First published in Professional Outsourcing magazine
My firm closes £5-10 billion of outsourcing work every year. Spanning a vast range of transactions from central government shared services to Fortune 500 offshoring, each deal poses its own unique problems.
Tackling the issues requires a team with a unique mix of skills. I have glowing admiration for the many truly professional sales and procurement, project leads and operational experts, security folk and HR advisers I have worked with over the years. Collaborating with them has taught me a lot. And in my role as a lawyer on these deals, I have been fortunate to see every part of the process from strategy through procurement, from change to exit.
The challenge is to manage complexity and risk in a way which results in efficiency and simplicity.
Here are my top ten thoughts on how to make this possible.
1. Focus on the business drivers
It’s an obvious place to start, but the outsourcing process is complex in nature and that can sometimes obscure the reasons to do the deal. It is vital to identify early on the likely benefits of the project and then strongly focus on key drivers. This focus must not stop at the business case stage. Required benefits must be measured throughout RFI and RFP evaluation and through to preferred bidder and the contract terms. It is just as important to continue measuring performance against key drivers over the lifetime of the outsourcing.
2. It’s all about the people…
If people are important to ITO, they are the lifeblood of BPO. From each individual in the delivery team to senior management team governance, it is important to understand recruitment and selection of people and the performance required of them. You may need to consider people incentivisation and measures against staff attrition.
Because BPO is about people-managed processes (perhaps based around an ERP system or platform), care needs to be take on recruitment criteria, training and ramp-up. Take a look at the Group 4 debacle over the London Olympics security guards contract if you want to reflect on the effect of ramping-up too quickly and the implications for on-boarding people.
3. There’s more to a baking a cake than measuring the ingredients
There was an interesting if messy court case a few years back between Vertex and Powergen in which the judge said that while Vertex may have been meeting service levels, it was not providing the required standard of service. The case may seem a little odd, but there is a point. Service levels are a statistical sampling of a service and not a description of the holistic service output required. I might answer in three rings, escalate in 10 minutes and close the call in 30 minutes. But what does this tell you about quality of delivery?
It is possible to design more quality-driven measures of success, such as whether a process is completed error-free; the richness of functionality produced in an Agile sprint; or the time and cost to on-board a call centre operative. However, SLAs are not the entire answer.
It is key to closely document the processes being outsourced so it is clear what is to be achieved. Equally, service descriptions should be backed up by standards, policies and procedures to ensure corporate standards are met. The contract itself can also include fall-back protections such as warranties on quality of personnel and work, corrective plans or indemnities for loss of data.
The point is to look at how service delivery is documented holistically and across the contractual documentation and processes.
4. It’s your reputation on the line
Frequently, BPO staff will be hired and deployed exclusively for one customer. Often it is attractive to connect the BPO activity to the customer’s brand. When the services are externally focussed, such as customer service desks, order fulfilment or payment processing the brand is even more present. BPO is often highly visible and can expose the brand of the customer and service provider in a more prominent way than other forms of outsourcing.
How well will your reputation be protected if there is a service failure? It may sometime be that the lid can’t be kept on some problems. For example, security breaches may need reporting to the regulators (and more and more frequently, to business customers under contract). For public bodies, there are limits to how much they are able to deal with confidentially once ministers or councillors step in or the press uses Freedom of Information to find a story.
Customer and supplier may need to think through the communications implications, internally, to the press and to consumers of the customers services. They will also need to tightly control management of any crisis or issues.
Because reputation management is important in BPO, the development of communications and remediation plans, escalation and stakeholder management may need further development than in a typical ITO.
5. Price and value are different propositions
Most contracts rightly focus on pinning down pricing. It is a valuable exercise to ensure fixed and activity based charging components are well understood, as well as how changes or termination payments will be costed.
However, each element of the work must produce a business result and the production of value is very different from the recovery of cost and a margin. In many cases, value delivered and not just effort expended must be captured.
For some elements of BPO, we have been developing pricing approaches to do just that. For example, in application development and management, ensuring work is right first time; or requiring sufficient functionality to trigger payment for a sprint.
As well as measuring value, some deals may focus on cost reduction. Application rationalisation, service simplification and year-on-year savings may all be deployed.
We frequently deploy standard benchmarking and continuous improvement techniques. While always good to include, mechanisms developed to achieve specific results for specific services are more desirable.
6. Innovate or die
There are usually two reasons to outsource: Do it better, and do it cheaper.
Whether or not the deal will deliver on these aims is dependent on how developed the business model is. Many suppliers are become adept at innovation and cost reduction mechanics, but it is not always easy to enshrine these in the deal. (Cue the dreaded 20 page “Innovation service description….”)
Innovation is plainly important since the way customer and service provider do business is sure to evolve over the outsourcing lifecycle. So as a minimum, the parties should discuss potential innovation and examine the potential for change. This keeps the customer at the forefront of developments and defends good service providers from falling behind the curve on perceived value.
We have seen and developed innovation programmes which are clear and specific to the deal. These have been especially important in the $$$100 millions plus deals where investment is high and improved service or decreased cost key. Typical mechanisms include:
(i) Funding for agreed innovations
(ii) Technology refresh programmes
(iii) Service rationalisation plans
7. Compliance is not optional
With many BPOs, the customer is outsourcing services which carry with them a significant compliance burden – from simple payroll requirements and the obvious data privacy implications to more complex issues such as support for Sarbanes Oxley, financial services regulatory requirements or statutory HR processes. These compliance issues need carefully thinking through to ensure the relevant standards are met – and to deal with the implications if they are breached.
8. The exit is signposted
Every BPO comes to and end and so every BPO contract needs to ensure that the customer is able to move its services back in-house or to another supplier. Yet outsourcing contracts can be thin on detail or too theoretical about handover of services.
Given it is one of the sections of the contract which will definitely be dusted down at some stage, it is best to ensure exit activity is detailed and the cost mechanisms clear.
Exit is surprisingly difficult in practice and mechanisms to ensure that at any point in time the customer has vital information to hand or accessible are important. For example, salvaging in-flight projects or continuing to maintain service levels can be tough without access to data, people and systems. Knowledge transfer and access to data, software and systems is also essential.
9. Fit for the future
Organisations continue to tactically outsource individual service towers to service providers while grappling with how to manage suppliers across the organisation. There are a number of developing models which align suppliers across service towers. Their suitability depends on the depth of the intelligent client/retained organisation, maturity of model and speed of contract refresh. Some current models which might help future proof contracts include:
(i) Ensuring supplier co-operation provisions and consider whether there will need to be multi-supplier governance for jointly solving issues
(ii) Catering for Operating Level Agreements and service interfaces which allow clean hand-off of process between suppliers, and for suppliers to resolve issues between themselves before escalating to the customer
(iii) Allowing assignment of the contract by the customer should the service tower outsourced be consolidated and managed by another provider
(iv) Allow for a service integration model to be developed including reporting and interfacing with a service integrator.
10. There is an x in team
There may be no “I” in team, but great outsourcing teams call on the best people across the organisation. They are multi-disciplinary, diverse in thinking and able in communication. Great outsourcing teams have a certain “x” factor which leads to success.
Customer and supplier will need good people collaborating to avoid the key pitfalls in outsourcing. There is no denying that the customer and supplier have different aims and are looking for different outcomes. But the two teams need to find a space in which they can collaborate, share frank views and build success in the delivery of services. Because outsourcing is ultimately a collaborative process in seeking joint solutions, it is the “x” in team which makes the most significant difference to the long term success of BPO programmes.