Sharing is a good thing, especially when it comes to business process outsourcing. The rise of shared services centers have produced significant economies of scale for buyers.
Sharing, however, has its downside. Michael Sinclair, PhD, and an attorney with Tarlo Lyons, a London, England law firm, says one of the main procedural problems occurs when buyer A’s requirements conflict with the needs of the center’s other customers. “Buyers must weigh the cost benefits against the prejudice of the vendor having to address the needs of his other customers,” says Sinclair.
The two conditions a buyer must worry about are swamping and bursting. Swamping occurs when the supplier’s other customers go through a crunch situation and monopolize the resources of the shared services center. They can send a lot of data on-line or increase their utilization of the business process itself. Flooding the center with invoices above the normal limit is one example. Bursting is when you overtax the system, far surpassing your contractual limits. Buyers must ensure their needs are met under both conditions.
Buyers should also insist on call triage. Triage is a medical term which defines how emergency room personnel separate patients according to the life-threatening nature of their illnesses. In this case, Sinclair recommends buyers insist their vendors store their data separately from their other customers. “You don’t want your data mixed up with other people’s data, especially if there is sensitive or mission critical information,” he says.
Providers Hold All The Cards
When a buyer outsources a process to a shared services center, its database becomes hosted externally. Sinclair advices buyers to deal with the issues of divorce before any marriage. Since the BPO provider has control of the database, it has “all the cards” if the two parties become cross.
At the outset both the vendor and the buyer must agree how the buyer will have “reasonable” access to its own data. The attorney suggests buyers put in a writing a process requiring the original vendor to supply the new vendor with the data so the service “is seamless and uninterrupted.” Buyers should require their vendors to deliver an electronic copy of their database together with all licenses they have purchased to them as well as to their successor supplier.
Some shared service centers involve use of the Internet to transmit data. Who is responsible, for example, if a virus corrupts the data? This issue becomes even more acute if the BPO provider is also an Application Service Provider (ASP.)
Sinclair says the vendor would like to carve out all transmission risks from the outsourcing contract, claiming difficulties in the ether are not under its control. It is true the vendor can not control the entire data exchange process. The attorney believes the vendor “should never accept this risk.”
But the customer wants complete protection. “Outsourcing is about the transfer of functions, not the transfer of risk,” notes the attorney. The only way to resolve this issue is through bargaining. He’s observed that the party most anxious to consummate the contract will in the end accept the data risk.
Ensuring Proper Processing Capacity
Another ASP issue is bandwidth. Buyers must ensure their ASP can provide enough processing capacity under all circumstances. What happens when a buyer places a lot of data down line and another customer does the same? If the shared services center doesn’t have enough processing capacity, who gets hurt?
Sinclair says an SLA requiring a specific amount of dedicated capacity can mitigate some of the dangers of limited bandwidth. “This is a big risk in utilizing shared service centers,” says the attorney. “You must preserve specific capacity to you.”
What’s clearer is that data errors caused by the vendor become a liability of the vendor. These errors may have been caused accidentally or maliciously. For example, the vendor makes a mistake in inputting the data on an invoice and then sends out the incorrect bill. If the bill is too low, the customer might resist paying the correct amount. If the bill is too high, there will be disagreeable disputes. Neither scenario creates good customer relations for the BPO’s customers.
The attorney says service level agreements (SLA) are a good way for buyers to protect their interests on all fronts. Include appropriate metrics and penalties, the attorney suggests.
Lessons from the Outsourcing Primer:
- Shared services centers save money because of economies of scale in the business process. But there are risks.
- The supplier hosts your database off site. Make sure you have reasonable access to the database.
- If the relationship crumbles, make sure the old supplier has to share the database and all licenses with the new supplier.
- Make sure the supplier has enough bandwidth to handle peak moments.
- Use SLAs to protect your interests.