By Dan Berthiaume
There is a wide spectrum of outsourced services delivery options in the world of BPO, but broadly speaking, they can be divided into two basic categories. “White box” BPO services offer complete visibility (hence the name) and are defined how the vendor performs the work, while “black box” BPO services offer less visibility and are defined by results of the work rather than how it is performed.
Most BPO Deals Augment Staff
“There are characteristics of both white box and black box in a lot of BPO services, but most current BPO deals lean closer to the white box model,” says Dave Borowski, senior associate of outsourcing advisory firm Pace Harmon. “That model is staff augmentation, where the client defines a specific skill and pays the provider based on the number of hours and days successfully worked. There are service levels, but you still pay by the number of hours and bodies.”
‘Black Box’ BPO Provides Managed Services
In contrast, Borowski defines black box BPO as “true managed services,” where there is a convergence of the fee structure and how success is measured. “BPO vendors want to get more into true managed services,” says Borowski. “They want the client to tell them not how to do things but what needs to be done.”
According to Borowski, a “natural reluctance” on the part of many companies to rely on a set of standardized processes is a key inhibitor to larger growth of this type of BPO. “A lot of companies think their processes are so specific, technology is so complex and data is so sensitive that they are reluctant (to use managed services), he says, adding that many clients are also hesitant to give BPO vendors the kind of access to their internal systems and processes which is needed for a successful managed services program.
Different Models Best for Different Functions
There is no single “right” way to obtain BPO services, says Borowski. Depending on the specific function being outsourced, it may work better with the black box or white box outsourcing model. Borowski illustrates the difference using accounts payable (AP) and customer-facing services as examples.
“For accounts payable, you would generally pay a vendor based on successful transactions where the right amount of money is paid to the right recipient at the right time,” says Borowski. “You wouldn’t really care if the vendor reused shared services or whether they used your ERP system or a different platform. You’re not paying by the hours but by the results.”
Thus, Borowski says AP and many of the other more mature outsourced processes that feature consistent and predictable data are better suited to “black box” BPO. However, some processes, such as collection and customer service, are very specific to the culture of an individual company and how it interfaces with its customer base, and are better suited to “white box” BPO.
“A dedicated (outsourced) organization that embodies the philosophies and interactions of a specific company, where you have dedicated resources that live and breathe them day to day, is better suited for these type of processes,” says Borowski.
A Managed Services Future?
While Borowski hardly predicts the demise of “white box” BPO, he does expect that as time goes on, there will be gradual industry shift to more “black box” BPO services, led by small-to-mid-sized clients.
“Small-to-mid-sized companies who don’t have a significant investment in proprietary ERP systems are generally more willing to standardize processes (through managed services outsourcing),” he says. “They are more receptive to a lower cost, pay as you go model and less likely to believe their processes and systems are so unique and novel that managed services won’t work.”
Borowski also says that as a company gains more experience buying BPO services, it generally becomes more receptive to the managed services model. “If you are new to outsourcing, you haven’t gone through the process yet and the vendor hasn’t built up the trust and reliability yet,” he says. “In a more mature outsourcing relationship, you realize that the provider is pretty good at segmenting work and innovating and renovating processes for an optimal outcome. By looking across their clients, managed services providers can find innovative methods and technologies to create a positive benefit.”
