Traditionally, organizations outsourced to save money and improve their processes thanks to an expert who could invest in systems and technology. Cost arbitrage was the foundation of outsourcing over the last decade. Service providers based out of low-cost locations provided services at lower costs without compromising on work quality.
In the second generation of outsourcing, the focus shifted from cost to quality of service. This gave birth to the metrics culture; clients began measuring the performance of their service providers. They held their service providers accountable for processes transaction processing with measurable key performance indicators (KPIs) such as accuracy and cycle time.
Today, in outsourcing’s third generation, the spotlight is moving from process value to business value. Improving customers’ business outcomes based on factors such as end-user satisfaction, revenue growth, cost reduction, etc. is¬ gaining in importance. “Now buyers expect their service providers to shoulder more responsibility for this,” observes Rajesh Sehgal, head, Quality and Process Excellence, Wipro BPO.
This change is occurring today because outsourcing buyers realized that process value creation does not necessarily result in business value creation, Sehgal observes. He explains that technological advancement, growing competition and new outsourcing models (hub and spoke) gradually made these KPIs “hygiene factors inadequate for achieving business targets.” These changing buyer demands compelled service providers to move from process value to business value. Early adopters of this concept have gained new business, built partnerships with existing customers and are enjoying higher customer satisfaction levels—a win-win scenario for both the parties.
What exactly is business value?
“Creating business value requires significant domain expertise from the service provider and a deep understanding of both the clients’ business and its industry,” explains Sehgal.
Outsourcing buyers can achieve their strategic organization objectives if the service provider can offer solutions that are aligned with the buyers’ core business. This shift calls for significant investment in domain/vertical-specific skill sets so the service provider can offer solutions aligned to the customers’ core business.
Here is how business value differs from process value:
Table 1: Business value vs. Process Value
Creating business value is not easy. The Wipro executive notes limiting the service provider’s exposure to only a small part of the overall business function limits its thorough understanding of the client’s business challenges and goals. Alternatively, a biased view may lead to a focus on short-term goals instead of long-term sustenance. There is also a possibility that the service provider may lack the know-how to create business value or have insufficient investment in the technology and resources required to drive the requisite business value.
Wipro’s business value meter
To meet these challenges, Wipro utilizes a methodology it calls the “business value meter.” The business value meter is a comprehensive measurement system aligned to the customers’ business needs. It captures and reports business value created for customers under the following parameters.
The theory is, Wipro can generate value for its client when it focuses on the customer experience by:
- Raising the satisfaction levels of the clients’ customers
- Initiating projects that enhance the customers’ reputation or business ranking, creating a positive brand image
- Improving the SLAs/KPIs linked to the client’s key business goals
Wipro can cut costs by:
- Initiating process improvement— introducing automation for instance—will help in productivity gains.
- Reducing operational costs. For instance, large amounts of funds blocked in collections can result in excessive bad debts.
- Optimizing resources. Utilizing labor arbitrage to deploy resources appropriately with initiatives like process complexity analysis, right sizing, deskilling, etc. for delivering best business results.
How do you implement the business value meter?
Seghal explains a well-designed business value meter requires intimate knowledge of customer operations, business goals and the latest industry trends. He says the following are the key milestones in creating business value for customers:
- Understand the business: Service providers have to comprehend the customer’s business and the operations involved, identify key business metrics and collect performance data.
- Benchmark and measure any gap: Service providers must benchmark the client’s operations performance with best-in-class performance, carry out gap analysis by comparing similar metrics and shortlist areas of improvement.
- Analyze the gap and develop an improvement plan: Analyzing the identified gaps help the service provider understand the reasons behind the shortfall so it can list the improvement actions to take.
- Implement the solution: Some of the actions will necessitate changes at the customer end. The service provider must clearly distinguish the responsibilities of the customer and service provider.
- Ensure sustainability: The service provider should ensure that the implemented solutions are sustainable. It must validate results for confirmation.
“Business value measurement can help clients and service providers collaborate better to achieve mutual goals and business benefits, Seghal observes.
For buyers, measuring business value can translate into end-user satisfaction leading to significant improvement in business performance. For service providers, it means increased customer satisfaction and retention, enhancement of variable incentives like gain share, development of domain expertise and niche vertical skills. “This collaboration also results in a partnership approach,” he notes.
Considering the numerous advantages to both parties, and the fact that business value meter will soon be an important and measurable criterion for selection, “service providers should shift to the new concept of business value creation without any further delay,” Seghal believes.
Question: Buyers, are you discussing business value creation with your service providers? What kind of results have you received after switching to this type of outsourcing? Please share!