Drafting the blueprint for a stronger outsourcing industry.
By Hfs Research, the HfS 50 Executive Council, and participating service providers
This spring, a bevy of outsourcing industry power brokers gathered in New York for a defining two-day working session called the HfS Sourcing Blueprint Sessions. The event was mainly a buyer-only session, but it concluded with a buyer/provide face off. Six leading providers were invited to meet HfS 50 Executive Council members to debate the key issues of the outsourcing industry. The gathering presented a unique occasion during which senior buyer executives—representing many of the global outsourcing industry’s largest engagements—were able to share their experiences, challenges, successes, and future desires.
Insight from the sessions was crafted into a very significant blueprint report that tackles the major challenges facing all outsourcing industry executives. In that report, the experts discuss the four main challenges: overcoming the singular focus on cost that strips the industry of its value; leveraging outsourcing as one of a variety of vehicles to achieve business objectives; helping providers invest more smartly in their account management teams; and fulfilling buyers’ and providers’ needs to partner to foster innovations into business and IT process outcomes. The group also drafted 21 recommendations for improving the outsourcing industry based on the four challenges.
Shift Away From Cost
1. Keep outsourcing initiatives current with changing business objectives. Outsourcing governance and vendor management leaders must continue to make their existing outsourcing initiatives relevant to their organizations’ shifting needs, instead of treating the initiatives like contractual blocks of unalterable concrete. To accomplish this, they must create linkages between the operations they manage and new business objectives. This will drive executive involvement.
2. Create contracts that are more flexible and allow for process improvements. Contracts built on the basis of minimum payments or guaranteed contract value work only if the organizations have no interest in improving their processes. It is equally important to compensate organizations and service providers for their investments in process improvement.
3. Develop more tangible platform ROI. Service providers need to build a compelling cost/benefit model to introduce new platforms aggressively to their clients and drive IT-enablement of their business processes. Service providers that can acquire or develop unique technology IP to support their clients are at a clear advantage if they can properly sell it. If clients are using highly customized IT platforms, as in the capital markets industry, providers must have the consultative skills to effectively IT-enable the outsourced business process.
Help Outsourcing Coexist
4. Create alternatives to the term “outsourcing.” The word has become synonymous with greedy corporations exploiting low-cost labor and ultimately the sacrifice of many higher-paying jobs. Nevertheless, the concept of outsourcing is now mainstream, and both the service providers and their clients would do well to define it more effectively, making it more meaningful and relevant to today’s market. Using terms such as “business services” or “business optimization services” as a broader description is recommended, especially as most sourcing frameworks today do not rely predominantly on outsourcing as the prime delivery vehicle.
5. Play nicer. Service providers and their clients must adopt more flexible approaches to setting boundaries for involvement with each other. Providers must learn to collaborate with competitors and consultants, while building service offerings that can be viable substitutes to consultants’ offerings. Clients must adopt approaches that emphasize collaboration over competition.
6. Merge ITO and BPO service delivery. If service providers are to provide combined ITO and BPO services, they must develop internal practices that don’t recreate the same problems that clients experience when ITO and BPO services are not centrally managed.
7. Invest in locations other than India to support contextually sensitive processes. Service providers must develop methodologies that allow them to spread capability in new locations providing quality equal to Indian operations. This not only supports domestic or regional client initiatives, but also assists clients with contextually sensitive processes and regional risk management.
8. Tackle security issues. Security remains a significant concern, and organizations cannot passively manage service providers through contractual security requirements, instead developing auditable enterprise security models capable of spanning global internal and external operations that actively manage their risks.
Relationship Manager Improvement
9. Hire higher-caliber business relationship managers (BRMs). These new hires need better industry expertise, greater consultative skills, and strategic minds. Buyers must work with their service providers to align with expectations and build deeper and longer-term relationships.
10. Develop role descriptions for BRMs.This might have variability across different providers, but setting expectations for each BRM makes sense and can improve consistency.
11. Increase the frequency of service providers’ consultative conversations with their clients. In some cases, allocating executives with a comprehensive knowledge of their own services might leverage best practices.
12. BRM and client leadership must meet on a regular schedule to focus on high-level objectives to improve existing programs. These discussions should be independent of status discussions or replacement of quarterly business reviews. They should be creative discussions focused on best practices, benchmarks, and external tools.
13. Service providers should develop succession plans for BRMs and communicate them to their clients. The BRM is the most important role with the provider in terms of relationship development, sales, marketing, keeping the ship level and sailing—and often is associated with fast-path career people. Experienced buyers would expect the vendor to turn these people over in some rhythm and promote them to higher levels of leadership. The key is having a proper succession plan that fills such roles with people who either have a lot of pertinent experience or are already familiar to the client in some similar way.
14. Source work to alternative providers. Merely relying on contractual penalties to avoid excessive turnover in BRM roles has consistently proven not to work, as whatever the baseline is when the penalty is established will surely change as the BRM role develops and the engagement matures. Moreover, BRM goals as set up by the provider will never be the same as the goals and objectives developed by the client. Attrition in general is a core issue impacting both IT and BPO, and the best way to address it is providers knowing they will lose market share if they fail to address the issues at a strategy level.
15. Don’t settle for the status quo. Both seasoned provider professionals and experienced clients are at risk of falling into a “comfort trap” with the status quo. The rapid proliferation of new technologies increases the need for providers and clients to collaborate on what is the next best solution. Both the service providers and their clients should challenge each other to stop dwelling on the past and look to the future.
16. Buyers and service providers need to make their collaboration more impactful. Collaboration must identify real, tangible solutions. Service providers need better insight into the real challenges of clients without a salesperson’s “guesses” as to what could have value. Clients should provide forecasts to suppliers at least once a year. Statements of work (SOW) should allow for flexibility. To do so, they should specify the parameters of a joint business transformation team within the SOW with clearly defined activities and expectations that include regular business transformation meetings; active participation from both parties; metrics for business transformation; and flexibility in the contract.
17. Buyers must share more information about their business objectives. Buyers should host strategy sessions with their service providers in which buyers can discuss forecasts and the latest company objectives, while the service providers can update the buyers on the new solution options to achieve process improvements. This offers service providers a chance to present noncore or ancillary capabilities to meet buyers’ strategies.
18. Share more information about service provider capabilities. In particular, providers must find ways to mask the identities and sources of best practices shared across clients, thereby enabling a more free-flowing exchange.
19. Request for proposals should be less specific and offer service providers more opportunities to innovate at the outset of a relationship. Buyers should solicit services not requested, but which the service provider believes could achieve better outcomes. Buyers can’t expect innovative thought when they stifle sales pitches. Providers need to provide buyers with a workable framework to proceed with vendor evaluation.
20. Buyers must actively explore whether their providers can help solve their problems. Council members noted several instances in which their provider was simply not informing them effectively enough of their capabilities. But buyers should be asking providers if they can produce the right outcome.
21. Develop contracts that foster partnerships, both in the act of their creation and in the actual text. Today’s BPO contracts are strengthened when they contain a subtext of trust. The effort spent in adversarial negotiations to secure contracts that try to mitigate all unforeseen risks often creates a subtext of “us versus them” that overshadows the remainder of the contract.
HfS Research is a research analyst organization, researching business services and technology services strategies. The HfS 50 Sourcing Executive Council is a peer discussion group for enterprise outsourcing and business services executives. The participating service providers include Accenture, Capgemini, Cognizant, Genpact, Infosys, and Wipro Technologies.