After three decades, business process outsourcing (BPO) is well-entrenched as a cost-saving strategy. Typically, it’s considered back-office outsourcing, including human resources, finance and accounting, or front-office outsourcing, including customer-related services such as help desks. This can increase efficiency by making those processes operate more quickly and smoothly.
And, in an ideal world, a company can focus on its core competencies when outsourcing the more administrative elements of its business, but sometimes, companies make the mistake of actually outsourcing some of their core competencies, including their supply chain.
“That’s a bad idea,” says Joe King, senior vice president of service and sales at JDA Software. “You’re turning over the biggest key to your success, your supply chain, to an outside company. You’re letting an outside company make the big decisions that can make you fantastically rich or fantastically poor. What you’re doing is [giving up] critical decision-making. Don’t outsource your key people.”
Before outsourcing BPO or information technology (IT), King advises asking a number of questions, starting with what you are trying to achieve:
- Is it faster results?
- How about cost reduction?
- Which applications or processes are best suited to outsourcing?
In a recent blog post, King wrote that, beyond strategic considerations, companies also must develop their outsourcing policies to provide guidelines for the kinds of systems, processes, and data that should or should not be outsourced.
Typically, he says, transactional systems, such as payroll and voicemail, can easily be outsourced; however, more sensitive systems like human resources and finance may be better kept in house.
“The outsourcing policies should also inform the requirements for security and compliance that must be met based on the company’s market and industry. Finally, companies exploring BPO must consider service level agreements (SLAs). SLAs need to be specific to the business’ needs, and consider information quality and timeliness of the business activity/process. BPO can alleviate the SLA pressures that business users place on the IT department.”
Accenture recently released research that surveyed 263 buyer executives, including interviews with client-provider executive pairs in more than 20 organizations, plus performed additional research and a review of more than 1,300 BPO and information technology outsourcing (ITO) findings from 254 academic studies. In the “Achieving High Performance in BPO” study, Accenture noted that only 20 percent of those participating in the research succeeded in achieving greater business value from their BPO relationships than the majority. They are the practitioners of high-performance BPO who demonstrate best-in-class behaviors and practices in eight areas:
- End-to-end approach.
- Collaborative BPO governance.
- Change management.
- Value beyond cost.
- Business outcomes.
- Domain expertise and analytics.
- Transformation of the retained organization.
- Technology as a business enabler.
“High-performance businesses,” the research suggested, “consider the entire end-to-end business process to be in scope, including elements managed with the client’s enterprise, those run by third parties, as well as related processes that may impact overall performance … In high-performance BPO, client and provider work together on process consolidation, rationalization, and standardization across business units and geographies.”
The report goes on to say that collaborative BPO governance means that the senior leadership from both parties work together to understand each other’s objectives, resolve conflicts fairly, and continuously adapt their BPO arrangements based on changing business and marketplace conditions.
JDA’s King says a common mistake companies make is not involving their IT department from the onset when it comes to instilling BPO. IT, he stresses, is often best positioned to identify any integration challenges and understand any long-term implications of outsourced BPO. “The irony,” he wrote in his blog, “is that IT typically ends up being the one that has to manage any resulting outsourcing contracts.”
Another consideration before moving to BPO, according to King, is considering your strengths and weaknesses. “If something is a weakness in house and it isn’t business critical, then outsource it. Key decisions and roles should always be kept in house. BPO shouldn’t be used to replace an entire business function, such as human resources or finance. This would be irrational, as organizations still need their own in-house people to make their business-critical decisions.”
Agreeing with the report’s view of change management, King continues, “Any business process outsourcing provider needs to work closely with both the business users and the IT department to coordinate effective change management. What I see in the industry is that the best vendors and the best companies agree on the change management processes, timing and signoff. This is the fundamental overlap between the BPO provider and the customer.”
The Accenture report concludes that, “One of the most promising findings of our research is that high-performance BPO is attainable for all organizations of any size. The research makes plain the fact that high-performance BPO is not dependent on the organization size, industry, geography, tenure or business function involved. It results, rather, from taking a more strategic and thoughtful approach to the establishment and management of BPO engagements.
“By adopting the behaviors and practices associated with high-performance BPO, clients can capture significantly greater business value and build new competitive strengths together with their differentiated BPO provider.”
King agrees. The key is to understand what the overall goals and objectives are for outsourcing and the strategic goals of the organization. Companies, he says, should consider and match not only current capabilities, but also the continued capabilities of their outsourcing vendors. And vendors need to show a continued evolution of capability and knowledge to ensure a long-term return on investment and value.
“Oftentimes, companies focus on and celebrate a go-live date for a new system, whether in house or outsourced; however, true value can only be realized after the first year and multiple years thereafter.”