Combining multiple business functions into a single BPO agreement.
We are frequently asked by our clients a series of questions around the efficacy of bundling more than one business function such as HR, F&A, IT, or procurementwith another business function into a single and larger BPO agreement. The questions range from: What are the benefits to bundling? and How much additional cost savings are possible by bundling? to Are there BPO providers who can deliver on two or more business functions? and Is it more risky than outsourcing a single business function?
If you are wrestling with these same questions, there are a set of factors and additional questions to address that will help determine whether bundling the business functions for BPO is a sensible strategy for your organization.
First, the market has proven that when two or more business functions are bundledfor example, HR and IT or F&A and HRan additional 10 to 15 percent in savings can be achieved over a single business-function BPO agreement. Therefore, if maximizing cost savings is critical to your organizations requirements, as opposed to other BPO objectives such as adding capability or increasing flexibility, a bundled BPO relationship can make sense.
Second, consider collaboration. Do your functional leaders work well as a team? Have your HR leader and CFO collaborated previously on large-scale initiatives? Do they usually see eye to eye? Does the CIO respect the head of HR or the SVP of Procurement and vice versa? If the business function leaders are merely factions, it can be very difficult to harmonize a BPO initiative across these fiefdoms.
Third, what about BPO objectives? Are your CEO and executive management team in agreement? Will they act as a team when various functional leaders try to break from the pack? Often the selected BPO provider on a bundled deal is not the unanimous choice among the functional leaders, increasing the possibility of opt out actions. Will your CEO and executive management ensure this does not happen and enforce compliance?
Fourth, do you have the organizational capacity and capability to manage a BPO initiative across multiple business functions? The amount of resources, energy, and choreography necessary to accomplish this task is enormous. Think of managing three M&A deals at once it is difficult to conceive if an organization is not used to cutting across functional towers and driving harmonized organizational change.
Fifth, is there a compelling business reason to, Do it once and get it over with? If there is a new CEO in place, often that individual has a honeymoon period during which change and cost reduction is expected. Another example is a company in the midst of massive restructuringit often makes sense to bundle the functions together in a BPO agreement. It is also a good reason to do a bundled BPO deal when there is going to be a massive restructuring in the coming 12 to 24 months.
Sixth, will your company be comfortable with the fact that there are only a handful of BPO providers who can deliver on a bundled BPO agreement? Even then, at least one of your functional leaders will be unhappy with the final choice of providers. Many procurement organizations, and even legal departments, have major problems when RFPs arent going out to at least 6 to10 vendors. Working with only two or three providers makes them nervous and feeling like they lack control.
Seventh, do you already have a multi-functional shared-service center in place? If you do, the benefits of the existing interdependencies and integration are very valuable and it is usually unwise to unbundle these services into separate BPO agreements.
Finally, do you feel you that you have to learn the outsourcing process over time instead of all at once? Many clients feel more comfortable initially outsourcing one business function, getting it into production, and letting it run for a year or more before they tackle the next business function. Right or wrong, many clients feel this is less risky and increases their probability of BPO success over time. However, if your company is comfortable with the big bang approach, then bundled BPO works just fine.
Ultimately, determining whether outsourcing a single business function is more effective than bundling is not a simple decision; it depends on a multitude of factors. Make sure you understand your companys organizational capacity, culture, and decision-making processes before you select one BPO route versus anotherit will save you time, energy, and your sanity!