Nearshore 101: Customers, Do You Know What You Are Buying?

While the value proposition of a global services provider is greater than ever before, changing economic conditions mean first time outsourcing buyers need to be even more vigilant in evaluating potential partnerships.

“Buyers in the outsourcing market often encounter several preventable challenges,” said Lee Coulter, CEO of TransformAI. “Perhaps first among them is not actually knowing what to buy and relying on the seller to determine the services, service levels and consumption of service units.”

Business Process Outsourcers and their clients have entered a new period of changing expectations. The Covid-19 crisis has made everything more challenging, according to Jack Stoddard, the General Manager of Web Associates LLC, a brokerage that brings buyers and BPO providers together. Success will now be achieved over a longer time frame and will require a different approach.

Stoddard highlights some key considerations for buyers and BPOs:

• Agreement on what long term goals are.
• Agreement on budgets and time frames.
• Working with a consultant or broker who can match your requirements with the best in-class countries and partners.
• Awareness that time zone and culture are critical success factors in an agile environment.
• The need to visit local teams or find a means to acculturate them amid Covid-19 restrictions.
• Starting the project at manageable levels with a road map on quarterly goals

Full disclosure on all sides is important, says Stoddard. Amid Covid-19, companies should also prepare to develop their teams and reach goals more slowly.

“If the buyer doesn’t already have relatively sophisticated consumption measurements, there may be a low level of awareness of how much of a service is really being consumed by the business” – Lee Coulter, TransformAI 

Start With the Right Questions

Thomas Siebert, who spent nearly ten years in senior CX roles with Expedia and Yikes and is now Consulting Director at TBS Inc Consulting, offers up a list of imperatives and questions for new buyers. He also advises that BPO service providers conduct research around these questions.

• Will the client grow your business in a current or new vertical, and will utilizing their talent and facility assets lead to profitable growth or a loss? Be aware if your volume will be a ‘big fish’ in a little pond, or a ‘little fish’ in a big pond.
• Check whether your BPO choice is growing in size, markets or sectors, declining, or even new to the BPO field. Pay close attention if your sector is new to the BPO choice. These are all fundamental risk management considerations.

  

• Operating costs from the client perspective: Will your firm decrease operating costs, and if so, for how many years in the contract?
• What level of ‘over-sight’ are you willing to agree a client will have for your tools, processes and data? In other words, are you prepared for a heavy hands-off or heavily engaged client?
• Does your firm want to completely hand-off operating responsibility or, do you intend to remain ‘hands-on,’ and if so, what support will you provide (i.e., tier 2/tier 3 support, business intelligence reporting and analysis, customer experience survey, training, quality, onboarding, work-from-home, etc.)?
• What specific research have you conducted on the selected BPO in the US and at near and offshore operations to understand their target client sectors and sizes, their executive leadership and operating management turnover?
• Have you clearly researched and understood the BPO culture, at both the level of executive and senior leadership, as well as at multiple BPO contact center sites?

When Ignorance is Not Bliss

Coulter points out that many common challenges have the same source. “It is worth noting that these issues are not grounded in bad behavior or bad intention, but rather simply in not knowing,” he said. “The best way to know these things is to take the first steps in a shared service journey by creating an internal shared service organization that manages services in a manner similar to the way a provider does. This may appear to slow the transformation the buyer is hoping for, but in fact, it will accelerate the transformation and with far less frustration for all parties.”

Coulter notes that providers have catalogs with detailed descriptions of what is and is not included in their service. They also list Customer Responsibilities (CRs) – the duties that remain in the buyer’s hands.

A provider will also have sophisticated measurement systems to determine the level of performance for every part of their service, its performance versus commitment on multiple service level targets (SLTs), as well as consumption rates and unit costs.

This level of critical measurement is rarely replicated on the buyer side. “Few buyers have taken the time (2 or more years) to baseline their current level of service performance.” Coulter said. “Taking the time to measure service performance before going to market is essential.”

According to Coulter, buyers often assume the provider is going to deliver the service in the same way that internal employees do.

“A common challenge when outsourcing is discovering after the fact that the provider’s service might provide only 80 percent of the total effort and cost to truly satisfy the business need,” Coulter said. “Doing in-depth process analysis on an end-to-end basis is crucial. Special attention should be paid to exception handling and escalations. Not surprisingly, the service experience is created not by 99 percent of the service events, but by the 1 percent of events that contain exceptions or have special handling requirements (and costs).”

Coulter said the buyer may need to retain as much as 20 percent of the existing staff to manage the vendor, handle exceptions and provide the service integration, or “glue,” between the provider and buyer. This concept also applies to new work.

“A provider might tell you that you need just two to four people to manage their service delivery,” he explained. “In truth, the buyer should expect that the new work of managing the services, governance (delivery and financial oversight) and retained work will combine to be 7 to 10 percent of the total number of full-time equivalents (FTEs) involved in the transaction.”

A third and sometimes surprising issue comes from unmanaged consumption, says Coulter.

“If the buyer doesn’t already have relatively sophisticated consumption measurements, there may be a low level of awareness of how much of a service is really being consumed by the business.”

Meanwhile, the provider is paying very close attention to consumption.  Their cost and pricing models and hence their profit margins are managed closely. A shared service group or BPO governance team usually has little control over how much the business consumes.

“Sometimes conflict arises after uncontrolled consumption occurs and the bill arrives,” Coulter concludes.