Getting BPO Innovation Out of Performance-based Contracts: Vendors Take Variety of Approaches

There is a general consensus in today’s BPO marketplace that outsourcing is evolving out of being a simple means of reducing the cost of labor and into a …

There is a general consensus in today’s BPO marketplace that outsourcing is evolving out of being a simple means of reducing the cost of labor and into a means of transforming the enterprise by driving innovation. But for a BPO provider, achieving innovation within the potentially narrow confines of a performance-based contract is easier said than done.

Meeting specific benchmarks that often revolve around lower-level performance goals such lowering operational costs and reducing headcount can leave little time or resources to focus on loftier goals of realigning how a company works with leading-edge, innovative practices. But “difficult” does not always mean “impossible.” We asked experts from four leading global BPO providers: TCS, Capgemini, Infosys, Softtek, and Wipro, to explain how they see BPO innovation within the confines of a performance-based contract occurring.

GurmohanDugal, Regional VP, BPO, Tata Consultancy Services

According to Dugal, Tata takes a multi-step approach to providing true innovation and transformation within the boundaries of performance-based SLAs and benchmarks. “We worked with a global bank based in Guadalajara where the whole objective was cost arbitrage,” said Dugal. “Once we got business processes in place and improved efficiency, we pursued pure operational transformation with no technologies.”

However, Dugal said after transforming basic operational processes, Tata then analyzes the systems the client uses and its own internal systems to see how the client’s technology platform can be transformed to allow even greater innovation to occur. Tata employs what Dugal called an “IP/manufacturing” model, where the intellectual property rests with the customer and Tata defines and studies the IP to then deliver innovation through both pure operational improvement as well as technology. “It’s a package deal,” stated Dugal.

Brenda Heath, SVP of Business Process Outsourcing, Capgemini

According to Heath, a technology-agnostic approach to delivering BPO services based on a “library” of proven processes Capgemini has developed over time helps the BPO provider achieve innovation while meeting performance-based contract requirements. “From the Capgemini perspective, we are going from ‘lift and shift’ to transformational services,” she said. “A standard effort up front brings more value.”

To this end, Heath said Capgemini “absolutely” will put transformational goals within KPIs and SLAs of BPO contracts. Outcome-based pricing helps guarantee that clients will not pay for any transformation or innovation that does not occur. In addition, Heath said that leading-edge analytics and social media insights can help BPO clients better understand how to market to their customers, which can “change the picture of their financials.”

Gautam Thakkar, VP, Unit Head, Enterprise Services BPO, Infosys

Thakkar said that while Infosys tries to put its “skin in the game” in terms of BPO innovation through contractual obligations throughout the lifecycle of the deal, the level of innovation will in large part depend on the particular service being offered.

“The kind of innovation the client acquires can be different on a conceptual level,” he said. “It’s not about doing accounts payable in a low-cost location. Taking an end view of the process, in accounts payable how do entries get posted in the general ledger and how does it get allocated?”

Thakkar said that BPO innovation requires “starting with transformation and with an end in mind.” Customers and providers must define what successful innovation means up front, according to Thakkar. Usually this will involve harmonization and standardization of processes, which in an ERP environment can mean providing innovative tools as wrappers on the client’s ERP system.

Gustavo Acosta, Global Practice Manager, Application Management Services, Softtek

Softtek pursues in-depth partnerships with BPO clients to help ensure the relationships produce innovative results. “We spend time to make sure (the client) understands very well and the relationship has core value,” he said. “BPO innovation is a major change for the majority of organizations, and there is a fear of changing the status quo.”

To help “break that fear,” Acosta said Softtek uses the “right business model” which organizes and strategizes the company for growth, stabilizes and formalizes processes for running the business, and then modernizes and innovates to enhance the business. “We mini-manage the business and reduce spend at the same time,” said Acosta.

Fernando Estrazulas, Head of Business Operations, Southern Latin America, Wipro 

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When India-based BPO provider Wipro Technologies seeks to achieve innovation through its Latin American services, the company starts with the human factor. “We have proposed mixed teams with local and offshore employees working on the same team,” said Estrazulas. “The customer does not view any overhead due to these barriers.”

Estrazulas said creating these teams that mix Indians with Latin Americans serve three purposes: teach the local language (Spanish or Portuguese) to Indian personnel, create a single point of contact in India to lead offshore teams, and bring Latin American personnel to India to learn corporate competencies which they can then disseminate back in Latin America.

“We should be able to deploy any practice we have around the globe,” said Estrazulas. “It has worked for all our sales lines, including BPO.”

In addition, Estrazulas said the formation of mixed teams has helped ease issues associated with integrating local and regional IT systems with IT systems at corporate headquarters in India.

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