Understanding the value of systematic and continuous management of externalized BPO services
Consequences of poorly managed services are like chronic diseases: spreading its effects little-at-a-time over vast areas – like customer service, availability, performance and speed of delivery – slowly building awareness of the problem but not considered as such until something breaks, or stops.
Much of any organization’s cost is external. How significant it is and how it breaks down by categories vary across sector and organization. Most organizations buy a significant volume of services through Business Process Outsourcing (BPO). The creation of such outsourcing usually gets proper resource allocation and management attention. The initial operating period typically gets it too, especially if much is at stake or if implementation success is part of managers’ objectives.
But what about the continued management of external services? Typical BPO transactions have a life of several years. The process to source services is so complex it is a tempting option to extend services through renewal rather than to launch a new strategic sourcing process. Many BPO contracts go on being poorly managed, from the client side, for several years. Who notices this and raises the flag? Consequences of poorly managed services are like chronic diseases: spreading its effects little-at-a-time over vast areas – like customer service, availability, performance and speed of delivery – slowly building awareness for the problem but not considered as such until something breaks, or stops. Since there is rarely one single cause for problems, the work to un-nestle third party contract management is hard. The people who do it are not always prepared for it, nor are they consistently understood and rewarded.
What to Manage
“Wasn’t the service management supposed to be done by the vendor? We spent good time to state in the contract how we wanted the service.”
This is true, but not enough. One of the reasons of doing BPO is to relieve the organization of complexity. While it does, complexity has a way to find its way back in, also into negotiated and signed business transactions. Vendors also need to be held accountable. The contracting phase was for defining the service, identifying hand-offs, describing and resolving anticipated dependencies and negotiating commercial terms. It didn’t anticipate everything. Many things influenced the negotiating parties at that time and the crafting of the solution. Typically there is some extra pressure towards the end, at which point both parties took responsibility for how they committed to it. Then reality set in. Sometimes the care in the sourcing process was good enough and the strategic sourcing team could go on to source new services, leaving the operating of vendor services to the business. Sometimes it wasn’t. More often than not business managers need to get governance support and learn about the contract, before they incorporate it into their governance.
There are many aspects to BPO management and it can also be organized in many different ways. What is never good is to let it happen by itself – it does require thought, and appropriate staffing. Consultants will give you ballpark percentages of how much of an outsourcing transaction’s (annual) cost should be put aside for governing third party services. One of us can also diagnose the operation of your BPO contracts, telling you how you score vs. others and what cost and effects to expect if you invest in – or neglect – your governance. Since «most things go well most of the time» you may not be aware of the opportunity to invest in BPO governance.
Elements of good contract management include learning about the contract; identifying and paying attention to key deliverables; governing service levels, staff training and capabilities; managing cost, risks and issues; addressing change proactively and ensuring transparent, timely, fluent and constructive communication.
Elements of good vendor management include to know about other business the organization has with the vendor and setting oneself up to manage the right vendor topics and interactions. Too much interaction can be worse than too little, as that tends to generate work for both client and vendor, pulling attention away from service delivery and quality. While it is impossible to prescribe any general solution for all, looking at your BPO governance makes a lot of sense, especially if you plan to rely more on your vendors in the future.