Level One Standardization
Level One is the basic compliance of enabler processes against a set of standard practices which evolves through multiple engagements across industries, service lines and multiple global delivery centers. It is measured through a process of periodic audits using a standard checklist. The practices are further classified into “One Time Setup” practices and “Ongoing” practices.
Level Two Standardization
Level Two is the basic compliance of core process against a set of standard practices or industry best practices which evolves as the industry represented by the process evolves. This is referred to as “Activity Level Benchmarking”. The extent of standardization across businesses is measured by process parameters like percentage common activities or output parameters like throughput. The latter is also referred to as “Metrics Based Standardization”.
Level Two standardization is the foundation for consolidation of business spread across markets in different countries and across multiple products. Often business processes of such customers are different for different units even if they are providing same services thereby not giving the advantage of economies of scale. By outsourcing, customers are able to consolidate this under a service provider who then deploys same set of people, processes and platform to provide the benefits due to economies of scale. It also de-risks the customer from resource utilization variation across geographies.
Activity Level Benchmarking
Activity level benchmarking measures the business processes against the industry best practices referred to as “Standard”. It not only maps the process against the best practices but, also against the process objective. It then recommends changes in process design by balancing between process objectives and industry best practices.
This exercise is done in two steps:
1. Map the activities to the business and process objective.
Mapping to business and process objective will reveal process inefficiencies- activities which have no effect on the achievement of business and process objectives. This also helps in resource optimization by replacing multiple activities with a single activity
2. Compare the activities performed across units (similar process across multiple markets/ products for one customer; similar process across multiple customers and so on).
The best and the most efficient ways of delivering the activities are identified. These are inputs to process re-engineering for customers which helps in developing a sustainable and long term solution for the customer.
Metrics based Standardization
It is important to quantify and measure the extent of standardization across units. To align standardization with business and process objectives, it is measured against process and the business outcome or “Metrics”. Some of the commonly used metrics to measure standardization are throughput, quality, and turnaround time. It is important to identify the right outcome or metric and its appropriate operational definition. The identified metric is then measured across the units which could be different accounts or different market / products for same process. The variation in the value of metric across the units is a measure of (lack of) standardization. This provides a quantified output to track as improvement steps are approached with an objective of standardizing business processes. Sources of variations (drivers) are identified and these drivers are quantified which helps in identifying the gaps and corresponding counter measures to manage these drivers. The results of this can then be measured by reduction of variation in the value of metric.
As an example (Figure 3) let’s consider an outsourced account payable process that is being delivered across multiple clients or across multiple markets to the same client (each representing a unit). The steps involved in standardizing the accounts payable process are:
- Identify the outcome metrics, (for Example; Throughput).
- Measure the throughput across all the units.
- Identify the sources of variation or drivers.
- Quantify the drivers.
- Identify gaps, formulate, and implement counter measures.
- Measure the reduction in variation of output measures and institutionalize process changes and improvement.
Level Three Standardization
Automation of enabler processes is referred to as Level Three standardization. In a process lab, the reusable components like common measuring, reporting tools, etc. are replicated for the new customer without any considerable customization. This helps in faster scalability and predictability of performance.
Level Four Standardization
Automation of core process leads to development of processing platforms which ensures enhanced controls, higher efficiency, scalability and predictability of performance. This helps in complete consolidation of outsourced business processes of a customer. It also helps in development of outcome based fee business model.