BPO: managing a winning strategy

Business process outsourcing (BPO) satisfaction levels are on the up – but while more organisations are now confident when negotiating outsourcing contracts. Most struggle with ongoing management and making the deal deliver ongoing value, argues Simon Lindley, Principal Consultant at Orbys Consulting.

Over the last couple of years, the outsourcing market has turned a corner and the widespread perception of failure has been replaced by a growing acceptance that BPO can really deliver on its potential benefits – from reduced cost to supporting business growth through effective access to key skills. Organisations now have a level of confidence in negotiating outsourcing contracts that is enabling far more to achieve strategic objectives via a BPO arrangement.

Indeed, in a recent independent study undertaken by Benchmark Research on behalf of Orbys Consulting, 29 percent stated the contract exceeded expectations, 61 percent believed it was in line with expectations and only nine percent felt that it fell below expectations.

However, it is also apparent that organisations increasingly recognise that getting to contract is just the beginning of a complex, evolving relationship with the outsource service provider. Ensuring the contract retains its successful perception throughout the business over the long term requires a proactive approach to managing the relationship between the business and BPO service provider.

For example, post contract performance management should not just be about tracking service level agreement (SLA) metrics. If organisations are to maximise their relationship with a BPO service provider and achieve long-term strategic benefits – or even just make sure they stay on track – then other key factors need to be identified, monitored and actively managed against. Some will be ongoing regular measures; others should be modified over time to reflect changing business priorities, and current business strategy and initiatives.

This wider ‘balanced scorecard’ approach to performance management is not only of value to the business in driving continuous improvement and business focus, it also helps the BPO service provider in terms of providing greater clarity of customer perceptions and satisfaction, and clearer specification of business priorities and how the service provider can help them be delivered.

Although initially some service providers may be wary of the additional effort and investment required, the wiser ones will realise the potential for providing wider service and project support. Effective ongoing management can also greatly reduce the risk of client dissatisfaction and therefore ultimately help avoid subsequent re-tendering of the contract or services being taken back in-house.

Maintenance mode

Achieving an excellent BPO agreement is not just about sound contract negotiation. And while it is certainly good news that organisations have recognised the need to leverage third-party expertise to achieve sound BPO contracts, the lack of focus on post-contract strategic measurement is undermining the overall value of the deal.

This is undoubtedly due to the highly operational rather than business focus of typical SLAs; 99 percent uptime, for example, does not guarantee business happiness. Furthermore, by concentrating only on performance against the SLA, an organisation leaves the supplier to efficiently and effectively churn the BPO handle; the relationship is solid but there is no opportunity or drive for continuing development or improvement and no incentive for the supplier to make additional investments in the relationship.

Continual improvement

A contract needs constant reinvigoration, but that must be based on discussions with the BPO service provider that extend beyond SLA basics. While some organisations are using internal surveys of customer satisfaction, not many actively identify and manage other key performance dimensions such as responsiveness to business change, risk management, process efficiency, levels of innovation and financial performance.

Organisations need to understand and capture these key business measures in a way that can provide objective insight into performance and support valid discussions about future direction. This balanced scorecard approach can play two key roles, both of which enhance the BPO relationship:

Firstly, it addresses the widespread post-BPO contract problem of a general sense of dissatisfaction often based on ‘hearsay’, opinion or specific incidents, but no clear view of overall performance, trends or more objective assessment. This is where a tangible and more objective insight into supplier performance provided by a balanced scorecard can be a sound platform upon which to discuss (and resolve) the issue. Indeed, by establishing suitably focused data collection and using a ‘Red, Amber and Green’ reporting system, problems in performance can be rapidly highlighted and escalated.

Secondly, the scorecard provides a real basis for assessing the BPO supplier’s role in achieving continuous improvement – from pushing up service delivery performance to supporting a new business strategy. Some of these improvements may indeed require additional investment, but without a broad understanding of the performance to date, neither party has a sound basis upon which to even begin the discussion.

Contract management

Starting simply with standard spreadsheet tools, working with the business to establish requirements and building and testing models iteratively, an organisation can begin to capture key measures, evolving over time to a more complete web-based solution. This can regularly prompt cross-organisational users on issues such as satisfaction, service provider responsiveness and so on that link into other measurement and reporting systems such as service level measurement and business strategy/initiative-driven performance measures.

Making this broader performance management a fundamental component of contract governance will be a key factor in enabling organisations to extend their growing confidence in BPO contract negotiation to the delivery of ongoing strategic benefits.