Aligning interests is essential in today’s uncertain economy.
Outsourcing relationships come under stress from multiple pressures. The business changes over time and suddenly has different needs than the business that signed the original outsourcing agreement. Or, business conditions change, rendering the initial outsourcing contract unworkable. Companies change complexion through mergers, acquisitions and divestitures, putting pressure on the operative outsourcing agreement.
These days technology changes at mach speed. Buyers who signed an outsourcing contract in 1994 found themselves behind the Internet curve three years later. The stress of keeping up with technology is a given in outsourcing agreements.
Often BPO outsourcing is a long-term commitment. It’s expensive for buyers to change their minds because there is a high switching cost. Doing it yourself or switching partners is very expensive in the outsourcing world.
Aligning Interests Is Easier in BPO Outsourcing
Here at Outsourcing Center, we preach short-term contracts and long term relationships. We believe business relationships will flourish if they endure regardless of the length of the contract. A good way to create long-lasting relationships in the face of enormous business and technological change is to align interests as closely as possible.
Of course, that is much easier said than done. Fortunately, aligning interests is easier to do in the BPO space than in other outsourcing areas like traditional IT outsourcing. Real estate management, finance and accounting, human resources and supply chain management are areas where it’s easier for buyer and supplier to head into the fray facing the same way.
BPO outsourcing takes an entire business process and transfers the ownership from the buyer to the supplier. It’s much simpler to match motivations when the buyer outsources the entire process.
The buyer and supplier face the same issues together when the buyer outsources an entire process, not just the components of a process. When a supplier only has to manage and improve one portion of a process — like traditional IT outsourcing or call center activities — that’s all the supplier worries about. Vested interests can take over at the expense of the buyer’s overall business. There’s no need to think about the big picture of buyer profitability. A supplier can optimize its performance and still miss hitting a bull’s-eye by doing little to advance the buyer’s larger corporate goals.
This doesn’t happen when buyer and supplier have the same business goals and operate under the same assumptions. In addition, the supplier can take advantage of new technologies that can impact other areas of the outsourcing engagement. The new generation of customer relationship management (CRM) software, for example, can influence many components of an outsourcing relationship.
While technology is changing at dizzying speeds, the business objectives of BPO processes move at a slower pace. Companies still need to rent office space and have someone manage their real estate. They still have to close their books each month, necessitating finance and accounting help. They still have to ship their goods, which requires logistics.
Business Results: A Better Barometer
Finally, both parties in a BPO relationship measure their success using business results, not just checking on the progress of component parts of the process. For example, say a buyer outsources its outbound call center fulfillment. The BPO buyer will measure the supplier’s success on its ability to send out the products in a timely fashion, help grow sales, increase customer satisfaction and reduce inventories. This is a better barometer than measuring the amount of time the fulfillment agents spent on the phone or the availability percentage of the supplier’s computer system.
The supplier has greater freedom to tweak the component parts of the process to make it faster, smoother, and more technologically advanced. Outsourcing an entire process makes a supplier more flexible. The supplier, in this example, will select the most cost-efficient shipping method. The buyer doesn’t care if the supplier uses UPS or FedEx. The buyer cares about its customers; are they satisfied with the supplier’s service?
When a buyer measures true business results, it’s easier to compensate the supplier for creating real value for the buyer. Business results are a more accurate metric for success because they can’t be manipulated or fall out of alignment as the business grows or changes. This is the antithesis of the fleet-footedness suppliers need for optimal performance.
Moreover, buyers have no way of knowing how much a supplier is contributing to its overall success when it outsources just a piece of the process to the supplier. It’s hard to objectively measure a supplier’s real value. Buyers can spot a deeper value proposition when they outsource an entire process.
Buyers who try to restrict their suppliers’ freedom also lessen their ability to align interests. When the sands of time shift the business environment, erase the original business plan or make the current technology obsolescent, the supplier does not have the flexibility to remain true to the buyer’s business goals.
At Outsourcing Center, we tell our buyers they get what they inspect, not what they expect. Fortunately for BPO buyers, they can inspect true business results.
Lessons from the Outsourcing Primer:
- Buyers and suppliers have to align interests to weather the changes that continually rock businesses.
- It’s easier to align interests in the BPO space because BPO outsources an entire process, giving the supplier the freedom to manipulate all components for optimal performance.
- Buyers measure BPO success based on business results. This is a good metric because it can’t be manipulated.
- It’s difficult to quantify a supplier’s contribution when a buyer only outsources a piece of that process to the supplier.
- If a supplier only is responsible for one piece of the process, it may improve its performance. But that may have little impact on the buyer’s larger corporate goals.