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Business process outsourcing (BPO) relationship success factors

1,407 Comments · Marketing Research

The project management plan can be changed and altered over the life of the BPO project. At the same time, changes to the plan should only be done in a systematic and carefully considered manner.

The PMT should include members from both the buyer and vendor organizations. These individuals must learn to adapt to and trust each other, while balancing the needs of their respective organizations. This balancing act is difficult, but not impossible.

The project management plan established between the BPO buyer and vendor is intimately related to the contract between the panties, but is not confined to the contract alone.

The project management plan includes elements of interpersonal and interorganizational interaction that simply cannot be specified in a contract.

For instance, in order for strategic benefits to be realized through BPO, each party must develop trust in the other to understand and seek to advance each other’s come business competencies.

This means that companies must reach beyond the deliverables, timetables, penalties, and remedies specified in the contract and SLAs. Each party must strive to understand the competitive conditions under which the other must operate, excel, and remain profitable.

This requires that each party dedicate sufficient time and resources to the relationship to build trust. It is difficult to conceive how the requirement to build trust could be specified in a contract.

In fact, the very idea that it would be spelled out in legal terms seems to contradict the meaning of the term.

Trust is essential if the partners to the BPO relationship are to realize gains that go beyond those articulated in the contract.

A trusting relationship may lead to interorganizational transactions and to new, unexpected revenue opportunities that may not be included in the scope of the original contract.

In fact, a dynamic BPO relationship will constantly be seeking ways to extend and deepen the working relationship for mutual strategic gains.

Unlike the traditional buyer-supplier relationship, the BPO relationship must be meticulously planned and managed from day one with strategic intent.

That is, the project management plan established by the parties should be designed to manage the BPO project and achieve its basic goals, while seeking strategic gains for both buyer and vendor.

It is commonly accepted that the tactics to effectively manage outsourcing relationships vary as widely as the relationships themselves.

For example, the strategies for managing a BPO project that focuses on IT functions differ from those that would be used to manage a BPO project focusing on HR functions.

At the same time, there is overlap and general lessons to be learned from any BPO initiative that apply regardless of the target function.

We have examined hundreds of BPO cases and reviewed voluminous articles in both the popular and academic literature to seek patterns among the wide variety of successful BPO relationships.

Although each relationship is unique and has nuances that cannot be generalized, several ingredients of a successful relationship have appeared often enough to be considered mandatory.

Based on a basic foundation of trust, we have identified six other essential ingredients of a successful BPO buyer-vendor relationship:

Ingredients of a Trusting BPO Relationship
• Shared vision and expectations
• Consistency of actions
• Predictability of responses
• Respectful of confidentiality issues
• Long-term, mature, and enduring
• Aligned interests and goals
• Mutual respect and understanding
• Proactive and intense communication
• Integrated systems and processes
• Encouraging and participative
• Sharing of risks and rewards
• Operating as extended organizations

1. The BPO buyer must understand and respect the vendor’s need to make a profit. The BPO relationship cannot be driven by cost reduction above all other considerations. In order for the vendor to continue to be motivated to provide high-quality services, there must be profit in the relationship.

2. The contract should have provisions for service level agreements (SLA) recalibration. As business conditions change, the original SLAs may be out of line with industry practice and need to be recalibrated.

3. The buyer’s responsibilities should be clearly articulated. Many BPO contracts clearly articulate the vendor’s responsibilities, ignoring on minimizing those of the buyer.

4. The BPO project management plan should include provisions for changing the PMT structure or members. Although changes in PMT structure and membership should not be cavalier, allowances should be made for member attrition and rotation.

5. The PMT should use systematic problem identification and resolution techniques. Rather than waiting for problems to arise in the relationship, the PMT should use a systematic and proactive approach. Of course, such an approach must be based on interorganizational trust and honesty.

The project management team (PMT) should develop interpersonal relationship norms. Such norms should arise from within the group and should govern the manner in which PMT members relate to one another.

Profits and the BPO Relationship
A reasonable profit margin for the outsourcing vendor is essential to the long-term success of an outsourcing relationship.

In an outsourcing relationship, neither party should aspire to an unrealistic business advantage.

Outsourcing is designed to deliver financial benefits to the BPO buyer, to be sure. It must be kept in mind, however, that the vendor is also a business and must maintain a profitable operation to survive and excel.

The profit and reward that goes along with outstanding work motivates the provider to commit resources, ensure quality and service levels, identify new opportunities, address the client’s business issues in a timely and proactive manner, and innovate.

Outsourcing relationships that are focused exclusively on cost reduction often result in situations in which the vendor ends up delivering minimum levels of service to justify the continuation of the contract.

This can be avoided, and both parties can reap benefits, if the buyer expects a fair profit for the vendor and encourages reinvestment of profits in extension of the vendor’s core competencies. This will enable the vendor to commit additional high-level services to the buyer.

Recalibration of Terms
SLA recalibration clauses are effective tools for reassessing and adjusting contract terms. Incorporating and exercising a benchmarking clause in the contractual framework of a BPO relationship provides an opportunity to baseline service levels, repair a strained relationship, and adjust terms to new business or service conditions.

By identifying and quantifying the specific elements of service delivery that need to be recalibrated from time to time, the parties can stay motivated by virtue of the tenor of the contract.

