The worst mistakes companies make when they evaluate BPO – and how to avoid them (Part I)

"Best Practices" are formed through the experiences of firms innovating and trying out new ways of doing things.  So – in reality – that means they’ll tell you where they messed up and give advice on how they got it right (or how they would do something differently second-time around).  BPO is no exception… in fact, it’s probably a shining example of how to learn from others’ mistakes :)

Here, in my experience, are the most common mistakes companies have (and many still are) making when evaluating BPO:

1. Poor communication to key staff:  if a company is going to explore outsourcing its business processes, it needs to evaluate how it is going to gather the information it needs to support its decision-making.  If – as in most cases – it is going to bring in a consultant/adviser to develop a business case, then the advisor will need to talk with key staff to access data, conduct interviews etc.  The minute staff get wind of the fact consultants are in discussing the "O" issue, panic will spread and all sorts of strange behavior can occur.  The rumor mill, staff turnover, politicking… believe me, when staff start worrying about their jobs, all hell can break loose. You must identify which of your key staff is needed to conduct the business case, and be open with them from the get-go about what you are evaluating.  You have to explain their jobs are not on the line, if you want their support.  And you need their support because resistance from staff can destroy the process.

2. Failing to weed out the dissenters:  I cannot tell you have many BPO evaluations have led to "no-go" decisions because some key people simply were not onboard with the process.  If a function leader is highly resistant to the BPO, he / she will attempt to derail the process at every possible opportunity – and it will most likely fail.  If you try and transition a function where no-one is playing ball, you are in serious trouble from the get-go.  Constructive criticism and healthy discussion of the issues are important, but some people will be against change… and will never change.  Have open and honest talks with key staff about BPO – many simply will not understand much about it.  Having a group workshop – perhaps with an independent expert present – will be very helpful in educating your staff.  BPO is not rocket science and you will quickly understand who is onboard and who will never be.  Then you can make whatever decision is needed to get over that hurdle. You may find your company simply does not have people who will allow this to happen – so why not save everyone’s time and money and call a halt to the proceedings before a load of time and money is wasted?

3. Not involving HR:  BPO is all about people, job roles, staff reductions, knowledge transfer, training and change-management… hmmm sounds like something HR should help with to me.  Too many companies get excited about the economic benefits about BPO and fail to devote enough time and resources towards dealing with the human capital issues regarding how they can execute.  And if HR isn’t onboard, you have another serious problem….

4. Not involving IT:  BPO always involves a certain amount of process re-design and standardization, and there are always critical issues with data security and privacy that need addressing.  Any changes you need to make, will need to be supported by your existing technology platform and IT staff.  This doesn’t mean you need a major IT evaluation from stage 1, but having a firm understanding early on of the IT issues and opportunities a BPO engagement will create, can save many headaches down the road. I am actually seeing many companies explore BPO as a result of all the work they have done rolling out new ERP software.  When you need to invest so much money in re-designing process and re-training staff, wouldn’t this pose the ideal time to look at outsourcing some of it?

5. Not using a good advisor:  You will likely need an advisor to help facilitate the various stages of the BPO process.  Beware of any advisor which fails to tell you any of the points above.  You must make sure you use one who is going to do more than merely facilitate a transaction, and can talk from experience on how to avoid making these types of mistakes.  Get them to tell you how they can help you work through these issues.

At the end of the day, evaluating BPO can pose several issues for firms if they do not address these issues correctly.  Yes, BPO can offer firms cost savings and the opportunity to add rigor and standardization to their processes.  However, if you don’t go about evaluating it correctly, you may never get the chance to find out.

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Evaluating BPO… it’s all about avoiding pitfalls early on

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18 Comments

  1. James Meyer
    Posted January 7, 2008 at 4:01 pm | Permalink

    The most significant error I have seen made is under estimating the time and costs required to manage the BPO relationship(s). When considering outsourcing, it is extremely important to consider the total costs (including the time and expenses required) of performing a function in house versus outsourcing.

    Any potential outsourcing vendor should provide references which will substantiate the level of client involvement required to successfully execute the business function in question.

  2. Posted January 8, 2008 at 7:31 am | Permalink

    This is an interesting topic and I look forward to reading the thread. In my opinion there are several key components necessary to enable success. In my opinion, these five items rank in my top ten:

    1) Obtaining sponsorship and support from Senior Executives is essential. A steering committee and proper governance model must be established to ensure goals and objectives are understood at all levels and with all parties.

    2) Understand and identify the goals for why you want to outsource your business function. Jumping in to BPO/Offshoring purely to reduce costs without properly thinking through the process is a recipe for disaster. Setup successful transition strategies by thoroughly identifying business need and sourcing the right vendor to fulfill the function.

    3) RFPs should not be drafted on a whim; they are an extremely powerful tool to source the right vendor. They have far more purpose than price negotiations.

