Top four pitfalls of BPO

Relationships are key to business process outsourcing, says Michael Hyltoft

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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

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