Innovation in BPO purgatory, Part II: Enterprise buyers are blaming themselves for innovation failure

Time to demonstrate real governance...

In Part I of Innovation?  The BPO industry needs to escape from purgatory, our latest survey reveals a few crucial aspects about innovation* in BPO endeavors: 

  • 43% of decision-makers now see it as a critical element of BPO
  • Half of today’s enterprise buyers are disappointed with the innovation they have currently achieved
  • The potential to achieve innovation across many core business processes is huge.  This was notably cited in industry-specific process and analytics areas, in addition to some maturing BPO domains, namely procure-to-pay, supply chain and recruitment

So why aren’t half of today’s enterprise buyers achieving innovation

When we asked those executives with significant influence over BPO decisions their prime concerns for failing to achieve innovation in BPO, they cited the following reasons: 

It is abundantly clear that enterprises buyers recognize that the blame lies a lot more in their camp than their provider’s, with well over a third citing poor change management and communications as a great concern, coupled with the fact that their current governance team has little juice internally to drive an innovation agenda.  If they were going to blame primarily their provider’s lack of innovation prowess, much more than a fifth of buyers would have cited “the wrong composition of skills among their governance team and the provider’s relationship team” as a major concern. 

In the next installment of this innovation saga, we will reveal what buyers are planning to do to achieve innovation, but here are a few clear areas they can work on: 

  • Create a aggressive innovation agenda and a plan to keep that agenda fresh over time.  Buyers need to stipulate the need to explore new and creative ways to improve productivity and top-line growth as a core element of their BPO endeavor and communicate this aggressively, on a repeated basis, to their entire retained operations organization.  
  • Communicate this innovation agenda to both governance and provider teams.  Talk to any buyer beginning to achieve some innovation success with their engagement, and they will tell you the same thing:  “We recognized what we needed to do internally, and communicated aggressively with our provider to start delivering it with us”.  Until buyers take the bull by the horns internally and communicate to their partners the new direction they are taking, they will never escape from innovation purgatory. 
  • Create an innovative contract with their provider.  Buyers need to incentivize their provider financially to help them achieve gains in both productivity and growth.  This is already beginning to happen with several recent BPO engagements, where the provider has demonstrated the confidence to insert productivity incentives as high as 20% in some of today’s recent contracts.  Providers will step up to the plate with the right approach, if they have the financial incentive to do so.  
  • Stop playing providers off in a low-cost bake-off.  If the buyer simply squeezes the life out of their provider with a cost bake-off, they are unlikely to get much in return beyond operational delivery to meet the contracted service levels.  Some of the leading BPO providers are now inserting gain-sharing elements into their deals in order to beat off competitors dropping their prices, because it is desperate to win the deal.  The better providers now have the advantage of knowing where they can offer innovation incentives to gain ground in tough pursuits.  In any case, most of the providers are now operating within a similar price band, so focus needs to move away from simply price, and more to which ones are better prepared to be incentivized financially for driving innovative results. 

All-in-all, we are encouraged that many enterprise buyers have recognized the need to get their act together and start driving the innovation agenda.  The future for innovation is bright, and many of today’s enteprises are figuring out how to make some progress towards it. 

*For the purposes of this study, Innovation was defined as “the customer going beyond transactional / operational work to achieve new productivity gains and /or new revenue streams by implementing new practices through unique, creative methods.”

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7 Comments

  1. Joanne Wright
    Posted May 28, 2010 at 2:55 pm | Permalink

    Phil,

    Great insight. This is definitely reflective of what I am seeing from firms these days. They realize they have to get ther own house together before they can start pointing the finger at their supplier,

    Joanne

  2. Posted May 29, 2010 at 2:00 am | Permalink

    @Mark,

    The point here is that enterprises see the fault for failing to achieve innovation lies internally with unempowered governance and poor change programmes. This to me indicates they are blaming both their governance teams and internal leadership for not supporting and driving them enough,

    PF

  3. Mark Ferguson
    Posted May 29, 2010 at 12:38 pm | Permalink

    No, they’re not blaming themselves, they are internalising the blame on others within their own organisation. Not the same thing.

    Mark Ferguson

  4. Posted May 30, 2010 at 6:36 am | Permalink

    Scope for innovation in BPO industry as such is limited, it piggybacks other industries. Real Innovation is cannot be a regular affair, it takes extra:

    http://www.solutionpoint.in/jobs-career/data-entry-conversion-bpo-and-offshoring

  5. Yaseen Khan
    Posted June 1, 2010 at 4:02 pm | Permalink

    Phil,

    BPO needs to hire a different set of people to innovate, the model inherently is not an ambience conducive to innovation. The rate pressure forces BPOs to hire lesser experienced and/or lower caliber people who focus on somehow getting things done in a normal way than think out of the box,

    Yaseen Khan

  6. Posted June 2, 2010 at 8:12 pm | Permalink

    As I have said several times… innovation is not a commodity its a virtue. If operational transformation was easy an attempt would have been made by the buyer to innovate/tranform before outsourcing. Now that it’s offshore with a supplier we hobble the innovation by cost considerations that reduce any incentive. But even more important than all of this, not every service organization has innovative capabilities… even when they do they don’t always see opportunities. Tradition forces us to remain comfortable using processess and approaches we are familiar with. Realizing that there are incentative driven opportunities can be a great way to start the innovative process.

  7. Dr.P.
    Posted July 12, 2010 at 7:39 am | Permalink

    A very well though-out analysis. But consider – - how much the success ratios for each of these issues (and the overall outsourcing outcome) could have been improved if the outsourcing management had gone to the hard work of setting down specific measures of success for each issue. May I suggest that neglecting this is a common joint mistake of both mid-level and senior management.

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