You can’t ignore the importance of business process outsourcing (BPO) on every organization’s bottom line; however, it’s imperative to base outsourcing decisions on a pure business strategy. The real question every business should seek to answer is “why do we need to outsource”?
Most businesses see business process outsourcing as a cost saving venture. Half of the companies that outsource usually give cost reduction as the main reason while neglecting that the main reason for outsourcing should be a need to help the company focus more on its core competency while maintaining a competitive edge in their niche.
The real reason behind the surge in BPO is that companies are becoming more demanding. Cost-cutting and improved service levels are no longer the only result expected from outsourcing. These days, CEOs are demanding value. They want to see, and have come to expect, transformational change from their outsourcing efforts—from changing how human resources is managed to changing the way the supply chain operates. The ultimate goal is to link business performance to increased business value.
In BPO, the metrics that matter are business metrics. For example, the key metric for a bank is the cost to administer a mortgage every month. In the insurance marketplace, it is the cost per beneficiary per month that matters. For healthcare firms, the issue is the cost per member per month. These are the crucial business metrics for which the provider is measured and rewarded.
A few of the expected benefits from outsourcing are:
- Cost reductions
- Improved service quality
- Superior competency
- Access to leading technology
- Increased shareholder value
- Economy of scale
- Shared risk
Some of the negative effects of outsourcing, which can be mitigated with a proper BPO strategy include:
- Less contact with customers
- Lowered service quality
- Loss of data
- Erosion of in-house knowledge
- Cost of outsourcing might be higher than initially thought
Outsourcing can therefore be both good and bad depending on how it is handled, and that is why it is important to have a BPO strategy in place.
Are You Ready for BPO?
The first step to a successful BPO strategy is to do a self-assessment and ask the right question: Are you ready for BPO?
In your industry, are margins getting slimmer and have you had to make up the difference through cost reduction? If you said yes, then you are a candidate for outsourcing.
Although there are numerous benefits to outsourcing, it’s not for everyone and shouldn’t be done just because everyone else is doing it.
It is critical to conduct an upfront assessment to evaluate the positives and negatives of outsourcing. Understanding and articulating what you want to do and what you want to achieve from a potential outsourcing partner is the first step.
Picking the right outsourcing partner
If you want to kill your outsourcing project, then pick the wrong partner. Not every BPO company will be right for your particular business. Outsourcing can be compared to marriage. During the courtship period, everything seems rosy and everyone looks compatible, but once the courtship is over and the marriage begins, lot of issues arise. One way to pick the right partner is to ask this question: Does this outsourcing firm have the right technical expertise to deliver?
Signing a tender document
Every outsourcing commitment must have a tender document stating the contract negotiations. The contract negotiation is an important document for avoiding problems downstream.
Every service and cost must be clearly defined so that both parties have the same expectation about what services will and will not be included in the outsourced agreement. In defining the service level agreement (SLA), it is important to discuss objectives for the project, how long it will take and how results will be measured. If you don’t define SLAs and key metrics up-front, confusion could arise about whose responsibility it is to do what and when it should be done.
The bottom line: BPO is a strategic business decision that has long-term implications. Most outsourcing contracts tend to be multi-year agreements. Companies that take a knee-jerk approach to BPO will not see the benefits that they were expecting.
About the Author
Peter Ishola is the Team Lead at ICS Limited, a business outsourcing company.