Can the Technology Decision be Separated from the BPO Solution?

When clients seek to leverage multiple vendors, accountability is muddled and the potential for squabbling grows. How to segregate technology depends on how you want to handle the trade-offs.

by Mark Hodges

Reader feedback has shown that one area requiring further amplification is whether the underlying technology can be “separated” from the BPO solution. The short answer is “yes,” but a more definitive answer is “depends…and there are a number of trade-offs.”

When determining what technology strategy makes the most sense for a BPO solution, a client has a number of alternatives:

• Client Supplied. Here, the provider “rides” on the client’s existing technology and guarantees integration to the client’s ERP system. This option is very limiting to the provider and usually causes the overall BPO price to be higher than other alternatives.

• Client Transferred. With this alternative, the provider assumes the client’s technology and operates it going forward. This solution gives the provider full leverage and scale and can lead to a lower overall price. However, the client loses its ERP system and/or leverage from existing ITO relationships it may have in place.

• Provider Supplied. This option requires integration of the BPO provider’s solution to the client’s ERP system. This solution also provides full leverage to the provider. However, the client loses some leverage from existing ITO relationships because transaction volumes are taken away.

• Hybrids. Depending on the region and some processes, a hybrid constructed of elements from the first three options is required.

Further complicating the BPO and technology decoupling decision is the consideration that each technology option described above consists of three layers: transaction, enabling, and infrastructure.

The transaction layer is generally represented by an application where the true data processing actually occurs. The enabling layer consists of underlying tools such as work flow, data capture, and CRM. And the infrastructure layer is comprised of the LAN/WAN and processing (“glass house”) environments. A BPO solution can consist of one of these technology layers or any combination of the three layers, with resulting benefits and trade-offs.

When a client decides to exclude technology responsibility from the HRO contract—either by retaining technology responsibility or by awarding the technology component to a separate provider—compromises must be made. Hidden complexity costs arise when services are excessively fragmented between the client and two or more providers. The ability to deliver an integrated, event-based service is much higher when a single provider is accountable. Accountability for the timeliness and quality of the BPO service increases with the degree of control the provider has over individual elements such as technology.

Take the division of payroll and compensation services, for example. While it may seem a trivial division, that is hardly the case. Payroll processes are integral to managing the daily flow of employee indicative information. The compensation process depends on a number of payroll outputs and interfaces such as stock options, base compensation adjustment cycles, and deferred compensation, to name a few. When responsibility is split between payroll and compensation, employees must seek answers from multiple sources. Hand-offs are created, and issue resolution is delayed.

The segregation of processes adds complexity. Interactions become more formal and bureaucratic as procedural mechanisms are constructed to govern the parties’ transactions. This can slow decision-making, leading to bureaucratic and inefficient processes. Priorities and profit motives between the client and its service providers are not necessarily in alignment either. Numerous touch points across the enterprise mean various corporate boundaries need to be navigated, requiring the client to dedicate more resources to managing the relationship. These are not always easy to discern up front, but the increase in retained costs on the client side can be significant.

Simply put, BPO providers do not like being accountable for root causes beyond their control. Unfortunately, this is not always an easy determination. Clients often find themselves refereeing when there is a service disruption.

Decoupling technology from a provider’s BPO solution can be accomplished, but only after the benefits and risks of such an approach have been fully evaluated.

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