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BPO Partnering Models (#1) – A simplified model

By:  Bruno Stefanile, BPO EMEA Sales Support Director, Hewlett Packard Company

 

Rubik cubes.jpgThis is the first in a series of blogs discussing BPO partnering models.  We start the series by introducing the concept of a simplified framework that can help BPO clients and vendors understand and consistently implement their most beneficial partnering model among the many available in the industry.

 

  

 

Characteristics of a BPO partnership

Business Process Outsourcing lends itself to a much wider variety of client-vendor partnering models than IT disciplines.  Three of the key elements characterising these models: dependencies, performance indicators and pricing, are discussed below.

 

Dependencies

The execution of a client business process requires access to the enabling applications. The various layers in the IT stack (application development, maintenance, production support, application and data hosting, end-user computing, connectivity, mobility and security) can then be split between client, vendor and third parties in countless combinations (like a Rubik’s cube - see Figure 1). Each combination results in a different scope of services, a different set of mutual obligations and a different degree of business outcomes. It is important that these dependencies are fully understood to enable a successful partnership. What are the expected savings when the vendor only has responsibility over staffing? What is expected when the vendor is also given the ability to standardize and streamline processes and applications?

 

 Figure 1.png 

 Figure 1.  Layers of services in BPO outsources

 

 

Performance indicators

Scope is only one of the dimensions affecting the split of responsibilities among the parties and hence their degree of partnership. BPO has, by definition, a direct connection with the client’s business. Therefore the outcomes of a BPO partnership can be measured through a wide range of Key Performance Indicators (KPI), covering not only IT (e.g. system availability), but also client processes (e.g. time to process an invoice), staff (e.g. talent retention), and business metrics (e.g. collection rate). Before entering into a BPO partnership and even before discussing what the right metrics are for each relevant KPI, it is crucial that both client and vendor have clear, mutual expectations for the outcomes to which each party can reasonably be held accountable.

 

Pricing

One more element is price. As in all outsourcing agreements, the pricing structure of a BPO deal depends on the split of client/vendor responsibilities. However, the reverse also applies. That is, the billing and rewarding mechanism can influence the type of relationship and drive behaviour of the two parties. For instance, FTE-based pricing may let client management feel like they “own” the vendor staff, hence inhibiting job rotation and implementation of workforce administration best practices from the vendor. Similarly on the vendor side, man-time billing may deter from investing in processes and technologies that would result in more aggressive staff reductions, as they would ultimately bring lower revenues and greater operational risk.

 

BPO partnering models

In order for a BPO outsource to achieve the ultimate business goals of the client, both parties need to have a clear understanding as to where the transaction fits into the variety of partnering models available in the industry (see Figure 2).

 Figure 2.png 

 Figure 2.  Successful partnerships call for the right partnering model

 

Surprisingly, many of today’s BPO procurements still pick up conflicting elements from different models, ultimately resulting in contractual obligations that are difficult to interpret and at high risk of failure at execution. For example, an outsource in the public sector may tell the vendor what application platform to use while at the same time expect vendor accountability for highest system reliability, massive productivity improvements and full liability against the execution of some critical transactions. How can a vendor reasonably achieve so challenging a set of business outcomes when they are constrained on the technology to adopt?

 

Sourcing options

Some help could come from the taxonomies of BPO approaches that some advisory firms have issued over the years. These are typically meant to: a) characterize sourcing strategy options (what to outsource, what to retain), and b) help shortlist BPO vendors most suitable to each sourcing options¹.

 

A problem with these models is they imply a top-down, strategic approach to outsourcing where the relevant client organisation conducts a 360° assessment of their needs, strengths and weaknesses before designing the scope of the outsource and its intended outcomes. While this is certainly a most sensible approach, our experience is that the decision to outsource is often driven by time-critical, business, financial or regulatory imperatives which leave little time to engage a comprehensive strategic sourcing plan. Also, multiple client business units and other internal stakeholder (e.g. HR, Finance) often have to concur to the decision². They have different objectives that make it difficult to achieve a comprehensive, high-level strategy. Due to time pressure and in the absence of a full strategic plan, clients tend to tactically select a vendor based on their capabilities (CRM, F&A, etc.). The strategic partnering model is not fully investigated and the parties enter into a contractual relationship instead. Not surprisingly, the “lack of cultural fit” is a common reply when clients are asked what their top issues are with on-going BPO outsources.

 

Evolution of partnering models

Another problem with static frameworks is that BPO partnering models do not evolve in a linear fashion, with one model taking over from the precedent. They tend to follow the typical S-Model for innovation³, with one new partnering model gradually developing along others and still remaining in use as other, more mature models have emerged (see Figure 3). As an example, the “lift & shift” models – boosted by the sudden availability of low-cost/good-quality offshore workforce - tend to give way to other, more stringent BPO models (such as Platform  BPO or BPaaS) at the time of their renewal. Nevertheless, labour arbitrage still represents a major element of today’s BPO outsources.

 

 Figure 3.png

 Figure 3. The S-model for innovation applied to BPO Partnering Models (Illustrative)

 

Multiple models co-exist at any given point in time. It is important to understand them and consistently shape the partnership based on the model most appropriate to the ultimate goals of the outsource. For the same reason, it is equally important when selecting one model to look ahead at more innovative models emerging in the market to provide a strategic perspective into the outsource.

 

A simplified framework

In summary, clients can gain the most from their BPO outsources if they move from selecting a sourcing option to selecting their preferred partnership model.

 

The following blogs of this series will present a simple, yet powerful framework that characterises the most common BPO partnering models and illustrate their benefits and limitations.

 

Footnotes

¹  An interesting model is represented in the research note Use a Deal ‘Sweet-Spot’ Analysis to Expedite Shortlisting of Business Process Outsourcing Providers  by Gartner, 30 August 2013

²  On the conflicting objectives of client stakeholders in setting BPO relationships, also see How procurement managers can ensure success of your BPO outsource in the HP BPO Blog

³  The S-Model for innovation has first been introduced by Gabriel Tarde, in The laws of imitation (1903)

 

 

Previous blogs by Bruno Stefanile

 

Related Links:

  

About the author

 

Bruno Stephanile.jpgBruno Stefanile, BPO EMEA Sales Support Director, Hewlett Packard Company

With 30 years of experience in the IT industry, Bruno has held a number of executive roles in Operations, Account & Program Management, Consulting and Sales Support. Since 2011, he has led Global Solutions Integration and Design, Delivery Assurance and New Business Support for HP BPO in EMEA.

Comments
Appointment setting(anon) | ‎11-03-2013 05:47 AM

This is good discussion of simplified BPO partnership. 

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