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Home => Columns => Equaterra
BPO PRIORITIES?Do More, Spend LessIs the sourcing and management of external business services a core, corporate skill set? In an exclusive study of business process outsourcing (BPO) and shared-services customers, sourcing managers fail to get a carrot or use a stick. By Rusty Weston and Stan Lepeak  Though the skills and responsibility for sourcing and ongoing management of third-party business service providers can be of vital importance to U.S. corporations, only two in five companies offer performance incentives to these specialists. So while quality is expected and desired, the means to measure and incentivize successful outcomes are often lacking. That's one of the key findings in a new study of 211 buyers of business process services conducted by Global Services in conjunction with EquaTerra, an outsourcing and insourcing advisory services firm. The interviews were conducted on the Web in March and early April in the North American market across all major industries. The study encompassed BPO areas such as human resources, procurement, finance and accounting, research/pharmaceutical, claims processing and medical/ legal work. The results suggest that business process sourcing and outsourcing management is not yet widely regarded as a core expertise. Only 13 percent of respondents receive direct incentives for the way they source and manage service providers. Another 27 percent say they receive (unspecified) indirect incentives. Surprisingly, more experienced buyers of business services are only slightly more likely than their inexperienced counterparts to receive a bonus for these specialized skills. While these managers often fail to receive a carrot in the form of a bonus from their organization - or even less formal recognition when the job is done well - they are also reluctant to use a stick to help achieve their organizational goals. A case in point: Three in five companies that outsource business processes receive annual performance gains from service providers despite the fact that only a minority of customers impose contract clauses that mandate it. In some cases this form of outsourcing governance simply reflects the perceived business value of the activity. Too many organizations have established BPO engagements as caretaking operations and haven't necessarily mandated - or received improvements. Yet, the study finds that most corporate buyers of BPO services are increasing their BPO investments and characterizing the portfolio as at least a moderate success.  Despite the often-found shortcomings relative to outsourcing management and governance, buyers of external business services generally indicated their outsourcing efforts were successful. All BPO categories scored, on a one to 10 scale (10 = extremely successful), between 6.6 (customer care) and 7.9 (research/pharmaceutical). The fact that customer care and research/pharmaceutical ranked bottom and top on the success scale and both were more frequently outsourced offshore, highlights that different processes are more - or less suitable - to outsourcing under different models and different locations. In addition, the study results indicate that:
 Why Experience Matters The work experience of corporate professionals charged with sourcing or managing relationships with BPO providers often drives business priorities and styles of governance. It can also drive success. Veteran BPO practitioners, those with five or more years of experience, report achieving higher success than their counterparts who have four or fewer years of sourcing experience. While the gaps in success were not large, BPO satisfaction is often driven by experience and engagement tenure, highlighting that the first one to three years of any BPO effort can often prove to be a painful experience. Paradoxically, less-experienced sourcing managers are the ones who find themselves in the position of leading the transformation of a business process such as finance and accounting, procurement or even customer care. Lack of experience in this critical role highlights why many outsourcing engagements struggle to meet goals, especially during the early years. Overall, though, respondents did not view outsourcing as the chief means to enable significant process improvement. Respondents that had undertaken or were pursuing BPO - in all categories except for procurement - responded most frequently that process improvement/transformation was not even needed/planned (procurement was a tie between not needed and internal transformation). Respondents considering a business-process transformation also expressed a preference to undertake those efforts themselves or with the help of a third party as opposed to part of an outsourcing effort. HR, at just 16 percent , was the leading process area undertaking transformation via outsourcing. This highlights the complex decision many sourcing managers face about whether to tie together two efforts as complex as BPO and process transformation. Getting Ahead Given the wide range of knowledge and skills required to source and manage external service providers, it's not surprising that study respondents seek additional business training or certifications. The main areas of training or certifications include: Six Sigma, finance/P&L management, supply chain and balanced scorecard. More experienced BPO sourcing customers, those with five or more years of experience, indicated an above average interest in learning about finance and P&L management. Surprisingly, the biggest split between less experienced BPO practitioners and the "old pros" concerned an interest in culture and diversity training. Nearly one in four veterans seek this training, compared to just 10 percent of the less experienced specialists. The level of participation in outsourcing was strong with over one-third of all respondents either currently engaged in BPO, or planning to use it, in all process areas covered except research/pharmaceutical (18 percent). Companies studying or engaging in research/pharmaceutical, though smaller in number (which is to be expected, given that more specialized type of work is not common across all industries) were also among the most frequent to use outsourced BPO - nearly as often as those organizations outsourcing customer care. This highlights the changing nature of BPO and the growth of more complex "knowledge process outsourcing" in offshore markets. Given the strong and ongoing investment levels in BPO, increasingly on a global scale, many organizations need to re- think their approach to investments and incentives in sourcing and outsourcing management. These areas are the lynchpins of outsourcing success. ABOUT EQUATERRA EquaTerra sourcing advisors help clients achieve sustainable value in their business processes. With an average of more than 20 years of industry experience in over 600 global transformation and outsourcing projects, our advisors offer unmatched industry expertise. EquaTerra has deep functional knowledge in Finance and Accounting, HR, IT, Procurement and other critical business processes with advisors throughout North America, Europe and Asia Pacific. Our people are passionate about providing objective, conflict-free advice to our clients, which has fueled our exponential growth over the past three years. We help clients achieve significant cost savings and process improvement with outsourcing, internal transformation and shared services solutions. It is all we do. For more information, please contact us at 1 713 669 9292 (US) or 44 207 100 7766 (Europe). |
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