Professor Mary Lacity discusses why finding a supplier to meet client goals is crucial to BPO success.
In this Part-Two interview, Professor Mary Lacity discusses the 12 capabilities to evaluate in your business process outsourcing provider. For the interview, Professor Lacity shared the findings of the supplier capabilities research she recently conducted with Professors David Feeny, Leslie Willcocks, and Joseph Rottman. The detailed findings of their research, supported by case studies, can be read in white papers recently published by the Sloan Management Review and the Cutter Consortium.
JV: What led you and Professors Feeny, Willcocks, and Rottman, to research supplier capabilities in the BPO market?
ML: During the course of a 15-year research program, we initially focused on ITO. We have previously described ways to analyze outsourcing goals, and David and Leslie developed a widely adopted model for identifying the capabilities that need to be retained in-house by the client. As the BPO market grew over the past few years, the BPO supplier community also increased and became quite diverse from locally based specialists in particular applications and/or industry sectors to offshore providers and transformational outsourcers. In this market environment, client organizations are challenged to identify a BPO provider whose capabilities best meet their needs. Recognizing the importance of building a long-term relationship with the right BPO supplier, strategic buyers asked us to focus our research on the BPO market and help customers identify what was most important to evaluate in their BPO provider.
JV: Did your research identify any common mistakes by customers in evaluating service providers?
ML: Based on our research in the offshore and ITO markets, we knew that customers made mistakes looking at supplier resources such as physical facilities, technology, and workforce composition. Rather, they should have focused more on the suppliers capabilities to effectively manage and deploy those resources for the customers benefit. For example, as we described in our paper for the Cutter Consortium, many senior executives tend to ask suppliers for proof of workforce quality such as resumes, average years of experience, turnover rate, and certifications. However, this evidence will not effectively differentiate suppliers. Instead, customers should ask suppliers for evidence that the workforce is empowered, satisfied, and customer orientated. Customers need to ask about the suppliers behavior management capability: How does the supplier deliver service excellence through a customer-focused culture? How do suppliers orient new employees toward their culture? How do they reward and encourage employee behavior?
JV: Are there additional examples where customers are focusing on the wrong issues?
ML: Yes. Customers frequently ask for evidence of excellent supplier people in the technology area because they have identified technology as a key driver of the transformation required in the BPO service. This assessment does not distinguish between suppliers because all credible suppliers have excellent people. But a supplier who instills in its technology people a culture of rapid and regular delivery of benefits to the business, supported by component-based platform architecture, will deliver a very different experience to the client.
JV: What kind of competencies should a customer look for in a BPO provider?
ML: To greatly varying degrees, every BPO supplier has competencies in three domains: delivery, transformation, and relationship. Delivery competency is the capability to respond to the customer requirement for day-to-day operational services while still generating a good supplier margin. Transformational competency determines the extent to which the supplier is equipped to deliver on the clients need for service improvement and lower costs. Relationship competency determines the extent to which the supplier is willing and able to deliver the win-win relationships that more successfully align client and supplier goals and incentives over time.
JV:Was your supplier capabilities model based on the three competencies?
ML: Yes, our Supplier Capabilities Model identified the 12 capabilities that underpin the achievement of the three target competencies (see Table and Figure). The model provides a tool to help clients evaluate potential BPO providers and may also help suppliers assess themselves and their relative strengths versus the competition.
JV: Is one of the 12 capabilities more important than the others?
ML: Our research found that the main differentiator between success and failure in an outsourcing relationship was the individuals who were leaders of the supplier (and client) account teams. Leaders must operate as the CEOs of the relationship rather than as traditional account managers now delegated to the business management capability. Supplier leaders must also have significant clout within their parent organizations to mobilize resources on behalf of their clients.
JV: How does a buyer move from evaluating supplier capabilities to achieving performance?
ML: Choosing a capable supplier is not enough to deliver performance. The research that supports our model suggests three imperatives for companies that wish to assess value through use of the BPO services market. First, to identify the competencies they should be accessing, client firms should think carefully about their likely future needs from any process to be outsourced. What role does the process play within the overall business model? Therefore, what improvement goals for the process make most sense over time? Second, the decision to choose a particular supplier should then be guided by the 12 capabilities in our model. Third, it is essential for the client firm to stay involved rather than step aside in the belief that it is now up to the supplier.
JV: Whats next on your research agenda?
ML: We believe that the global sourcing of business services is prompting a fundamental shift in types of IT skills and capabilities needed in the
TABLE 1: 12 SUPPLIER CAPABILITIES DEFINED
1. LEADERSHIP:The capability to identify, communicate, and deliver the balance of delivery, transformation, and relationship activities to achieve present and future success for both client and provider
2. PLANNING & CONTRACTING: The capability to develop and contract for business plans, which deliver win-win results for customer and supplier over time
3. ORGANIZATIONAL DESIGN: The capability to design and implement organizational arrangements to realize plans and contracts
4. GOVERNANCE: The capability to define, track, assess, and fix performance
5. CUSTOMER DEVELOPMENT: The capability to transition users of an internally provided service to customers who make informed decisions about service levels, functionality, and costs
6. PROCESS IMPROVEMENT: The capability to design and implement changes to service processes to meet improvement targets
7. TECHNOLOGY EXPLOITATION: The capability to swiftly and effectively deploy technology in support of critical service improvement targets
8. PROGRAM MANAGEMENT: The capability to prioritize, coordinate, ready the organization, and deliver across a series of inter-related projects
9. SOURCING: The capability to access whatever resources are required to deliver service targets
10. BEHAVIOR MANAGEMENT: The capability to motivate and manage people to deliver service with a front office mindset
11. DOMAIN EXPERTISE: The capability to apply and retain sufficient professional knowledge of the process domain to meet user requirements
12. BUSINESS MANAGEMENT: The capability to consistently deliver against both customer service level agreements and suppliers own required business plans