of rolling up accounting and HR data from internal systems is now a task that may involve up to 10 different vendors. If the complexity of capturing the costs from this many points of service doesn’t kill you, the process of understanding and normalizing for the differences in data reporting and accounting practices certainly will.

And that’s not the worst of it. The “zinger” in all of this is that you’ve just spent 80 million dollars as a company to develop your “integrated” reporting framework, which, at a minimum will have to be re-tooled to integrate with the myriad of relationships that are now reflected inside of one single outsourced process. That assumes of course, that all of these vendors and partners “play ball” your way- an unlikely reality, to say the least.

If you’re an IT director responsible for the implementation of one of these integrated reporting systems, this is the proverbial train wreck waiting to happen. But don’t jump off that bridge quite yet, because there is a silver lining. That is, if you are willing to challenge the conventional way information is managed.

The answer lies in embracing what some refer to as an “inside out” versus a “top down” information management framework.

So what do we mean by an “inside out” information framework? Let’s start from a different place. Imagine a world where an enterprise is really a large collection of many businesses, all of which can be viewed as independent competitive entities – entities that are assembled in a way that is strategically connected to the vision, mission, and objectives of the corporation.

That’s right…everything from the security guards on the first floor, to the investor relations department on the thirty-fifth. Instead of each of these businesses being given a budget, they are given a clear set of KPI’s, a list of competitors, and a performance contract with clear incentives and accountabilities. They (with some coaching if necessary) determine what information they need to manage their business and achieve their outcomes. They may be given some tools of the trade to manage this information, but the information is their’s to manage.

Conversely, at the portfolio level, leadership defines the outcomes that each of these businesses are to achieve. The portfolio level can be a very small team of individuals, each of whom are accountable for defining what they need, how much of it they need, and the competitive price they’re willing to pay. They have their own dashboards and KPI’s to manage, but they are a lot more focused on outcomes and less on the operational indicators (the “how’s" of how the business is managed rather than “what’s” of what they must achieve in terms of outcomes). The operational side of the business (the how’s) is managed in a highly decentralized manner, often by the providers of these services themselves, who are in many cases external vendors and suppliers. Performance Management has become a highly decentralized portfolio management game- a world where the integration of the provider network becomes far more important than achieving that perfect “top to bottom” architecture and warehouse of corporate information.

There are lots of ways to describe a model like this. Some refer to this model as an “Asset Management” orientation where assets are managed separately from the services that construct, maintain, and service them. Others call it a management philosophy of “universal contestability.” Others call it a framework for simply rationalizing and outsourcing services. But whatever you choose to call it, it poses a dramatically different challenge us – one that if not met head on sets up our huge IT investments for failure.

So what specifically needs changing?

For starters, the information needs in the outsourcing context are markedly different, and need to be identified as such. Today, the information needed to guide the outcomes, and run these competitive businesses may not even exist in our legacy systems, and in turn are not likely to even end up in the ERPs themselves. To continue with the Facilities Management example, try comparing a performance report (assuming there is one) of an internal corporate security department with the likes of say Pinkerton (a competitive provider of security services nation wide). They are dramatically different in both design and content.

Next comes the challenge of managing one of these entities, when and if they become outsourced. How much of that information will be needed from the vendor? How much will come from your systems? How will you blend the two when necessary under the likely scenario the data sharing protocols are different?

This is the challenge of integration is far more important than the challenge of aggregation which is often the foundation for most of our corporate systems. We are fixated to some degree on terms like the “cascading scorecard” which by definition sets us up to manage each of these functions down to the work-face level rather than a logical network of relationships between the corporation and its nodal-style network of strategic suppliers and providers.

By applying a more decentralized/portfolio managed construct to our information needs, we begin to more accurately paint the picture of how our organizations will function in the future, enabling our ERP’s to function effectively at the result or outcome level.

As you implement your PM reporting systems, think small and grow outward. Develop systems to meet the needs of each discrete business-individually at first. It doesn’t mean you can’t use the same software or measurement frameworks and ultimately replicate and link to other business processes and functions over time. It doesn’t mean that you can’t connect these businesses strategically.

In the performance management world, smaller is better, at least to start with. It’s easy to build on successes and link things together over time, as long as you keep the framework flexible and adaptable. Avoid the tendency to have the perfect system, one that looks great on paper but won’t come close to surviving the challenges posed to it over time. The complexity you eliminate will go a long way towards delivering superior information at a fraction of today’s cost.

Author: Bob Champagne is a Vice President of Performance Management Solutions with UMS Group, Inc., a privately held international management consulting organization specializing in Performance Management tools, systems, and solutions. Included in UMS Group's product portfolio are a wide variety of performance tracking, reporting, and benchmarking solutions, as well as customized performance assessments and diagnostic services. UMS Group has consulted with hundreds of companies across numerous industries and geographies. Visit UMS Group at http://www.umsgroup.com or contact us directly at 973-335-3555.