BPO Execution Framework: The Five Phases of a BPO Relationship

A new model of outsourcing is radically reshaping the role of different business functions such as human resources and call centers. Combining the benefits of cost reduction and process re-engineering, the BPO model maximizes ROI at an accelerated rate. A systematic planning and execution framework helps deliver the expected value.

Your board says we have to keep containing costs. Or we must become more competitive. Or we must increase the performance of our workforce. Or we must define our corporate BPO strategy.

Where do you start? Developing the conceptual model for outsourcing is relatively easy. The difficulty lies in executing it. Why? For the same reason it's difficult to run a business - because you've got to manage strategy, structure business processes, applications, infrastructure, and the culture all at once. The complexity of BPO is daunting, and that's why it's so difficult and so rarely done well.

BPO, although beneficial in the long run, is very difficult to implement if it is not planned carefully. There are five basic phases that all companies go through when trying to outsource: partner selection, deal negotiations, transition management, process improvement, and performance management. Let's look at each phase in more detail.

Phase 1: Analysis
With BPO, the supplier owns and operates the resources, including infrastructure, applications, and people, to deliver a business process as a service to customers. Preparing for this transition to a supplier what were core processes requires substantial upfront planning. The steps include:

• Research and education on the candidate process being outsourced
• Market intelligence to assess what competitors are doing
• Benchmarking the current process against the best - Goal: understand, improve, design, build, and source more cost-effective business processes
• Perform risk analysis
• Assess your own process core competencies
• Set the destination - what constitutes success?
• Evaluate total cost of engagement (gross margins, operating costs, taxes), Including infrastructure, management, knowledge capture, and training costs.

Phase 2: Planning
BPO contracts are long-term; hence, a projection into the future is imperative. Several factors such as the policy scenario, the quality of infrastructure and human capital, and the location of facilities can affect long-term outcomes. Following are some activities companies should plan to complete before outsourcing.

• Review existing processes.
• Develop key improvement objectives.
• Decide which processes and functions to outsource.
• Perform a cost benefit analysis.
• Determine the ideal best-shore solution for various process specifications. (For offshore projects, it's best to visit and get a feel for the country and the specific location, check process fulfillment capabilities, and meet the teams, not just management.)
• Evaluate organizational readiness and transition assessment
• Perform an offshore risk analysis. Obtain from your country state department and health department advisories as well as insurance agency inputs. Create a risk framework with escalating levels of risk (defcon model).
• Create conflict-resolution and escalation documentation for problems
• Develop a human resource plan to redeploy, transfer, or let go staff. Research internal opportunities for employees. Be prepared for backlash from your employees and the community. Have a communication plan ready.

Phase 3: Transition
Companies that outsource processes to third-party service providers are placing their fate in the hands of another company. They need to ask tough strategic questions such as, What are the factors that companies figure in when they select their BPO service provider? How should the service agreement be structured to ensure that there are no defaults? What is the composition that companies must opt for - in-source, co-source or a stake in the operation - in order to be able to exercise control over processes and quality? The steps involved in this phase include:

• Send out the RFQ.
• Evaluate bids after developing criteria, visiting potential partners, and discussing a pilot approach.
• Select vendor based on its track record, industry specialization, corporate culture, or other criteria.
• Draw up contract with an understanding of the cost model, HR issues, business continuity, metrics, payment models, terms and conditions, provisions for changes.
• Negotiate contract.
• Determine payment terms and conditions, i.e., pay up-front or over an extended period.
• Manage the transition by developing a transition timeline.
• Align incentives to create a win-win.
• Communicate clearly the contract and responsibilities to the outsourcing partner.
• Define in detail the scope of the project.
• Mitigate operational risk by planning for unexpected operational problems, the end of the outsourcing relationship, and data protection.
• Transfer knowledge after assessing what knowledge needs to remain in-house and what can be transferred. Document your findings.
• Train new staff
• Manage the project remotely

Phase 4: Governance
Without appropriate checks and balances, companies run the risk of jeopardizing their customer relationships through an inability to provide continuous, good service and of failing to improve productivity. What can companies do to guarantee quality and still enjoy the benefits that BPO offers?

• Transform the critical processes,
• Develop operational processes and tools,
• Manage the change actively by addressing resistance, facilitating the change, communicating new processes, procedures, roles, and responsibilities, and celebrating early success.
• Train staff
• Perform relationship management
• Perform quality management
• Engage in scenario planning, or business continuity planning, by creating contingency plans.

Phase 5: Improvement
A primary concern with outsourcing lies in companies ensuring that the high level of quality they achieved internally using methods like Six Sigma before outsourcing is further improved. This requires paying attention to the following tasks:

• Tracking performance through key metrics
• Leveraging new capabilities
• Demanding continuing innovations
• Designing process improvements

The bottom line: The fundamentals don't change: Set targets, demand results, measure progress, adjust direction, and reward success. Then, do it all over again and again and again. A systematic planning and execution framework can help deliver the expected value from BPO strategies. But be prepared for changing the way you currently do business. BPO involves a significant amount of change management.