The project management plan should incorporate any contractual clauses regarding changes to SLAs and should execute changes as required. This is not as easy as it sounds, of course.

Each change will require negotiations and a thorough review of the implications. The PMT should handle all changes according to its operating principles, which may include voting guidelines and issue resolution protocols.

For instance, in the case of a deadlock, it may be necessary to escalate the issue to the Steering Team for final resolution.

Buyer’s Responsibilities
The BPO buyer’s responsibilities to manage the outsourcing partner are one of the most neglected areas of outsourcing relationship governance.

Companies tend to minimize the internal management resources required to effectively manage a provider.

BPO buyers either devote too few resources to managing the vendor relationship or supervisory resources deployed in change of the relationship lack the skills, training, and inclination to make the relation-ship succeed.

Relationship management becomes especially difficult if the buyer views outsourcing primarily as an opportunity to reduce costs and cut headcount.

The general tendency to draw PMT members only from the affected process can also be problematic.

Although people from the process area may be technically qualified, they may lack the other skills needed to effectively manage the outsourcing process. Attention must be paid to the non-technical skills of individuals on the PMT, as discussed previously.

Changes in the Project Management Team
In a strained BPO relationship, the existence of ill will on one on both sides often presents a major hurdle to a successful resurrection of the relationship.

In some cases, it may be useful to replace team members who have become hostile to the BPO project on who have developed personal animosities.

The PMT may also want to turn over members, other than the BPO champion, from time to time. This can help reduce the potential for interpersonal conflicts to develop into lingering problems.

This approach may also bring in fresh perspectives and improve the possibilities of revitalizing the relationship.

Systematic Problem Identification and Resolution
Several tools are available to the PMT to constantly monitor and assess the results of the BPO project.

The metrics specified in the SLAs are the starting point for assessing the project’s effectiveness.

Beyond that, the team should regularly scout the external environment to determine whether strategic advantages are also accruing to the partners as a result of their BPO-based working relationship.

Many BPO partnerships have adopted the balanced scorecard approach in order to evaluate performance and facilitate discussion on value creation opportunities.

By using added value as one of the scorecard perspectives, the model provides the vendor with an opportunity to identify value provided over the course of the contractual term and to define the linkages between business needs and services delivered.

If an outsourcing relationship is damaged or strained, another strategy is for the PMT to use a Top Ten Issues approach.

Using this approach, the PMT identifies at each meeting the Top Ten Issues confronting the project.

Subsequent meetings track the progress on the issues and, hopefully, drive them down the list and out of the top ten.

This approach requires a substantial amount of due diligence to establish that the concerns are objective and can be unambiguously documented.

Once both sides agree on the nature and extent of the ten issues, they are given time to develop and implement acceptable solutions to each one.

The PMT’s responsibility is to establish monitoring mechanisms to ensure that the buyer’s or vendor’s actions agreed to for each of the issues are actually implemented.

In either case, the task requires a high level of senior management commitment to implement the metrics, mechanisms, and processes necessary to ensure that both sides are meeting expectations.

Develop Interpersonal Relationships
Tools and techniques will help in monitoring the relationship and the level of performance on the outsourced process, but there is no avoiding the necessity for buyer and vendor to develop trusting interpersonal relationships.

Most of the standard principles of interpersonal relationship development apply to BPO relationships.

Offshore BPO relationships will be challenging in that on-site meetings may require international travel.

Today, international meetings can be handled using a form of teleconferencing. Teleconferencing technology should be leveraged to help reduce costs associated with managing the offshore BPO project.

Nevertheless, each party should visit the other’s premises at least once pen year to keep the interpersonal feelings alive and to renew personal and business bonds.

The most important factor in the interpersonal arena is the establishment of acceptable norms that govern the relationship between the parties. The norms of behavior in a healthy BPO relationship are based on three dimensions:

1. Flexibility. Which defines a bilateral expectation of the willingness to make adaptations as circumstances change.

2. Information exchange. Which defines a bilateral expectation that buyer and vendor will proactively provide information useful to each other.

3. Solidarity. Which defines a bilateral expectation that a high value is placed on the relationship. It prescribes behaviors directed specifically toward relationship maintenance.

Tips for Developing Effective Interpersonal BPO Relationships
• Develop an approach for the relationship as allies.
• Regard attendance at the regularly scheduled PMT meetings as a top priority.
• Be tolerant of cultural differences as they apply to issues of power and authority,
• Arrange seating during PMT meetings in a manner that avoids furthering an “us versus them” mentality.
• Seek “win-win” in negotiations over SLA term changes or contract extensions.
• Develop an understanding of and appreciation for the other party’s business and competitive arena.
• Hold meetings at each other’s premises on a rotating basis, allowing each to serve as the “host.”

As the individuals assigned to the PMT interact and develop a sense of comfort with one another, norms of behavior will develop, although it may take a while for that to happen. One of the biggest mistakes in managing teams is to intervene with prescribed norms, circumventing the natural group team norming process.

Enabling the PMT to meet often during the early stages facilitates the norming process. The PMT should attempt to codify some of its norms into its project management plan, being cognizant that the norms may need to be changed and rewritten from time to time as the team matures.


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