By Adam Cummins, Principal, Pace Harmon
When considering business process outsourcing (BPO), companies generally expect to see improvements in overall cost, efficiencies and/or rapid innovation. These BPO benefits enable the buying company to focus on their own core competencies and allow the BPO experts to stay focused on their areas of expertise—ostensibly driving greater value for the company. However, a hidden roadblock often manifests via the buying organization attempting to dictate how the BPO provider should deliver services or expecting transformation of a function or component that falls outside the BPO provider’s scope.
Letting go of old processes, approaches and perspectives and allowing the BPO provider to make changes to deliver improvements, efficiencies and savings can be a challenge. Being aware of this potential pitfall and ensuring appropriate buy-in from within the buying organization about striking this balance is a key step to ensuring a better chance at BPO success. It also should help proactively address a major source of buyer remorse and dissatisfaction with a BPO engagement (before it happens).
BPO transformation typically flows from the BPO provider’s ability to improve the legacy business function’s efficiency via streamlining processes or introducing technology and automation capabilities. In some cases, this transformation can come via the BPO provider’s use of intellectual property in its role as a managed services provider. These varying capabilities combine to bring about changes that the buying organization was simply unable or unwilling to make due to internal inertia, politics, perceived limitations and many other factors. A good BPO provider will specify upfront the benefits and improvements (e.g., cost reductions, capacity improvements) that the buying organization can expect to see through transformation over the life of a deal.
However, if buying companies don’t allow the BPO provider the freedom to ‘transform’ (either upfront or at stage gates over the life of the BPO relationship) they need to check their expectations relating to ongoing, year-over-year improvements. Many companies forget the relationship between provider transformation and value delivered, and begin to attempt to limit or interfere with the BPO provider. Examples include refusing to allow certain functions to be performed offshore or even offsite (nearshore or close proximity), pushing back on new or different process steps the BPO provider wishes to take (often because “that’s not how we do it”) or requiring overly draconian governance approval steps and timelines. By unknowingly (or knowingly) impeding transformation in these ways, BPO buyers often contribute to their own dissatisfaction within the BPO relationship.
Acknowledging that a certain amount of freedom must be granted to the BPO provider in order to ensure that the desired transformations can actually happen, how can companies proactively identify what approaches will maximize their improvement opportunities? There are four key steps that help ensure that impediments to transformation don’t have a chance to materialize.
Step 1: Alignment
The first step to facilitating transformation is to establish alignment across the entire enterprise about what will be outsourced, the rationale for outsourcing and the goals and objectives of the outsourcing engagement. In some cases of failed transformations the primary reason for the stall was due to very late enlightenment of some key stakeholders regarding what outsourcing really means. Depending on the internal cachet of those stakeholders, delays and even outright scope changes can prevent the BPO provider from executing components of its playbook. It is always advisable to get all parties involved on the same page before moving down the path with the BPO provider as it is easier to work on re-alignment before contracts have been signed and implementation has begun.
Step 2: Collaboration
It is important to collaborate with the outsourcing providers during the sourcing process to fully understand the breadth and depth of transformation they can provide. In some cases, buying organizations can be too secretive and or rigid in their sourcing approach, preventing good and valuable dialogue with the potential BPO provider(s) from taking place. A full and complete understanding of the value the BPO provider can offer, and the level of transformation that may be required in order to achieve that value, is key to deciding what specific transformation is “right” for the client company.
Step 3: Flexibility
While tied in with the importance of collaboration previously noted, it is essential that the buying company be clear about the scope to be outsourced and the level of autonomy the BPO provider will have to transform the current operations as a part of that scope. If the buying company is rigid and unwilling to allow for change, then “your mess for less” is all they will be able to hope to achieve, restricting them from attaining true long-term transformative value.
Step 4: Visibility
Finally, it is critical for the buying organization to manage the BPO relationship actively through transition and transformation. It is important to realize that “managing” the relationship in this sense has to be as much about governing the provider as it is also governing internal stakeholders and managing expectations effectively. Identifying and developing risk mitigation is essential in larger organizations where certain stakeholders or executives are several steps removed from the core of the BPO relationship and are attempting to measure the overall value of the relationship with incorrect or unrelated metrics.
Transformation driven by the BPO provider is a critical component of a long term, healthy and successful BPO engagement. While companies may have limitations or boundaries they wish to apply to their BPO provider, they must realize that these may impact the BPO providers’ ability to effectively drive the transformation. This impediment can, in turn, significantly impact the overall value and effectiveness of the BPO relationship, leading to dissatisfaction and (in some cases) a downward spiral that ends in the termination of the relationship. Being aware of the need for transformation, as well as the common pitfalls and associated impediments (many of which are fully within the control of the buying company) can help mitigate such dissatisfaction and ensure the transformation value and potential is realized.