By Dan Berthiaume
The desire to switch providers is extremely common among BPO buyers, according to results of a recent BPO Outcomes poll. More than nine in 10 (93%) BPO buyer respondents either have switched or wanted to switch providers.
Of four possible responses to the question of whether your organization has ever switched BPO providers, the most common was “No – we wanted to but it was too difficult to attempt” (57%), followed by “Yes – it was difficult” (21%) and “Yes – it was easy” (15%). Only 7% of respondents selected “No – we never wanted to.”
Provider Dissatisfaction Common, But Avoidable
Recent BPO Outcomes coverage on BPO contract renegotiation, vendor management and governance supports the notion that BPO buyers often find themselves with a dissatisfactory provider it is too difficult and painful to get rid of. However, proper steps in selecting vendors, negotiating contracts and performing governance can eliminate or minimize the possibility of things reaching that point in the first place. Let’s take a quick look at each of these three steps.
Sourcing advisory group Alsbridge, Inc. advises BPO buyers to properly research and select vendors to avoid getting stuck with any “turkeys” in their portfolios. As explained in an Alsbridge white paper, “Proven Provider Selection: Eliminating the Turkeys,” while there is no single number of vendors to initially consider, the initial pool should generally consist of roughly 20-25 providers and then be narrowed down to eight to 10 before two (a primary and secondary candidate) providers are invited to negotiate contract terms.
Clients then need to apply evaluation practices such as market-tested templates, benchmarking of internal costs and proposed prices to market rates, and rigorous decision-making formulas. In addition, clients need to look beyond the proposal document and engage in multiple structured, face-to-face interactions for collaborative solution development and understanding of needs and capabilities. In this manner, BPO buyers will see first-hand how well the culture of a provider fits their own internal culture and whether collaboration goes smoothly.
According to two BPO contract experts who spoke with BPO Outcomes: Marc Tanowitz, principal at outsourcing advisory firm Pace Harmon, and Stan Lepeak, director of global research, management consulting at KPMG, in negotiating contracts BPO buyers need to strike a balance between pushing too hard and settling for too little, while having realistic expectations of BPO innovation. pushing too hard and settling for too little, while having realistic expectations of BPO innovation.
Buyers should understand that lawyers and risk managers representing both parties in a BPO contract will likely nix anything that seems too risky, and accept the fact that well-written BPO contracts offer less innovation but fewer failed deals. In addition, by making things more complex up-front, buyers can implement mechanisms to enact necessary changes during the life of the contract without complete renegotiation.
According to a recent white paper from sourcing advisory firm ISG, “Building World-Class Outsourcing Governance,” governance is a continuous process of learning and evolution that requires flexibility and needs to be put at the center or operations. However, truly effective BPO governance goes beyond carefully negotiating a detailed contract, maintaining regular communication with the services provider, immediately responding to any potential problems and being flexible to inevitable changes in the outsourcing scenario.
True governance also means taking all the extra steps to ensure BPO services are delivered with maximum efficiency and effectiveness for maximum impact. Going the extra governance mile basically means taking an active ownership role in managing outsourced services while still allowing your service provider to use their expertise and insight in performing daily operations. It does not mean micromanagement, but does mean holistic management that treats service providers as collaborative partners rather than mere functionaries.
It is not easy and may well mean some internal cultural changes, but the resulting benefits from dramatically improved external service performance will more than make the effort worthwhile. Following all three of these steps will also greatly improve the chances that you would answer “No, we never wanted to” if asked whether your organization has ever tried to switch BPO providers.