BPO Study’s Surprising Findings on Value and Long-Term Intent in Outsourcing Relationships | Article
Buyers of outsourcing services want their service providers to invest in technologies that bring continual improvement to the outsourced processes. Providers want to invest only where it is also beneficial to their margins in the long run. Therein lies a conflict.
Are there reliable predictors of a buyer’s intent for a long-term, mutually beneficial relationship in which providers can trust the customer enough to risk significant investments?
Outsourcing Center studied this question by interviewing 20 customers in highly satisfactory relationships at the time they were interviewed. Although all 20 buyers stated multiple times that they were very satisfied with the services to date, the study found clear evidence of predictors of long-term intent. Findings reveal that there are circumstances in which they would terminate their relationships – rather than trying to work with the providers to reach a compromise – even before the time for contract renewal decisions.
All 20 relationships were for BPO services (not IT) and all had been in existence for at least one year after completing their transition phase (and many for multiple years). The 20 buyers were involved in relationships nominated for Outsourcing Center’s 2011 Outsourcing Excellence Awards program and agreed to answer questions about their future intents for the relationships.
The study posed some questions within the context of a discussion around aspects that would lead to the service delivery and relationship yielding more value to the buyer. The first question asked: “What is your company’s most important objective involving outsourced services during the next 24 months?”
We can differentiate the buyers’ answers into five segments according to their most important objectives at the time of the study:
- 30% – Cost reduction / cost containment
- 25% – Flexibility to scale up and down (buyers in this segment were experiencing a rapid growth phase at the time of the study or were planning acquisitions in the next year)
- 10% – Supporting or enabling globalization
- 10% – Achieving compliance with government or industry regulations and security compliance
- 25% – Other miscellaneous objectives
The study then followed up with this question: “What will happen if the provider does not meet your expectations regarding this objective?”
Outsourcing Center’s study found that 100 percent of the buyers whose most important objective over the next 24 months was cost reduction or cost containment stated they would switch to another provider if the existing provider did not meet their expectations.
Among the buyers expecting their providers to support scalability to support rapid growth, there were two distinct mindsets regarding the future of the relationship, as follows:
- If the provider is “unable” to make the required additional “reasonable” investment to build the capability for supporting growth, the buyer would look at other options to support the growth but would also continue the existing relationship.
- If the provider is not “open” to investing in the necessary capacity to support growth, the buyer would continue the relationship but definitely would not expand the provider’s scope (or footprint) and would consider termination or at least benchmarking at contract renewal time.
The buyers with globalization as their most important objective stated they would either look at alternatives for servicing the entire scope or alternatives for the geographic scope where the existing provider could not deliver services as desired.
Fifty percent of the buyers looking to achieve compliance with government or industry regulations and security compliance said they would exit the relationship at the end of the contract term if the provider did not meet their expectations; the other 50 percent said they would exit earlier.
The study also found that 100 percent of the buyers in the “miscellaneous objectives” segment stated they would work collaboratively with their providers to resolve the issues that were barriers to achieving their objectives. Objectives among this segment of buyers include the following:
- Accomplishing a smooth roll-out of a clinical information system
- Moving services to the cloud
- Helping the buyer improve its customer retention
- Realigning the outsourcing service delivery to match the buyer’s internal initiative to roll all core processes into one business services group
It is significant to note that the objectives listed as “most important” at the time of the 2011 study were also the primary objectives for the buyers when they initially decided to outsource and selected the 20 service providers. Thus, these are definite predictors of long-term intent and mindsets regarding the “partnering” aspects of a relationship.