By Ben Trowbridge
When listening to the sales pitches of leading BPO suppliers, you may think there is some magic afoot in the world of business process improvement. “Guaranteed cost savings”, “world-class processes”, “risk-transfer”, and “business transformation value to the bottom line” are among the claims breathlessly expounded on PowerPoint presentations in boardrooms across the land.
Creating Back Office Gold
Can it be true? Can an outsourcing provider really take the base metal of your high-cost, under-performing back office and turn it into a service-oriented, low-cost, value-generating paragon of a gold-standard unit?
The answer, perhaps surprisingly, is yes (sometimes), but there is generally a high price in “blood” (your effort) and “treasure” (your cash) for this transformation. Just because they can (usually) deliver on these promises doesn’t mean you couldn’t have achieved the same results yourself through a different route or that the magic will work in your specific case. Success depends as much on you and on your own capabilities as on the alchemist/outsourcing provider and on how you contract and partner with them.
No Magic Formula Exists
Outsourcers don’t have a magic formula; they have the same basic levers to apply to back office processes as anyone else. Essentially they can:
• Implement new systems and automation.
• Improve processes
• Exploit economies of scale
• Improve productivity
• Access lower costs, particularly labor rates
• Introduce a service focus to delivery
• Use improved information and processes to drive transformation value in the business
BPO Providers and Back Offices – Strengths and Weaknesses
In some of these areas, outsourcing providers have built-in advantages. For example, they have access to economies of scale and offshore labor which may not be available to many client organizations. They will also have experience, knowledge, tools, and methodologies that can help ensure a successful implementation.
On the other hand, there are areas where they have built-in disadvantages. For example, before they can reduce costs outsourcing providers have to add the need to make a profit. And on business transformation value, they typically have little ability to drive the behavior of the wider business community where the value will be generated.
BPO Providers – The ‘Magic Ingredient’
The answer to outsourcing essentially depends on the relative ability of your organization compared to that of a provider to drive and sustain change. Despite the intoxicating incantations that emanate from their sales pitches, as mentioned above, BPO providers have no access to a magic formula. However, they can perhaps act as a “magic ingredient” or catalyst, which when combined with the client’s skills, experience, and drive can produce sustainable results. They don’t necessarily offer a shortcut to success or a low-cost route, but they can offer a way to make change happen and to sustain the benefits, which would not have been possible without them.
Avoiding Fool’s Gold
But when should you take advantage of this, and how can you be sure that the result will be real and not “fool’s gold”? Essentially, organizations should consider outsourcing if they fall under any of the following circumstances:
• Management bandwidth is limited and required elsewhere
• They have a history of failing to implement or sustain major change processes internally
• Skills are required which can’t be sourced in-house
• They don’t have direct access to economies of scale or to offshore resources
All things being equal, outsourcing will cost more than an in-house solution, simply because of the supplier’s legitimate need to make money. The question to ask is: “What can an outsourcing provider help me achieve that I could not do by myself?”
A deal which involves contracting out a business function, with all the people, commercial and solution risks entailed, always has CEO involvement and commitment in a way that an initiative to improve operations internally may not. In short, making the same change using outsourcing rather than an in-house initiative can make the change more likely to happen, more likely to succeed, and more likely to be sustained, simply because of the process and nature of outsourcing. So is it a sign of weakness to outsource?
Evidence would suggest not – some of the world’s best-managed corporations have used the outsourcing of back office functions as a strategic tool, which has contributed to their success. But this is not to say that it is always the best approach – it is one tool available to management, and only a thorough analysis of an organization’s unique situation can determine whether it is the right one.
So perhaps there is some magic there – not necessarily in skills and systems and resources, but in the way that outsourcing can change culture and behaviors.
Ben Trowbridge is CEO of Alsbridge, Inc.