Paul SingerIf you asked a BPO buyer 10 years ago, “Are you satisfied with your BPO program?” you would likely hear, “Yes – we achieved the desired costs savings.” Today, when BPO buyers are asked the same question, the answer is often, “No, we achieved our cost savings targets, but innovation was not delivered, the transition took too long, and user adoption has been slow.”
Recent research from Horses for Sources suggests that most buyers are not satisfied with their BPO provider(s). In fact, 77% of buyers said that if they had to do it over again, they would select a different provider or negotiate different terms. In addition, 22% of BPO buyers further relayed significant disappointment with their provider’s ability to deliver solutions and capabilities beyond simply standardizing operations and transforming or automating processes. Despite that, more than half of those same buyers said they were either satisfied or very satisfied with their provider’s ability to meet compliance/regulatory requirements and to deliver significantly lower operating costs.
Why the Dichotomy?
This dichotomy is driven by an emerging and growing expectations gap between the CFO’s office and the functional teams working with the BPO provider. This expectations gap can make it difficult for the providers to create a “win/win” solution as there are multiple stakeholders with differing visions of success. CFOs may generally be satisfied with cost savings, but operational teams may not be satisfied with the outcomes that accompanied those cost savings. While operational teams expect process improvements, BPO-provided specialized talent, increased automation and improved analytics capabilities, these types of improvements are often not included in the BPO contract.
Challenges to Achieving BPO Success
How is this gap created? The expectations mismatch often can be attributed to the BPO provider selection process – procurement-driven, CFO-led and dependent on cost, cost and cost. So even though the buyer’s functional teams want to see more innovation, transformation and analytics, the sourcing process forces providers to over index towards cost reduction. This results in the CFO, functional teams, and the providers being misaligned, which in turn results in buyer dissatisfaction. Looking deeper at this dissatisfaction, we see:
- Buyers largely want transformation without a realistic perspective on how to achieve it. This is often tied closely to a shift in buyer goals and objectives after a BPO deal is completed, (e.g., what buyers want today is not necessarily what they signed up for yesterday or want tomorrow).
- Providers tend to over-promise without a plan or capability to deliver – or do not communicate expectations set during the sales cycle down to the delivery team.
- Accountability, both within the buying organization and often times within the provider organization, for leading change is not assigned, and advisors, providers and buyers all can underestimate the value and effort required to implement effective governance to deliver change.
- Lastly, buyer business cases are often designed to support the deal, but are not based on realistic assumptions and/or are not accurately cost burdened (e.g., lack appropriate time to implement, do not include appropriate governance and change management costs, do not contemplate required process improvements).
What Can be Done?
Despite the level of dissatisfaction that may come from any or all of the aforementioned causes, actions can be taken to improve alignment. Here are four key steps to better position buyers and providers for success.
Step 1 – Start with a strategy that aligns all stakeholders and identifies a broad set of outcomes:
First, align all stakeholders on what will be outsourced and what will be kept in house and set realistic expectations about the challenges. Objectives alignment is one of the largest gaps we find in engagements we are asked by clients to help “fix.” Once objectives are aligned, buyers can assess process and organizational maturity to understand what obstacles need to be removed to enable the outsourcing program and desired change. Next, define the operating model (e.g., on or offshore, captive or outsourced, hybrid, joint venture) that fits the risk profile for your company. With this in place, buyers are ready to define the scope (e.g., functions, number of FTE, technology) so that the business case can be appropriately detailed and realistically burdened (e.g., change management, governance and transition).
Step 2 – Create a competitive yet collaborative sourcing process with a small set of providers:
Working with the identified stakeholders, strive to create a flexible and competitive sourcing process that allows the providers to demonstrate their capabilities and prove their “sales pitch.” This likely will include opportunities to conduct solution design workshops so that the providers can evolve their proposed solution in concert with key stakeholders. Plan to visit the proposed delivery centers and meet the teams that will be doing the work, and while there, focus on outcomes and how they will enable desired transformation or change. To ensure that both sides are continuously motivated within the relationship, include practical mechanisms in the agreement to make sure outcomes can be measured (e.g., guaranteed productivity/performance improvements) and to preserve leverage, strive to perform simultaneous negotiations with at least two suppliers until an acceptable deal is achieved.
Step 3 – Set realistic transition timelines and expectations, striking a balance between cost reduction and time to implement:
Include clear transition requirements to providers during the sourcing process to get a realistic perspective on time and the internal and external resources (e.g., process experts, IT specialists, project managers) required to migrate and stabilize the process(es) being outsourced. Determine the success criteria (e.g., transition team availability and experience, hiring to the agreed staffing profiles and schedule, user adoption, performance metrics) up-front and require suppliers to begin transition planning prior to contract signing. Finally, identify and empower change agents early in the process to help ensure appropriate adoption and momentum throughout the lifecycle of the program.
Step 4 – Jointly prepare for transition with key stakeholders and your provider:
Hand-offs without context are a common, significant cause of dissatisfaction. Pace Harmon recommends several important actions to ensure that handoff is done properly and both buyers and providers with operational responsibility are fully informed about expected behaviors, performance obligation and business outcomes. Pressure test the retained team to ensure they understand how to manage to outcomes vs. individual performance. Develop transition milestones to ensure that key deal terms and expected outcomes are communicated to the transition team. Establish governance Centers of Expertise (CoE) to ensure cross-functional communication, enforcement of governance provisions to establish a “cadence of compliance” and a single owner for business continuity. Create and foster a mandate for innovation with joint responsibilities between the buyer and provider to ensure continuous improvement over the life of the agreement. Lastly, establish a diligent financial tracking and change control process to keep track of internal and provider obligations.
Mind the Gap: Done Right, BPO is a Good Strategy.
Dissatisfaction is a natural response to complex transformation and has likely been fostered by lack of active involvement by the operational teams early in the process. However, just because buyers say they are dissatisfied does not mean that BPO is not an appropriate strategy to reduce costs and improve operations. In fact, some level of dissatisfaction is unavoidable and can, in fact, be constructive. While there is no standard recipe for success, buyers should prepared for some level of disappointment and not be put off by the prospect. Own your success by getting actively involved early in the process and close the gap.
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