DAC 3106: BUSINESS PROCESS OUTSOURCING

October 22, 2011

Class 8: Managing the BuyerVendor Relationship

Agenda
2

Introduction BPO Management Skills BPO Relationship Success Factors Relationship Risk Factors

Introduction
3

Managing the BPO relationship successfully is a challenge for buyers and vendors alike. The complex nature of an outsourcing agreement lends itself to a variety of challenging relationship management issues. Relationship management is a key component of any successful outsourcing project, however, it is the most often neglected one. Successful management of the outsourcing relationship depends on how the requirements are defined, the objectives described, the vendor chosen, the key people, and the contract written.

BPO Management Skills

4

Managing BPO relationships requires a variety of skills, including the following:

Negotiation skills. There will often be give and take in a BPO relationship. Thus, it is important that the project management team be skilled in negotiating points of view and in presenting them in an acceptable manner to the vendor. Communication skills. Outsourcing project management teams are the glue between a companys business needs and the vendors services. Effective communication skills are necessary to prevent simple problems from becoming complex ones. Business skills. It is important to continually understand the changing business needs and align the services from the vendor with the BPO buyers business objectives.

BPO Management Skills

5

The senior management of the BPO buyer must necessarily be involved in periodically monitoring the BPO relationship and in ensuring that it stays on track. Senior management plays a critical role in communicating the reasons for and results of outsourcing across the company.
Some

firms, create the position of Outsourcing Relationship Manager

BPO Relationship Success Factors

6

Build trusting relationship

BPO

buyer and vendor is intimately related to the contract between the parties, but is not confined to the contract alone. Companies must reach beyond the deliverables, timetables, penalties, and remedies specified in the contract and SLAs. Each party should dedicate sufficient time and resources to the relationship to build trust.
It is difficult to conceive how the requirement to build trust could be specified in a contract. In fact, the very idea that it would be spelled out in legal terms seems to contradict the meaning of the term.

BPO Relationship Success Factors

7

Ingredients of a Trusting BPO Relationship

Shared vision and expectations Consistency of actions Predictability of responses Respectful of confidentiality issues Long-term, mature, and enduring Aligned interests and goals Mutual respect and understanding Proactive and intense communication Integrated systems and processes Encouraging and participative Sharing of risks and rewards Operating as extended organizations

BPO Relationship Success Factors (1/2)

8

Six other essential ingredients of a successful BPO Relationship:

The BPO buyer must understand and respect the vendors need to make a profit. The BPO relationship cannot be driven by cost reduction above all other considerations. In order for the vendor to continue to be motivated to provide highquality services, there must be profit in the relationship. The contract should have provisions for SLA recalibration. As business conditions change, the original SLAs may be out of line with industry practice and need to be recalibrated. The buyers responsibilities should be clearly articulated. Many BPO contracts clearly articulate the vendors responsibilities, ignoring or minimizing those of the buyer.

BPO Relationship Success Factors (2/2)

9

Six other essential ingredients of a successful BPO Relationship:

The BPO project management plan should include provisions for changing the PMT structure or members. Although changes in PMT structure and membership should not be cavalier, allowances should be made for member attrition and rotation. The PMT should use systematic problem identification and resolution techniques. Rather than waiting for problems to arise in the relationship, the PMT should use a systematic and proactive approach. Of course, such an approach must be based on interorganizational trust and honesty. The PMT should develop interpersonal relationship norms. Such norms should arise from within the group and should govern the manner in which PMT members relate to one another.

Relationship Risk Factors

10

Although a mature and seamless relationship would most likely enhance the benefits of outsourcing, failure in the BPO relationship can lead to negative and potentially irreparable consequences. It is impossible to control the way the BPO market will evolve, but organizations can control with whom they partner and how that relationship evolves

Relationship Risk Factors

11

Seven common pitfalls of failed BPO relationships.

Lack of appropriate buyer control

A buyer that tries to maintain complete control over the outsourced process will undermine the leverage the vendor can employ to deliver satisfactory services. However, the danger in an outsourcing relationship lies in the inability of the buyer to develop an appropriate level of relationship control. Differences in culture and work styles between the client and the BPO provider can result in severe misunderstanding and mistrust. Differences between buyer and vendor cultures are aggravated if one or both parties is unable to listen to and understand the other. BPO buyers should be especially sensitive during the vendor selection process to how well the various bidders listen to their needs.

Cultural differences

Relationship Risk Factors

12

Seven common pitfalls of failed BPO relationships. Inflexibility in BPO agreements

It is necessary that BPO agreements be designed to provide for adequate flexibility in order to withstand both the dynamics of the business environment and the pressures that are inherent in such a contractual agreement. Typically, BPO contract agreements are crafted on certain key assumptions pertaining to technologies, business conditions, personnel, and other relevant issues. But these assumptions are likely to change with time. No matter how detailed the contract or favorable the terms, BPO agreements cannot anticipate all of the changes that occur in a dynamic, global business environment. This inability to anticipate changes tends to ensure that one, if not both, of the parties will be disappointed with the relationship over time. Long-term contracts that lack flexibility significantly increase the likelihood of dissatisfaction between the parties and can adversely affect the relationship.

Relationship Risk Factors

13

Seven common pitfalls of failed BPO relationships.

Inadequate

SLA specifications and/or metrics

SLA specifications and metrics measure the providers performance during the operating phase of the BPO Life Cycle. The specifications must be clearly defined and effectively designed into the contract because this is what allows the buyer a comfort level in turning over control of its business processes to the vendor. Too often, firms turn over a business process to a vendor and expect them to deliver services that conform to expectations, without providing a clear statement of those expectations. Carefully structured SLAs and rigorously applied metrics will ensure that none of these potential corrupters of vendor performance levels result in adverse consequences.

Relationship Risk Factors

14

Seven common pitfalls of failed BPO relationships.

Inadequate governance

Informal, unstructured, and/or inadequate attention given to relationship governance issues often leads to relationship difficulties. There is adequate contractual attention given to compliance to service levels, but attention is rarely given to governance and achieving relationship maturity levels

Lack of goal alignment

Goal alignment means that both parties take action, including investment of time and financial resources, toward the goals they articulate to one another. Merely stating goals is not enough. Both firms must demonstrate commitment to those goals through actions. An outsourcing relationship is bound to fail in a situation where the parties do not align goals, objectives, and interests.

Relationship Risk Factors

15

Seven common pitfalls of failed BPO relationships.

Lack

of integration
The development of an effective BPO relationship is not only a process or infrastructure issue but also requires cultural replication, and sharing of vision and values. Infrastructure Integration and challenges ( - NEXT WEEK)

End of Class 2
16

References
The

Handbook of Global Outsourcing and Offshoring Essentials of Business Process Outsourcing Business Process Outsourcing The competitive advantage