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.