Outsourcing rookies, of course, face many challenges in achieving their desired return on investment because their deals often lack one or more elements that are foundational to success. And all outsourcing relationships encounter challenges that arise in unanticipated situations. But what about experienced buyers and relationships that are more mature? What issues arise in their relationships that make it difficult for the service provider to maintain superior levels of service at all times?
Outsourcing Center studied this question within the context of 26 BPO relationships that were nominated in 2011 for its annual Outsourcing Excellence Awards program. The customers and providers ranked these relationships as highly successful in partnering aspects and in delivering the expected value proposition.
Even so, the study found that 69 percent of the relationships experienced some significant challenges that impacted the provider's ability to continually provide the expected level of service.
The biggest challenges encountered by 69 percent of the studied relationships include (listed in order of most frequently cited):
- Meeting the requirement for year-over-year cost reduction while at the same time increasing the volume of the work and also pushing the productivity level. Several buyers commented that this stretched-resources situation can cause burn-out among the provider's employees and lead to higher attrition.
- Changing market conditions and regulations in certain industries (especially healthcare, financial services and telecommunications). In most cases, it led to a need for different strategies in order maintain the buyer's competitiveness in its market.
- Delays from multiple hand-offs due to multisourcing.
- New product releases in technology supporting the outsourced business processes; keeping up with the changes, fixing bugs, etc. cause a challenge in end-user adoption.
- Short time line for launching expanded services. To achieve success in the time constraints required "over-managing," which added costs and some relationship issues.
- Surge in volume of work and need to ramp up quickly because the buyer's pace of growth was higher than what the parties initially forecasted.
- Having to keep our eyes on the ball everywhere to make sure that improvements in one area do not cause a negative impact to another area and lead to the service provider having to focus its attention from month to month on whichever area is experiencing trouble.
- Conflicts that arise around the speed of decision making and communications about changes to all stakeholders, which are due to the differences in corporate cultures of the provider and customer.
- Changes in organizational structure and/or top executives in either company led to changes in stakeholder priorities.
These challenges serve as alerts to companies planning for future outsourcing arrangements. While such situations are known risks that buyers and providers often include in the planning stages before signing their contracts, it's important to note that companies seldom anticipate the full extent of the impact from these risks. With the exception of challenge #9 above, each company in the 26 studied relationships recognized these risks up front; but all underestimated the impact that such challenges would cause to the providers' ability to deliver to expected performance levels.
About the Author: Ben Trowbridge is an accomplished Outsourcing Consultant with extensive experience in outsourcing and managed services. As a former EY Partner and CEO of Alsbridge, he built successful practices in Transformational Outsourcing, BPO, IT Outsourcing, and Cybersecurity Managed Services. Throughout his career, Ben has advised a broad range of clients on outsourcing and global business services strategy and transactions. As the current CEO of the Outsourcing Center, he provides valuable insights and guidance to buyers and managed services executives. Contact him at [email protected].