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Leveraged Delivery Platforms: The Holy Grail or Fool’s Gold?

Choosing the right platform is crucial if you want your deal to actually go live.

by Marc Pramuk, Vipul Taneja

In excellent question was posed to us the other day: If one-to-many delivery platforms are the most efficient way for suppliers to run—theorized based on standard logic and the lower prices they outline—then why are so many providers touting these platforms losing tons of money?

While HRO has been around for a number of years, it is easy to forget how new the industry still is and how early we are in the development cycle. In more concrete terms, 80 of the total 135 HRO transactions to date (57 percent) have been signed since January 2004 (see Fig. 1). With a typical implementation period of 18 months after deal signing before going live plus a “breaking in period” to get the kinks out before true stability is realized, it is safe to say that more than half of all contracts in HRO are not yet live.

This brings up another industry reality: long cycle times. If a supplier finalizes a new strategy, say for a more leveraged service delivery model, it first needs to integrate this into its sales cycle. It is difficult to change horses mid-stream, so it is likely the new strategy will need to be utilized early in a new HRO opportunity. Given the length of sales and contracting cycles, this could take 9 to 12 months.

Next, the supplier needs to execute this new strategy in the implementation of the win. Implementations run 9 to 18 months, so in the best case, the supplier could be live in 18 to 24 months from launch.

Now to the question of supplier profits and whether there is a link between the relatively recent supplier interest in leveraged delivery models and the financial loses reported by several BPO suppliers.

Simply put, it is too early to draw any direct correlation between the platform strategy and profits realized. This is mainly due to the cycle time outlined above. Too many of the recent wins that place greater emphasis on a leveraged or configuration model rather than a more custom solution are still in implementation and not yet live. Also, there is a lot of other “noise” in the equation, e.g., are the profit challenges execution-related rather than strategy-related?

Most of the suppliers face a situation in which their earlier “lift and shift” deals are the ones that are live and generating profits, while the newer deals—the ones more likely to seek a leveraged, one-to-many delivery approach—are still in implementation. So clearly it is premature to draw any conclusions based on current financial health.

A case still could be made that one-to-many delivery platforms aren’t as profitable as previously thought in light of the recent financial charge taken by Hewitt and its acknowledgment that a number of their 2005 wins won’t be as profitable as projected. However, it isn’t clear if there is any correlation between these lower profits on recent deal wins and the choice of delivery platform. Was this a failure of their leveraged delivery model or a failure of their ability to scope and price out deals accurately?

While larger firms considering HRO still place greater emphasis on a more personalized solution and while there is a limit to how highly leveraged a solution can be for the Fortune 500, it is clear that the better the supplier is at getting to a configuration approach rather than a custom one, the more it benefits both buyer and supplier in accelerating time-to-go-live and lowering total cost to own and total cost to serve.

In short, the topic of delivery leverage will be an interesting topic to watch as suppliers get better at execution and we can eliminate that variable from assessing strategy and profits.

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