Keys to Successful BPO Relationships

Indeed, some companies that have analyzed and measured their business process performance have determined that BPO would be inferior to current practice. "A prominent client in insurance came to us for advice about outsourcing their applications management, basically the management of their ERP system," says Michael Doane, a Meta Group vice president and service director. "They'd received half a dozen unsolicited offers from BPO providers promising tremendous cost savings. But as the offers piled up, they had trouble seeing the value proposition. They had measured the IT costs of managing the ERP system internally and couldn't find any savings from the providers. So they called us and asked if they were maybe missing something. In point of fact, they weren't."

Choose Your Partner
Other risks posed by BPO also should give pause, especially given the breadth of BPO compared with less complex IT outsourcing. Katrina Menzigian, director of BPO services research at Framingham, Massachusetts-based research firm IDC, puts it this way: "Companies need to realize that BPO is a long way away from IT outsourcing, which presented little change for the workforce at large. With IT outsourcing, the employees that experience change in the organization are those in IT, but with an HR outsourcing effort the employees that feel change are not just those in the HR department but everyone who interacts with the department."

"They now have to interact in a different way," adds Menzigian, "and their personal information will now be handled by someone outside the company. These people issues and change-management concerns increase the risk of failure if not properly addressed and managed."

Then there's the risk of picking an inferior partner, says Alison Youngman, chair of the outsourcing group at Stikeman Elliott LLP, a Toronto-based business law firm specializing in mergers and acquisitions. "Suddenly those people and assets are gone, your business processes have been taken over and reengineered, and now they're worse than ever. We've seen this happen time and again with joint ventures, where one partner doesn't live up to the other and the whole deal sinks in a sea of rancor."

Selecting a provider is a difficult task, stymied by the relative newness of BPO. "When it comes to something like IT outsourcing, there is at least the CMM (Carnegie Mellon Maturity) model that gives you a common way to compare the performance of different IT outsourcing service providers on an applications development level," says Lepeak. "There's nothing comparable with BPO providers by which to measure their capabilities. A lot of these firms frankly don't have a lot of experience, and what constitutes their performance of a business process" often can't be easily compared between one organization and another.

BPO providers must have both process knowledge and strategic industry knowledge, he contends. "IBM and Accenture, two BPO providers, have smart people who know vertical industries, but can they translate that knowledge into performing my business process on a daily basis?" says Lepeak. "Do they have enough business process knowledge and vertical industry knowledge to perform the process better than I can? The senior partner in the pharmaceutical practice at IBM can talk about the future of the pharma industry, but can he or she map out the best way at an operational level to perform clinical trials?"

Lisa Stone, vice president and research director at technology research firm Gartner, says a provider may have expertise in administering certain business functions from a transactional level — but perhaps not an array of functions all wrapped up in a BPO assignment. "When you're talking end-to-end HR outsourcing, you're literally depending on a third party to handle payroll, benefits, personnel administration, hiring and recruiting, and training and education," notes Stone. "The provider probably has different levels of maturity involved in that holistic offering, maybe expertise in just payroll or benefits. There's a tendency when thinking about these holistic offerings that they are market-tested solutions when, in fact, only pieces are market-tested."

Giera agrees, arguing that some companies that "have never serviced a business process before but have serviced a particular function like a call center are jumping into BPO as the next big thing," she says. "You've got offshore people in India who've been doing call centers for years now thinking they can do HR, procurement and shipping, and finance and accounting. You've got systems integrators like IBM, EDS, and Accenture, companies that traditionally were involved in IT outsourcing, now doing things like HR and finance and accounting, and basically learning as they go. And yet here they are handling key business functions that define the way a company does business. To me, lack of experience is the biggest risk of BPO."

Those 2,000 companies that claim to be BPO providers aren't all likely to remain in business, either. Ed Lawler, distinguished professor of the Marshall School of Business at USC in Los Angeles, says "bankruptcy" is a word rarely uttered regarding BPO providers, yet bankruptcy poses enormous risk. "If your outsourcing provider doesn't survive, how do you make a quick, agile transition to a replacement?" Lawler says. "What happens if your outsourcing provider abandons the market or sells this part of its business to another company? Separating when you're joined at the hip can be painful."

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