Top four pitfalls of BPO
- Posted:
- 15:43 01 Mar 2005
Relationships are key to business process outsourcing, says Michael Hyltoft
As IT outsourcing and business process outsourcing (BPO)
have being round for more than 40 years as well-established options
for companies, one wonders why we often read about outsourcing
contracts failing to deliver as expected. Often that failure is the
result of not adequately addressing four key areas, resulting in
the top four pitfalls of BPO. But there are sound principles to
avoid these.
No clear strategy
There are numerous good reasons to outsource, but the worst is not
to have a reason. Some companies suffer with the "us too" complex.
This arises when a competitor is successfully outsourcing, so it
must be good for your company too.
BPO should create added value for the company and shareholders by
releasing resources from spending time on accounts payable,
invoicing and general ledger processing to focus on strategic
analysis, finance mission development and policy setting and
approval.
BPO can also add value by integrating different functions within an
organisation that otherwise could not be cost-justified and, at the
same time, provide the necessary resources to maintain the
integration. Some companies take it a step further and partner with
the service provider to develop new tools and processes. The risk
and rewards are shared between the two, including revenue created
from offering the tools and processes to other organisations
Selecting a service provider
When evaluating a BPO service provider, the three criteria to look
for are a proven track record, technical excellence and the ability
to deliver improvement. When evaluating a service provider, these
are some of the essential questions to ask:
- Is the supplier aligned to the strategic goals of the business?
- Does the supplier understand the business today and will they have the ability to in the future?
- Is the supplier being innovative in solving long-term business issues?
- Does the relationship add any value to core business
operations?
The most effective way to answer these questions is by talking
to existing clients, preferably within the same industry. Learn
from their experience, identify the issues they encountered and the
method of resolution. Determine the strengths and weaknesses of
their service provider and why it was selected rather than the
others.
Contract negotiation
Service level agreements lie at the core of the BPO contract. These
identify the service deliverables and expectations of your service
provider. Good contracts will also describe the reporting methods
for service level measurement, how, when, and the level of
attainment required. This will include potential penalties or
benefits.
An important issue often missed from the contract is the
termination or exit strategy. Legally, both parties should have an
agreement on how to terminate the contract at any point. Be aware
that in contrast to traditional IT, outsourcing BPO service level
agreements are business-based, not IT-based. Therefore, you will
need to focus on handling processes, business outcomes and
people.
Create successful relationship
It is essential to have a good relationship with your service
provider. IT service providers have recognised the importance of a
strong cultural match. However, many BPO service providers do not
yet appreciate the importance of this.
It is imperative that the client and service provider trust each
other, as mistrust can mean the relationship will become
ineffectual, the service will suffer and communication will break
down.
Careful selection of a service provider can take advantage of
business projects, innovation, continuous improvement and - a rare
commodity - imagination. Most suppliers do not want to "run your
mess for less", but want to bring value from their expertise and
industry knowledge.
BPO is concerned with the softer elements of the company and
involves processes and people. As well as the provision of lower
cost and better economic control, it should bring best of breed
processes and a better retention of business knowledge. This can
only be accomplished in the context of a positive partnership with
the service provider.
Michael Hyltoft is senior consultant with independent
outsourcing consultancy Quantum Plus