Business Process Outsourcing: Are You Getting Full Value From Your Outsourcing Partnerships?

In any outsourcing partnership, it’s tempting to think that once the contract is signed, the heavy lifting is done. After all, isn’t offloading worries the whole point?

In reality, like any relationship, it takes energy and commitment. Even in this digitally driven era, people make partnerships work. Business Process Outsourcing (BPO) clients focus, naturally enough, on specifics of the contract, such as service level agreements. But we find they sometimes overlook a range of opportunities to make sure their outsourcing partnership perform.

1. Governance. In a recent study by The Hackett Group 74% of executives cited governance as the critical success factor in making BPO work. Every contract has a governance schedule, but they can be overly focused on monitoring hard performance metrics. This made sense when technology was changing slowly, but it makes less sense now. Contemporary governance must also focus on making the transformative partnership promised through sales and contracting actually happen, keeping you accountable and on track as you incorporate the digital transformation you signed up for into your processes, and in sync as technological advances makes more possible.
2. Benchmarking. Most contracts include a right to benchmark price and service against good market value, yet many customers don’t consider this until their contract is nearing its end. Over 70% of contracts The Hackett Group has benchmarked in recent years demonstrated opportunities for price and service level optimizations mid-contract term, so we recommend taking advantage of this outsourcing partnership contractual right. In addition, 12-14 months out from contract expiry, invest in an ‘off contract’ benchmark to inform end of term strategy. Unconstrained by contractual terms, you get a fuller view of what good price, service, and contracting practice looks like today, and into the mid-term, e.g., what the next 5 year automation-driven commercial glidepath should be.
3. Relationship optimization. Sometimes, a relationship can look good on paper, but go wrong in operation. It’s easy to blame. But take a critical look at whether your own organization has the roles and enablers needed to make the relationship succeed. The Hackett Group’s experience of facilitating impartial reviews shows that behavioral drivers of dysfunctional relationships exist on both sides. Objective insight is the catalyst for customer and supplier to pivot from emotive argumentation to a jointly owned remediation program, getting things back on track before further value leakage occurs.
4. Renegotiation review. If you intend to renegotiate, you likely have a well-functioning incumbent outsourcing partnership. So far so good, but we see too many customers re-sign in haste. BPO is moving fast. What worked 5 years ago will need re-alignment to contemporary solution, commercial and contracting best practices. Agreeing to agree after contract renewal, often due to timeline pressure, shifts risk onto the customer. Starting early creates time to get independent market insight to inform clear goals and expectations, and ensure you are not overpaying for services by establishing ‘guardrails’ your incumbent must meet to retain your business. Having this review serves as ‘proxy competition’. The right base relationship combined with a little investment upfront can avoid the one-time costs associated to running an RFP and deliver a great refreshed deal. If your supplier is incentivized to engage, it could save them the cost and risk of participating in an RFP.
5. Exit strategy review. Nobody gets married thinking they will wind up in divorce court. But most marriage counselors will tell you a prenuptial agreement is a good idea. Similarly, negotiating how the end of the outsourcing partnership will be handled can save money and trouble down the line. Many contracts address this at a high level, but detail matters. The Hackett Group works with many customers on pre-exit reviews to facilitate agreement of detailed terms of reference, planning and a playbook for exit services which truly operationalizes those contractual provisions, leaving nothing to chance. Do this no less than six months before the end of the contract to minimize delays, costs creep, service degradation, and risk of business disruption.

Executives we have surveyed tell us that level of executive engagement (60%), active management throughout life cycle (52%), and adequate funding and resources during planning and transitional phases (49%), are the most important differentiators for BPO success. There are very few bad vendors or bad customers. It’s good management of the partnership – the rules you set and follow, and the reviews you make at every stage – that enables you to prevent issues and adopt an agile and proactive approach to fixing things that do go wrong, ensuring your outsourcing partnership lives up to its full potential.

Jill Stabler is Sourcing Practice Lead at the Hackett Group. This essay is adapted from her white paper “Five Opportunities to Drive Greater Value from your Outsourcing Contract.”