    4) Establish a vendor management team that understands outsourcing and can facilitate the transition and offshore management seamlessly. A vendor management team should be able to successfully identify requirements, qualify vendors, define transition strategies, govern the relationships and negotiate and manage contracts.

    5) Hire the right people to ensure your business is successful!

    You can read more of my ideas and understand my outsourcing philosophy on my personal blog:

    Links:
    http://www.sourcingprofessional.com

  3. Sunmeet Jolly
    Posted January 8, 2008 at 7:38 am | Permalink

    1) Ignoring Size of Outsourced Operation.. Smaller ones have little ROI

    2) Ignoring alternate locations and going for a Hot destination.. even though it might have too much attrition and wage inflation

    3) Too much detailed evaluation and RFP but too little Management control later.. executives spending less time oversees and assuming the OSP will take care of everything..

  4. Melvyn Chungath
    Posted January 8, 2008 at 7:41 am | Permalink

    In my opinion:

    - not using a right advisor to help in the process
    - long duration for evaluation resulting in loosing attention from the BPO vendors
    - not creating a new role within the organisation to be full time resource who is assigned to evaluate the BPO vendors and manage the partnership after the selection process
    - things do not end after selecting the vendor, it just the begining
    - missing the point in all the glitters when they visit India, big doesn’t mean right for you

    Melvyn

  5. Ratish Pandya
    Posted January 8, 2008 at 7:43 am | Permalink

    Hi Philip,

    One of the key things to considered is to formulate strategy in which BPO / Application Development & Maintenance / Infrastructure outsourcing can be leveraged with single potential vendor.

    Governance model should be build for maximizing synergy among different outsourcing engagements.

    Potential vendor prospects could be evaluated from RFI/RFP stage taking into consideration our our current & future needs.

  6. Posted January 8, 2008 at 8:06 am | Permalink

    Just a quick point: I am talking more about the BPO evaluation process and less about the SOW-development and contract negotiation phases in this post. In an ideal world, companies should have successfully conducted their initial business case work and internal strategic analysis around their BPO options prior to issuing an RFP (even though we all know this isn’t always the case). PF

  7. Ashish Nawani
    Posted January 8, 2008 at 12:39 pm | Permalink

    Common mistakes while choosing a BPO/KPO partner

    1. too much focus on cost saving
    2. more focus on experience and expertise of senior management compared to middle managaement (who actually run the show)

  8. Posted January 8, 2008 at 5:08 pm | Permalink

    Phil,

    This is a good list.

    I’d suggest that a couple big concepts be added to the list.

    First, I strongly believe a thorough understanding of the operations under consideration for outsourcing is essential. Time and time again, I see poor decisions made to outsource an operation (or made to not outsource) and operation because of limited detailed knowledge. This includes process flows and performance metrics. If the goal of outsourcing is anything other than labor arbitrage, understanding processes and process performance is critical to making a good decision.

    Second, a limited understanding of the vendor marketplace can truly impact decision making. I’ve seen companies make decisions to outsource a process that 1) no other company in a similar industry has outsourced and 2) no vendor has experience or capability to operate based on limitations asserted by the company. As a result, the company fails to understand the implications of a vendor climbing a learning and productivity curve. For some companies and their customers, poor performance results during transitions and learning curves can severely damage customer relationships and revenue making the outsourcing less valuable than initially thought.

    As many others have commented, there are other non-evaluation mistakes that companies make that are more critical than evaluation mistakes that are worth consideration. James Meyer talks about gauging the level of effort to manage vendors, Brad Rubin addresses forming the right team, Sunmeet Jolly addresses management oversight.

    I’ve covered a variety of these daily vendor management concerns in many of my posts on:
    http://360vendormanagement.com/

    Keep the good ideas coming, Phil!

  9. Posted January 9, 2008 at 7:17 am | Permalink

    The biggest mistake I have seen (over and over again) is vewing the outsourcing as a transaction rather than as a transformation. Many firms view outsourcing service providers (and the outsourcing advisors) as a commodity and this is just not the case. The quality and associated impact can vary considerably.

  10. Posted January 9, 2008 at 8:37 am | Permalink

    Imran Aftab wrote:

    There are some common mistakes that can be pointed out, however, it is difficult to generalize overall. BPO is a broad term and incorporates call center, data processing, f&a, etc. A failed strategy in placing call center work may or may not apply to an F&A outsourcing.

    That being said, here are some mistakes that Clients make:

    -evaluate vendors on basis of price, rather than true cost- in other words- it is important to understand/quantify the quality of the output and factor it for the price paid to vendor; this requires apples to apples financial comparison between vendors and “fully loaded” inhouse costs

    -do not squeeze the vendors too much on price. remember, this is a business where double digit margins are considered superb; treating vendors as partners is what helps drive success

    -avoid herd mentality; just b/c everyone does business with ABC, doesn’t mean that ABC should be in the down-select list; very often I see vendors on list of the downselect list just b/c they are a known name in the industry with the team often ignoring how unresponsive they may have been through the RFP process

    -one size does not fit all. if you have a critical project that requires only 20 FTEs, avoid the big names. they will lose interest in the project if the number of FTEs do not increase. one cannot blame them as they do have high marketing costs and can only recoupe their acquisition/start up costs at a certain threshold of FTEs.

