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BPO Value Leakage

Clients Gone Wild. Make sure your organizations behavior doesn’t derail your BPO.

by Mark Hodges

It is always disappointing when a BPO client begins to see value leakage in the agreement they signed with a provider. Why does it happen, despite the good intentions of all parties involved? In many cases, it is because the client began to run wildinternally and externallyleading to a doom loop resulting in value leakage. In my experience, the doom loop is the result of a series of factors. None on its own can create significant value leakage. Collectively, however, they can damage the BPO relationshipsometimes fatally. But value leakage can be avoided if you can recognize the seven factors that commonly work against a successful BPO relationship:


The client waits too long.

The client waits until they are 99 percent sure they are going to sign a contract which is usually two weeks before actual signingto design, staff, and build their BPO center of excellence (COE). This is eight to 10 weeks too late.


The BPO provider does not help.

If the BPO provider finalist doesnt get the opportunity to work with the client on finalizing the COE, they are not sufficiently vested in its processes.


The client doesnt budget properly.

Instead of budgeting 4 to 6 percent for the COE in its first one to two years, clients accept a 1 to 3 percent budget. The acceptance is due to the clients finance group (and often the service provider) trying to improve the business case. It is impossible to manage your internal constituents, let alone your provider, with a COE budget of less than 3 percent. If your BPO agreement contains significant transformation, not simply transition, your budget should be, at minimum, 4 percent.


Amateurs, instead of proven professionals, are running the COE.

Not only have the dollars been under-budgeted, but often the resources have been as well. Many individuals who were retained are asked to start managing the what, although they were previously trained for the how. Since COE dollars are limited, how are these individuals going to be trained to manage service levels, demand consumption, vendor management, change management, requirements development, and a myriad of other skills that proven governance professionals already know?


Negotiations are adversarial.

The vast majority of outsourcing agreements have been signed after very arduous negotiations. Why? Because the clients legal, finance, and procurement departments get involved and impose their traditional approaches. These old-school approaches often drive behavior that is destructive for BPO relationships. How do you know if your legal or procurement department is old school? They will not provide the financial base case in the RFP. They will want to keep information (e.g. existing contracts, headcount, salaries, etc.) from the providers until after the contract is signed. If they use terms such as supplier, low cost, transaction, nail them to the ground, etc., you will know that you are dealing with a negotiation team that will want to win at any cost.


Executives focus their attention elsewhere.

The CFO, SVP of HR, and/or CEO turn their crosshairs on other initiatives. Important decisionssuch as process transition dates, systems cutovers, and scope changes are not escalated. When decisions are not timely, the BPO provider cant deliver the cost savings, and executives wonder where the savings went.


Organizational will is lacking.

Business unit leaders and country managers begin to trample over the COEs authority. If executive leadership doesnt get them in line, they begin to implement programs or make changes to the scope upon which they had previously agreed. They question the benefits of BPO, whether service levels have improved, and whether BPO is costing more than in-house. This unravels the very economics and business objectives the BPO relationship was intended to solve and creates a lack of confidence in the provider and the COE. Interestingly, only two of these seven factors can be attributed to the providerthe other five are clearly in the buyers control. It is easy to blame the BPO provider for value leakage and client dissatisfaction, but buyers should carefully examine if they have contributed to any of the behaviors described above. According to EquaTerras 140 BPO advisors, BPO demand continues to increase quarter over quarter. If the market wants to continue its healthy growth, clients and providers need to focus at least as much time, resources, and talent on managing the BPO relationship as it currently does on merely getting the agreement signed.   

Tags: Consultants & Advisors, HRO Today Global, Multi-Processed HR, Professional Contribution, Sourcing

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