Henry C. Eickelberg, MD, The Terry Group
Organizations are constantly challenged to generate greater profits on the same (or even declining) sales. Business Process Outsourcing (BPO) (in all its forms) has become an important ingredient in delivering on this challenge. This article looks at the “five keys” to BPO failure. Each “key” can destroy the BPO’s inherent value. These keys include: (1) starting with poorly defined requirements; (2) an inadequate conversion timeframe; (3) failure to streamline processes; (4) inadequate change management (i.e., expectation misalignment, particularly with respect to those of key stakeholders); and (5) placing BPO oversight with internal resources possessing the wrong skill set to manage an outsourced process.
“ In the BPO world, everything begins and ends with the requirements: the more variability in the requirements, the higher the cost to deliver and the more varied the quality. ”
Organizational executives face a significant challenge of showing that they can make more money with the same (or declining) sales. One way to meet this challenge is through Business Process Outsourcing (BPO). This article looks at the “Five Keys” to failure in BPO relationships.
In the BPO world, everything begins and ends with the requirements: the more variability in the requirements, the higher the cost to deliver and the more varied the quality. The first key to failure is setting up a BPO relationship using poorly or ill-defined requirements. Two factors contribute to this failure: (1) hurriedly constructed BPO arrangements (which all too often are designed by lawyers and not those responsible for the BPO process) and (2) the aggressive nature of BPO outsourcers (of all types) who are willing to either explicitly or implicitly financially subsidize their clients’ poor BPO processes in order to grow their own “top-lines.”
The second key to failure is an insufficient conversion timeframe. Regardless of the parties’ experience, it takes a lot of time to stand-up a complicated BPO process. And, the more the BPO client insists that no process changes can be made during the conversion, the more likely that process will be converted poorly and late.
The third key to failure is the BPO vendor agreeing (or, more specifically, the BPO client organization insisting) that the BPO vendor not attempt to streamline any of the BPO client’s existing business processes. There is no way to lower a process’s cost (and increase its quality) simply by having another organization doing it. To increase a process’s quality (and decrease its overall cost), the process needs to change.
The fourth key to failure is poor change management (i.e., expectations misalignment). Unfortunately, many BPO outsourcers allow their clients to think that ‘life’ will be the same following the transition (with simply a lower cost). This is especially true in the IT outsourcing area, where the BPO client organization has internally ‘sold’ the BPO concept to its management based on the representation that the BPO outsourcer understands the client’s culture, demands and requirements. But, as soon as the BPO processes negatively impacts those within the BPO client’s organization who hold real institutional power (i.e., the CEO, CFO, etc.), the BPO relationship could well be damaged beyond repair.
The fifth key to failure is having the wrong internal talent in-place to manage an outsourced process. Overseeing an internally-delivered business process is far different from managing an outsourced business process. Too many BPO client organizations assume that those individuals currently running the internal process are the best people to manage it once outsourced assuming that since they best understand the process, they can best oversee it. Unfortunately, this isn’t necessarily true. Simply put, the skill set needed to effectively deliver a complicated process is very different from the skill set needed to manage someone else delivering that complicated process.
As organizations push for greater profits on the same or less sales, BPO outsourcing (in all flavors) will continue to be an important ingredient. As companies look at BPO outsourcing, it’s important to do so considering what factors can destroy the value of a BPO relationship. Buyers of BPO services should be encouraged to realistically assess their willingness to change their processes and challenge themselves to ‘re-engineer’ their own processes prior to committing to outsourcing. Otherwise, BPO clients could experience poorer quality at a greater cost.