The Pitfalls in Becoming a BPO | Article

two men talkingASPs have proven they are an efficient and cost effective way to share expensive applications. The most successful ASPs have made customer service a bedrock of their business. So it’s natural when a good client asks an ASP to help take on a related business process, the supplier wants to agree.

“It’s much easier for a BPO to work with an ASP than for an ASP to become a BPO. That’s a more difficult leap,” observes Richard Raysman, a partner in the New York law firm of Brown Raysman Millstein Felder & Steiner.

The major requirement is to have real expertise in the area. ASPs are by definition savvy about technology. But knowing how to upgrade accounting software and being able to prepare a balance sheet are very different skills.

Raysman says ASPs who take on BPO tasks by definition identify themselves as experts in that business process in the marketplace. Should anything go wrong with the contract and the parties end up in court, the ASP will have to prove it is knowledgeable in the area in question. For legal liability issues, Raysman says ASPs should gear up and hire a professional staff for the BPO division. This requires what can become a significant capital investment.

Pricing Pitfalls

BPO definitions can be tricky for an ASP new to the business. Scope of service can be challenging enough for an experienced BPO but can be downright treacherous for an ASP, points out the attorney. ASPs generally have a well-defined scope of services because technology is easier to measure than processes performed by humans. Raysman says ASPs are inexperienced in accurately defining the scope of a BPO contract. “Sometimes the scope can be broader than they expect,” he says.

That makes pricing a precarious proposition for the ASP. Raysman has seen situations where the ASP wades into an unknown area, contracting to provide specific services. However, the first time or two, the ASP doesn’t estimate the pricing properly. The result: “They lose a lot of money,” says the attorney.

On the other hand, pricing the BPO services properly can be very lucrative for the ASP. If there’s a clearly defined scope and a fixed price, the ASP “can make a lot of money” if it knows how to use leverage and economies of scale. “It’s a high risk, high reward scenario,” Raysman says.

A safer way for the tyro to handle the pricing issue is to bid by full time equivalents (FTE) instead of by the scope of the services. Basically, this method of pricing is based on actual users. “An ASP can’t get too hurt on pricing” using FTEs, notes Raysman.

Another issue for a newbie is getting the customer to provide the information necessary to perform the BPO process as promised. Raysman says customers are obligated to provide both information and the staff resources needed so it can do its job properly. Since ASPs really don’t need this kind of interaction in a typical ASP relationship, Raysman says many ASPs don’t think to ask about it.

Privacy Issues Overseas

“BPO services are very intimate. They need customer responsibility to work,” says the partner. The best way to ensure customer cooperation is to write its tasks into the outsourcing contract.

Privacy is a premier issue, especially if the ASP is going to provide work for overseas divisions. An example is an ASP who will be doing BPO payroll processing for workers in the United States, France and Germany. Europe has restrictive privacy policies, Raysman points out. “If data is flowing between the U.S. and Europe, privacy rises to a big concern,” he observes. He advises any ASP doing BPO business overseas to take a close look at privacy issues.

A final issue is operational management. Most ASPs are used to conducting business remotely. But some BPO offerings require on-site services; the ASP will have to deploy its own staff. This raises new legal issues about liability and employment. “These are issues an ASP generally hasn’t faced providing tech support from a Web site,” says Raysman.

Know Your Business And Theirs

Adding BPO services to an ASP company can be done legally and profitability. “Just remember: A BPO must know its own business and its client’s business,” says the attorney.

Lessons from the Outsourcing Primer:

  • Once an ASP adds BPO offerings, it is announcing to the marketplace it is an expert in that particular process. Be sure you have the staff in place to live up to the claim.
  • Adding staff can require a significant capital investment.
  • Beware pricing pitfalls. Improper pricing can result in a significant financial loss.
  • Scope can be tricky the first time out. Pricing by FTEs is safer.
  • Watch out for privacy issues if you’re sending data to Europe, which has more restrictive laws.


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