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Business process outsourcing (BPO): Relationship risk factors in business

257 Comments · Business outsourcing

Although a mature and seamless relationship would most likely enhance the benefits of outsourcing, failure in the BPO relationship can lead to negative and potentially irreparable consequences.

The business literature is rife with stories about BPO relationships gone had, and there will be many more in the coming years.

As the BPO revolution picks up steam, no doubt many new vendor firms entering the market will make claims about capabilities and capacities they do not possess. Unwary BPO buyers will get burned, and large amounts of money will go to waste.

It is impossible to control the way the BPO market will evolve, but organizations can control with whom they partner and how that relationship evolves.

There is ample experience among BPO buyer and vendor firms alike to highlight some of the more common pitfalls of failed BPO relationships. Seven common pitfalls have been identified as follows:

• Lack of appropriate buyer control
• Cultural differences
• Inflexibility in BPO agreements
• Inadequate Service Level Agreements (SLA) specifications and/or metrics
• Inadequate governance
• Lack of goal alignment
• Lack of integration

Lack of Appropriate Buyer Control
Organizations that undertake an outsourcing initiative must recognize that outsourcing is not the same as abdication.

When an activity is outsourced, the buyer should dedicate a manager (BPO Champion) on team (PMT) to interact with the vendor.

This relationship will work best when both sides seek to provide value-added service to the operations and strategy of each other.

However, a buyer that tries to maintain complete control over the outsourced process will undermine the leverage the vendor can employ to deliver satisfactory services.
The danger in an outsourcing relationship lies in the inability of the buyer to develop an appropriate level of relationship control.

An appropriate control level is one that allows the vendor the freedom to provide the services for which it was contracted without ceding the ability to prevent small problems from becoming large ones.

This is a delicate balancing act that will undoubtedly need to be adjusted over time. For example, at the beginning of the relationship, the vendor is focused on performing at a high level and pleasing the new client.

At this point, the buyer may not need as much control as later in the relationship when the enthusiasm wanes and performing on the contract becomes routine.

Problems are most likely to arise when the vendor unconsciously shifts to viewing performance on the buyer’s contract as routine and reduces its level of internal oversight. A proactive relationship management approach will anticipate these fluctuations in vendor diligence and will establish metrics and reporting regimes to counteract these variations.

Cultural Differences
Differences in culture and work styles between the client and the BPO provider can result in severe misunderstanding and mistrust.

Organizational culture is defined as the operating principles and norms that are embodied in an organization’s policies, decisions, and actions.

Problems can arise when a BPO buyer initiates a project with a vendor whose culture and operating style are vastly different.

Such differences can and often are bridged. What matters is whether the two firms recognize the cultural differences and takt proactive steps to deal with them.

Differences between buyer and vendor cultures are exacerbated if one or both parties is unable to listen to and understand the other.

BPO buyers should be especially sensitive during the vendor selection process to how well the various bidders listen to their needs and whether they ask the penetrating questions that reveal their awareness of the potential for problems arising from cultural differences.

A vendor that does not listen well or ask the right questions during the selection phase should probably be eliminated from consideration.

Of course, it is impossible to uncover all cultural differences during the vendor selection phase; some will only become manifest during the operating phase.

The project management framework should include inducements for each side to identify and detect problems that are a direct result of cultural differences.

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