10 Tips on Managing Your BPO Vendor

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While BPO can be a powerful lever to eradicate deficiencies, cut costs, improve quality, and strengthen control, many of these benefits are often relegated to 'by-products', as clients focus instead on the cost advantage of replacing internal headcount with low-cost, third party resources. As long as BPO is still being summed up, summarily, as a 'lift & shift' or 'my mess for less' activity, the real benefits of outsourcing will remain elusive. So, how do you ensure you care embarking on a positive, rewarding relationship with your BPO service provider? The article offers 10 tips to help you drive a more productive BPO partnership.

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10 Tips on Managing Your BPO Vendor

  1. 1. Strategic Sourcing: 10 Tips on Managing Your BPO Vendor David O’Sullivan, Co-founder and Partner, Chazey Partners Explains how to ensure you get the most out of your BPO provider – and not the other way around hat continues to drive outsourcing as a sustainable model for business services is the provider market’s ability to offer Services, Products, Capability, and lower Cost. Translated, this means corporations can leverage, for example, a third party’s expertise in transaction processing, travel and expense platforms, eInvoicing, and statutory and tax compliance; as well as benefit from its offshore, lower cost, human resources. W 2. ! While BPO can be a powerful lever to eradicate deficiencies, cut costs, improve quality, and strengthen control, many of these benefits are often relegated to “byproducts”, as clients focus instead on the cost advantage of replacing internal headcount with low-cost, third party resources. As long as BPO is still being summed up, summarily, as a “lift & shift” or “my mess for less” activity, the real benefits of outsourcing will remain elusive. Don’t choose BPO because it is “easier”: Some companies that opt for BPO do so under the mistaken impression that BPO is “easier to manage” than a Shared Services Organization (SSO). This is not so, for many reasons, not least of because an SSO and its customer are both on the same team, reporting to the same board. Differences, where they occur, are still subject to common targets. Tip: Outsourcing does offer a certain arm’s length neutrality, but beware of interpreting this mainly as a means of “control.” Your end customer cares first and foremost about seamless delivery and excellence. That is your priority and it will take both BPO and SSO to make it happen. ! ! ! 3. The reality of modern day business process outsourcing, however, promises much more. So, how do you ensure you are embarking on a positive, rewarding relationship with your BPO service provider? Here are 10 tips to help you drive a more productive partnership: ! 1. Don’t fail at the starting gate: The best intentions can get lost in the legalese of contract negotiation, and a weighty Statement Of Work and/or Master Agreement can do a lot to derail a relationship before it has even started. Also, beware: When negotiating, remember that you need to consider tomorrow’s business circumstances, as well as today’s. Don’t get locked into a virtual straightjacket by basing your requirements only on the needs of the present. Tip: Many organizations have re-designed the engagement model and commercial relationship to incentivize both parties to behave collaboratively, thus encouraging a “win-win” situation, as opposed to “usagainst-them”. Process ownership equals responsibility (and that works both ways): Time after time, experience shows us that BPO clients are not leveraging their service providers optimally. The most obvious stumbling block is that although clients insist on retaining ownership and responsibility for the entire process, they do not always recognize that it also makes them responsible for the outcome. Customers that fail to connect the dots typically do not realize the end-to-end process benefits available within their own organization. Tip: This abdication of responsibility to the BPO, without entrusting it with ownership, leads to disappointments and frustrations on both sides: the client suffers lower than expected benefits/services; and the BPO finds itself hampered by the client’s inaction in resolving upstream process issues. North America | Latin America | Europe | Middle East | Africa | Asia www.ChazeyPartners.com
  2. 2. 4. Embed innovation in your contract: While outsourcing innovation is as hot a topic as ever, it is often difficult to see where this is being applied. The root of the problem may well lie in the contracting and negotiating process, where the relationship, and the culture that defines it, is cemented. Tip: Ensure your contract includes a financial commitment on the part of the outsourcer to invest in innovation, or process improvement. If it’s not there, the incentive on the part of the provider to drive change will be minimal, at least. 5. Know what you want and prepare methodically: Carefully consider what it is you are trying to achieve. Regardless of the model you end up choosing (SSO, BPO, or hybrid), the decision-making process should take a similar approach and include similar criteria. Tip: Don’t take a short cut straight to BPO without going through this process, even if your mind is already made up. You run the risk of underestimating hidden costs and being overcharged, as well as, according to a Deloitte survey, a 39% chance of vendor termination, a 61% chance of senior management escalations in the first year (53% in 2nd year), and a 15% chance of reversing the operation to bring the function back in house. North America | Latin America | Europe | Middle East | Africa | Asia www.ChazeyPartners.com
