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Fundamental characteristics of the business process outsourcing (BPO) project

43 Comments · Business outsourcing

Four fundamental characteristics will give shape to any BPO relationship regardless of industry or BPO type:

The depth of the relationship
The scope of the relationship
The choice of assets to use
The choice of business culture to adopt and exploit

The depth of the BPO relationship depends on the criticality of the outsourced business process.

The closer the outsourced process is to the core business process of the BPO buyer, the greater the depth required in the BPO relationship.

Based on the importance of the outsourced functions and how these functions would change or evolve, the resulting relationships can be as follows:

• Arm’s length, and primarily cost or service level agreement (SLA) driven
• Cooperative, necessitating intense dialogue between the parties
• An extension of the buyer’s organization, with a number of dependencies and commitments between the parties for each other’s success

As a rule of thumb, the deeper the BPO relationship, the more tightly coupled and potentially synergistic are the buyer and vendor firms.

From an operational perspective, tight coupling refers to the extent and frequency of information and resource sharing between the two firms.

Deep relationships require tight coupling because the outsourced process is usually proximate to the buyer’s core competence and is highly fault intolerant.

Information must flow freely in both directions to ensure that the outsourced process is being executed to specifications and to ensure that any variations are kept within tolerable performance limits.

A deep BPO relationship requires that the parties develop a project management plan that specifies regular interorganizational communication and information sharing in a transparent manner.

This should include provisions for routine contacts as well as emergency meetings and communication channels.

A BPO relationship that is not considered to be deep will not require as-frequent communications.

The project management team (PMT) will need to determine what is appropriate based on its shared expectations and beliefs about this characteristic of the relationship.

The scope of a BPO relationship depends on whether the buyer works with separate BPO providers for various outsourced functions on develops a relationship with one or only a limited number of providers.

Working with multiple vendors for a wide variety of business functions will necessitate a proportionately larger PMT or perhaps multiple PMTs. There are advantages to working with multiple vendors, as well as disadvantages.

Single-service providers often have developed levels of specialization and expertise that enable them to deliver world-class levels of service.

The downside of working with single-service vendors is that each outsourced process requires getting to know and manage each new vendor.

Managing multiple vendors presents a multitude of challenges for the BPO buyer and adds to the overall costs of outsourcing.

Multiple-service vendors provide enhanced opportunities for strategic gains based on level of familiarity with the buyer.

The more processes, information, and knowledge shared between BPO buyer and vendor, the greater will be the potential for insights into overall business processes and strategy.

New ideas and ways of operating can and should be derived from a working relationship of this type.

The downside of working with a single on limited number of vendors is that there is greater risk to the business.

This risk is mitigated by the level of familiarity and comfort that would necessarily precede any decision to continue to shift processes to the multiple-services vendor.

It would be foolhardy to continue to shift processes to a vendor if the buyer lacked confidence in the vendor’s ability to perform.

The project management plan may necessitate multiple internal BPO champions and PMTs if a multiple vendor strategy is used.

In this instance, the steering team will need to integrate the various internal teams to enable cross-functional knowledge sharing.

This integration mole is in addition to the standard oversight mole that the steering team must perform regardless of the number of BPO relationships.

Companies that opt for a single or limited number of vendors may be able to assign each to a single champion or PMT. In that case, the steering team’s role is primarily oversight.

Because outsourcing usually involves handing over the control and maintenance of certain processes to a third party, the issue arises of whose assets will be used to execute the deal, including people, physical infrastructure, and technical assets.

There is no simple answer to the “whose assets?” question, but the answer is made easier by focusing on business-specific issues.

For instance, germane to this question is the relative ease with which the buyer or vendor can obtain and manage the needed assets.

Another relevant factor to consider is which firm is better able to invest in asset development, both for scale and innovation purposes.

The choice of which organization’s culture and operating style to choose should be entirely pragmatic.

There is no need to take political stands, nor should one party or the other insist on adopting one or the other culture based on personal familiarity and comfort.

The latter issue will be particularly important in offshore BPO where cultural issues, from length of workday to disparate treatment of gender or socioeconomic class, are most likely to arise.

Of course, no BPO buyer or vendor should violate laws or their own ethical standards when working with an offshore (or onshore, for that matter) partner.

At the same time, there will be occasions when insisting on imposing one’s own culture and way of working will be counterproductive.

The watchword to keep in mind when choosing which firm’s culture to leverage for the BPO project is pragmatic: Which culture will be most likely to lead to a successful project?

This question is not easy to answer, but several key considerations can be weighed and evaluated.

BPO buyers should work closely with their vendors to address the “whose culture?” issue.

This is not a time to shrink from the hard and possibly awkward questions that must be asked.

A solid BPO relationship must deal frankly with cultural differences and must focus on the common goal- effective performance of the business process.

Of course, a BPO buyer must always be concerned about the consequences at home from its vendor selection.

Historically, a primary issue of contention has revolved around unacceptable foreign labor laws.

Nevertheless, as the Ethics and Governance insert indicates, the issue has now heated up politically around the issue of moving jobs onside the United States.

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