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Do You Have a Preferred BPO Provider?

Dont let vendor fatigue leave you too tired to recognize your providers accomplishments.

by Mark Hodges

Many clients have a preferred BPO provider. These clients appreciate the existing relationship, the value delivered over time, and the trust that has been built over a number of years. When new BPO requirements emerge, these clients like to steer business towards the incumbenta BPO provider with a proven track record. What often occurs, however, is that the clients preferred BPO provider doesnt actually win the work. Why does this happen?

The existing BPO provider describes a BPO opportunity that the client feels is worth exploring. The BPO provider submits a high-level proposal for a discovery process or assessment with a high-level business case as the final deliverable. The business case allows the client to determine whether to move forward with a BPO agreement or not. This discovery process is often provided for free, or at significant discounts to the BPO providers usual fee structure. This makes it extremely attractive to the client, with little perceived risk on their part.

The free (or near free) assessment is performed, and as both parties suspected, there is a very compelling business caseusually on the order of 30 percent (or more) annual run rate savings. Both the client and BPO provider get excited and go into detailed due diligence. As the due diligence unfolds, hidden costs are revealed (technology costs are usually higher than anticipated) and other issues are detected. Almost all of the findings during due diligence eat into the business case. The further due diligence progresses, the less certain the projected cost savings appear. There is a still a decent business case, but it is not nearly of the magnitude described in the assessment.

Since formal requirements were not documented and due diligence continues to find warts, it is no surprise that two or three months progress and the agreement that the client is asked to sign shows less than 20 percent savings (not the original 30 percent) and contains all kinds of caveats to protect the BPO provider. This is a classic case in which the BPO provider is perceived to hold all the cards and the client feels unsophisticated in comparison and becomes increasingly reluctant to sign on the dotted line. Trust begins to erode. The client often revolts Youre asking me to sign an agreement that barely resembles the business case in your assessment and puts the requirements out to bid in a competitive RFP. This is the first major symptom of vendor fatigue.

As RFP responses come back, many of them look attractive, and the newcomers have a honeymoon period with the client. The BPO providers account team gets increased pressure by its management to close the business, which leads them to exert more pressure on the client to forget about the other BPO providersprecisely what the client does not want to hear. The competing BPO providers are willing to spend more time with the client and spend additional dollars in the pursuit while the incumbent (which has already invested a significant sum) is not. Thus the client becomes even more frustrated with its preferred provider. This is the second symptom of vendor fatiguethe client feels as if its preferred provider is taking them for granted and not trying hard enough compared to other BPO competitors.

The incumbent BPO provider then tries to match (or beat) the competing bids, but the client says You fooled me once, youre not going to fool me twice, and selects one of the newcomers. This is a fatal case of vendor fatigue. The incumbent has spent 12 months trying to get a deal, but the client got tired of them and would not sign.

How do you avoid a case of vendor fatigue? First, if you want to award additional business to your existing BPO provider, dont let them do free studies that only deliver happy words based upon limited information. Second, remember that as the incumbent BPO provider, spending millions of dollars for the free study and due diligence does not always win business. Third, the client should be sure that service levels, volumetrics, and a robust financial business case are formal and complete before they allow their BPO provider to perform due diligence this will limit nasty surprises and give both the client and incumbent a much higher probability of signing a good BPO agreement. Finally, recognize the symptoms of vendor fatigue and intervene before the malady becomes fatal.

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

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