Techniques for Ensuring Innovation from BPO Providers

Holding regular reviews and engaging partners must be a regular activity for ensuring innovative growth. Governance is pivotal to your success.

by Mark Hodges

My July/August 2005 column on the lack of innovation from BPO providers and a diagnosis of the root cause struck a deep chord. Most of the responses I received included the question, “What techniques or methods can I employ to ensure I get the innovation I want from my BPO provider?” Innovation is best obtained via transformation, best practices, new technology, and continuous process improvement. Fortunately, there are a variety of techniques for extracting innovation from your agreements.

  • Innovation Reviews. Quarterly, bi-annual, or annual innovation reviews (also known as innovation boards) focus typically on state of the market, industry trends and relevant information, technology updates, solution demonstrations, site visits, etc. Leverage other buyer peer groups to understand what is happening in your industry, the outsourcing industry, and other sectors.
  • Benchmarking. Clients should always activate their benchmarking clauses; unfortunately, most don’t. When benchmarking, focus on best practice and comparators of innovation—not just cost comparisons. Benchmark both functional excellence and outsourced environments.
  • Stakeholder Satisfaction Surveys. Perform monthly, quarterly, and annual customer satisfaction surveys. They should be “360 degrees”—covering multiple dimensions and all internal and external stakeholders.
  • Act as a True Business Partner. Invite your provider into your annual planning sessions. Brief them on your strategic and business objectives, and ask them to brief you on how they can help you achieve these objectives. Get them to think and act above simple tactical delivery.
  • Financial Base Case. Ensure your financial base case has sufficient funding in the out years to pay for continued innovation. Funds must be set aside for business case investigation, evaluation, and development. Create a “pseudo” R&D budget for innovation.
  • Gainsharing and Incentives. Use a gain-sharing mechanism on a case-by-case basis to pay for business-case development. Include mutual rewards for both your organization and that of the service provider. A “license-to-sell” innovation to the client by the provider is just as important as a gain-sharing mechanism.
  • Service Levels. Some SLAs must be tied to innovation or it will not happen. Project milestones, “go-live” events, and pilots are tangible measures of innovation. Other measures include accuracy, customer satisfaction, productivity, Six Sigma (defects), work elimination, etc.
  • Outsourcing Management. Your internal governance team should have a transformation or innovation owner, sufficient staff and budget to help drive innovation and must hold the provider accountable for innovation. Reassure and demonstrate to the provider that the relationship is long-term; otherwise, they will be inclined to disinvest in innovation, and the relationship. Your organization must retain process management expertise at a level at which you can clearly articulate future state requirements, evaluate proposals brought forward by the service provider, and work with your organization to get the business case for change.
  • Executive Visibility and Support. Ensure that senior executives from your service provider have high visibility and access. This includes steering committees, reciprocal headquarter visits, joint speaking engagements, regularly scheduled calls, and quarterly and annual briefings. Facilitate meetings and foster face time between your senior executives and provider senior executives.
  • Behavior/Communication/Culture. Be prepared to invest in and encourage change. Communicate your aspirations early. Transformation requires a partnership mindset, not a transactional orientation. Innovation is often not brought to bear because clients do not ask for it, define what they mean by it, motivate the provider to deliver it, or put restrictions around it. Clients rarely help the provider to understand what is important to them.
  • The Contract. Transformation and its associated requirements must be a definable project in the contract. Build a fair cost structure into the contract that allows for innovation. Distinguish between what is in the base fees and what is charged as a “fee for transformation or enhancement.” Transactional contracts that only focus on operational cost savings and not broader-based business outcomes and benefits are a real barrier to innovation.

Want innovation from your BPO agreements? These tried, tested, and true techniques can help get you on the innovation path with your provider.

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