By their very nature, business process outsourcing (BPO) engagements involve important functions being taken over by a third party. The goal is for the client to realize efficiencies and cost savings. But while this up-front negotiating — securing a strong and detailed contract that outlines the contractual obligations of and specific services to be provided — is something almost all companies prioritize, giving ongoing attention to managing BPO provider relationships over the entire life of the contract is often given short shrift.
Even in cases where the BPO provider relationship is actually governed, such governance often falls short of what it could be, relying on outdated and inefficient metrics, models, and approaches for how to ensure a relationship is effective. Understanding the key drivers that create buyer/provider value in the relationship requires taking the wheel and looking at the road ahead — instead of solely watching the rearview mirror and considering only the past.
Managing the BPO Relationship: A Difficult Journey
When it comes to BPO relationship governance, many organizations zero in on performance management as the be-all and end-all of governance. Most only look at key performance indicator metrics and measures, for example, including the volume of invoices processed per day or number of calls handled per hour.
However, due to the length of time spent negotiating service-level mechanisms (including KPIs, SLAs, and performance credits), organizations sometimes forget about other elements of governance. Furthermore, while service-level mechanisms may be negotiated within the contract, there is often not enough time spent during the negotiation period to outline and describe other governance metrics. The result is that many contracts contain no formal (and mutually agreed to) mechanism for measuring and governing the overall continuous improvement elements that are a major hallmark of successful BPO relationships.
In many cases, these missteps can result in governance meetings between the parties that focus on what happened in the past, performance failures and negative challenges — at the expense of having time to discuss successes and other positives. BPO providers get little out of such an approach to governance, resulting in the provider investing minimal time, energy, or effort in the governance process itself.
Instead, the BPO provider may try to use the governance session to focus on identifying new revenue opportunities with the buyer. This leads to the two parties having completely different agendas, speaking past one another about things that are important solely to them. The result is a recipe for a difficult journey rather than a relationship that fosters and delivers value.
The Right BPO Relationship Drivers
Successful governance programs generally focus on the health of the provider/buyer relationship across five key elements.
- Performance management (performance against identified metrics)
- Contract management (alignment of the parties with the contract)
- Financial management (alignment of the parties to the overall financial model)
- Relationship management (covering value adds as part of the relationship such as innovation, and gain sharing)
- Value management (encapsulating the prior four elements and focusing on continuous process improvement to measure the overall value both parties receive)
Within each of these five elements, there are three areas of focus. These help to ensure that what is monitored, measured, reported, and discussed are actually the most important drivers of a successful relationship.
These include a focus on:
- “The now” (specific milestones and activities that are currently occurring)
- “The future” (identification of and support for those activities that are planned or are likely to be planned for the near term future)
- “How to improve” (discussion between the parties about opportunities to provide better alignment, greater collaboration and more collaborative engagement to continue to drive the relationship forward)
Aligning the tenor and tone of all elements of a governance approach around these three areas will help to ensure that both parties drive positive, proactive discussions and efforts to create value over the duration of the relationship.
Taking the Wheel and Planning the BPO Journey
So how can a buying organization “take the wheel” in governing their BPO provider relationship? The best way is to design a balanced governance framework as part of the contract negotiation process — before the relationship has formally begun. However, even if the contract is signed or the relationship has been in place for some time, it’s not too late to engage with the provider to develop a framework that covers all of the five key elements.
Taking steps to develop such a governance model can even be an effective way to right the ship of a relationship that might be rocky or less than ideal. Agreeing to the right performance metrics (e.g., those few that are the best true indicators of the right type of performance), focusing on the most important contract management elements, ensuring joint attention to the financial health of both sides of the relationship, and continuing to identify and support continuous improvement and value creation opportunities all provide the foundation for a successful governance approach.
In addition to developing the framework, buying organizations will want to also carefully work out the various roles to be played by both the buyer and the provider within the governance model framework. Lastly, there is one critical final step: Do not only ensure that governance is working well so it can grow and develop — but always revisit these metrics if they don’t appear to measure the value appropriately.