Cost cutting primary driver in only 10% of BPO deals

There is a constant debate about whether IT outsourcing has moved beyond being a strategy purely to cut costs or if it is a good way of improving business performance.

If you talk to outsourcing industry experts such as consultants and lawyers they will say cost cutting remains the main driver while suppliers and some end users often say other factors are increasingly important.

A recent KPMG survey revealed some of the increasingly important reasons to outsource.

When it comes to BPO cost is surely a bigger driver than in IT outsourcing?  Handing a business process to a third party that can use economies of scale to do it for less makes sense in many cases. But here is a guest blog from the CEO out service provider Arvato.

What’s the missing link in business outsourcing partnerships today?

By Matthias Mierisch CEO at Arvato

“Those of us who live and breathe business outsourcing know that the drivers for engaging with a BPO provider have changed hugely – while cost savings remain a given, companies are looking for ways in which they can become agile enough to capitalise on changes in market trends or customer demand, to further long-term growth.

An independent research study with 100 senior BPO clients we commissioned confirmed this, but also indicated that there are still factors on both sides of BPO relationships that are limiting the sector’s potential to contribute more to both individual organisations and the UK economic landscape as a whole.

In particular, there is a disconnect between the drivers for outsourcing, and the attributes organisations look for in a partner. Today just 10% of organisations describe cost-cutting as the primary role that their BPO provider plays, ranking access to specialist skills and expertise (72%) and growth and expansion potential (66%) far higher. These drivers are all more about the strength of ‘people’ than just simply ‘process’ based in nature and they are focused on enabling success as a ultimate goal, rather than immediate savings. However, almost three quarters (74%) reference ‘adhering to strict KPIs’  or ‘well-defined processes’ (69%) as the most important attributes – arguably hygiene factors in empowered outsourcing partnerships that deliver and add real value.

While 71% cite the ability to adapt to changing industry and relationship dynamics as a key expectation of their BPO provider, currently 67% of suppliers have to submit a change request for even the smallest changes to processes. This conservative approach is reflective of tight budgets and a fear of spiralling costs in today’s economic climate, but also highlights a trust issue that has to be addressed openly by both parties.

The outsourcing industry is already contributing £207bn (8%) of the total UK economic output[1], but by facilitating better, deeper and more effective engagement, business outsourcing can reach its full potential and deliver more value to clients and their customers.

An agile, flexible programme isn’t just about dealing with forced change but the willingness to deliver and step beyond contractual agreements to try fresh approaches, or amend priorities to deliver real value, even if that’s more difficult than just delivering what’s in the contract. Establishing an effective engagement approach, where everyone understands the overall objectives and is incentivised to playing their part, means that the contract can stay in the drawer to enable the best outcomes.

Effective engagement is the first theme of arvato’s Open Outsourcing report series, which aims to get to the heart of real-life outsourcing relationships. We’ve collaborated with industry experts and clients to understand the elements that ensure business outsourcing is delivering the very best results for both parties.”

To read more about the click here.

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