    -factor in ramp. do not expect the outsourcers to hit the ground running. it may take 6 to 24 months (depending ont he complexity of the project) for the vendor to truly operate on full throttle.

    -please make the carrot gettable. the donkey will give up if the carrot is perpetually hanging infront. “gain-share/ risk-reward” is the most often buzz word used by executives, bit very rarely do i see it being implemented fairly; avoid aspirational targets being set. the shark has to taste blood…

    -throw in a challenger. watch the movie “sea biscuit” and you will understand.

    -do not ignore alternative destinations just b/c the research firms have not covered it. with popular outsourcing destinations getting saturated, do consider visiting alternative, less popular destinations

    -do not take the sales guy’s word for it. visit the facilities and see the live action and evaluate operational processes

    Hope this helps.
    Best,
    Imran Aftab
    http://www.tenpearls.com

  11. Kurt Toelken
    Posted January 9, 2008 at 6:18 pm | Permalink

    A lot of good answers. I would add, not understanding the prime suppliers delivery structure, especially the tier two vendors to whom they may be contracting some of the work. While managing their own subcontractors is the prime’s responsibility, understanding the true capabilities of the tier two suppliers before you sign with the prime can keep you out of trouble.

  12. John Miano
    Posted January 10, 2008 at 6:03 am | Permalink

    Biggest mistake I’ve seen:

    “We need to offshore?’

    rather than

    “What makes sense to offshore?
    wrote:

    Biggest mistake I’ve seen:

    “We need to offshore?’

    rather than

    “What makes sense to offshore?

  13. James McGovern
    Posted January 10, 2008 at 7:16 am | Permalink

    Believing that there is a such thing as “best practices”. There are decent practices though…

  14. Vaibhav Tyagi, ASQ CSSBB
    Posted January 11, 2008 at 10:22 am | Permalink

    Hi Phil,

    A lot has been written and I totally agree with it. One major point a company should look first apart from choosing a partner on the basis of operational cost and expertise, is make their own process standard or re-tuned with appointed process owners.

    The outsourced partners mostly find problems with un-defined process and face lot of challenges in running the services as per contract. Please note that it is two-way problem.

    Rgds, Vaibhav Tyagi

  15. Haim Toeg
    Posted January 12, 2008 at 2:00 pm | Permalink

    1. Not allowing time and money to manage the relationship beyond the transition phase
    2. Expecting miracles in a short time, or the flip side, not anticipating teething pain and learning curves for all involved, including customers
    3. Treating their own employees poorly through the transition process, thus ensuring that even people that kept their jobs are disgruntled

  16. Ann Marsden
    Posted January 12, 2008 at 2:02 pm | Permalink

    The most common mistakes I’ve seen have been:

    - Lack of planning and clear definition about the relationship, standards, desired outcomes, consequences, and the requirements.

    - Lack of a ‘back out’ plan – what to do in the event that things go horribly wrong and you need to find another alternative without crippling your business.

    - Lack of due diligence with the BPO firm selected – their ability (resources, capacity, processes, knowledge, etc) and track record. this includes a thorough understanding of how the work will be executed and managed at the BPO to ensure a right fit.

    - Lack of sufficient and consistent management oversight both at the BPO level and at the client level

    I’ve seen any one of these wreck havoc. However, it seems that these problems all seem to go hand in hand.

  17. Ankit Shrivastava
    Posted January 12, 2008 at 2:05 pm | Permalink

    If your outsourcing to India then get a consultant to get you the inside info from companies … consultants like us can verify the info about the claims made in a RFI or RFP.

  18. Harry Fozzard
    Posted January 14, 2008 at 9:56 am | Permalink

    Phil,

    I’ll weigh with the pretty obvious, but frequent oversights I’ve seen first-hand:

    Casual approach to site visits and/or getting caught-up in the vendor’s orchestrated dog & pony show. Many of the assessments can be addressed in a well-planned site visit: service observation that isn’t scripted or rehearsed, sending the people who will manage the process to prospective vendors, visiting the site during operations hours, etc.

    Compressed training cycles. Offshore programs need more training time than domestic programs. Many campaigns start poorly due to incomplete, non-localized learning. I’ve seen improper implementation and/or launch cause programs to go down in flames (spectacularly).

    On-site management during transition. The most successful offshoring relationships seem to include (in the early phase, at least), client-side on-site program management. This reduces the time to resolution on many obstacles and speeds hitting KPIs.

    Not keying enough on domain expertise. While this isn’t absolutely essential, it does provide the foundation for common understanding of program objectives and the nuances of program management.

    Harry Fozzard

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