  3. 3. Understand what you are buying: Even after decades of outsourcing, many organizations still do not know the difference between “strategic sourcing” and “tactical procurement”. You simply cannot contract for Finance or HR services as you would for a ream of paper. Too often, the procurement of technical skill-sets to perform certain activities are confused with buying services to manage the office landscape. This means you are overlooking significant opportunities to drive strategic decisions. 6. Tip: Strategic Sourcing is different. While some of the essential elements of tactical procurement, like vendor management and sourcing, do overlap, there are some key elements that differentiate the strategic nature of sourcing: ! 7. Strategy & Relationship: The BPO vendor relationship is a strategic relationship. Typically, outsourcing will form part of a corporation-wide transformation initiative, focused on driving efficiency and effectiveness. Such a transformation is necessarily long-term, and impacts not just the financials, but also human resources, technology, sourcing, and operations. The outsourcing element forms an important part of this journey. 8. Tip: Rather than assuming a rigid customer-vendor relationship, view the outsource provider as a partner on this journey – one who can leverage their extensive process and functional expertise in support of your corporate objectives. North America | Latin America | Europe | Middle East | Africa | Asia Project Management: Most outsourcing operations are guided by a Master Services Agreement (MSA). As most roll-out or transformation roadmaps are not confirmed prior to the MSA being signed, however, nor are the detailed functional requirements known up-front, you need to allow for this in your planning. Moreover, each roll-out requires a separate “purpose of project” agreement (like a contract) or even a contract itself. While the MSA will usually present an over-arching reach on the relationship, each engagement may entail nuances that are unique to the roll-out, and need to be managed accordingly. These may include different types of services, resources or costs. Tip: Instead of buying services one at a time, scope and consolidate your plan for a larger span of activities. Also, remember to incorporate a strong element of project and change management in the program, and review the MSA periodically. www.ChazeyPartners.com
  4. 4. 9. Operational Effectiveness: While the planning and early stages of BPO are characterized by setting expectations, the BPO vendor relationship takes on a different dimension during the stabilization and normal operational mode. Here, the emphasis is on performance management, services management (through SLAs/SPAs), process management, etc. Issues, where they inevitably arise, need to be positively and proactively managed and resolved. Invest time in developing a robust structure to capture these issues, have protocols in place for escalations, and, most importantly, have mechanisms that address repeated issues in a comprehensive way (root cause corrections). Tip: Another important facet of operational effectiveness is to develop a structure that maintains and updates policies, regularly provide refresher and new training for the workforce, and build two-way communication channels to update and engage teams on critical issues. 10. Governance: The extent to which you have invested in governance represents the single largest differentiator between success and failure. Whether for periodic relationship appraisals, creating a project management office, managing operational risk, or simply undertaking a new services implementation … a governance council plays a pivotal and crucial role. In extreme cases of dispute resolution, the governance council becomes the key intermediary between the operations and BPO vendor. David O’Sullivan Co-Founder & Partner Chazey Partners Tel: +353 86 384 8573 enquiries@chazeypartners.com ! ABOUT THE AUTHOR David has over 20 years’ experience at a strategic and operational level in driving business change and transformation with multinationals in a broad range of industries. He has established and optimized business critical operations, implemented global ERP applications, and outsourced and offshored other functions. As well as co-founding and building Chazey Partners, David has held a number of top level roles including COO of a Technology company and Corporate Controller of a global Consumer Goods company. He has also been at the forefront of leading significant global change with companies such as Whirlpool and Thomson Reuters in a number of capacities including Project Director and global Head of Shared Services. ! Since the 1990s David has led and driven global business transformation programmes that have realised significant cost, service and control benefits through the introduction of new operating models in Finance, HR, Procurement, IT and Sales. ! David is a Chartered Accountant and graduated from Trinity College, Dublin with a degree in Economics & Political Science. ! Tip: Make sure the governance council includes representatives from operations, senior management, and support functions as well as vendors, and that the team is guided by a set of principles that are aligned with the objectives of services delivery. The governance council should be run according to a unique set of objectives and mission. North America | Latin America | Europe | Middle East | Africa | Asia www.ChazeyPartners.com

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