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.
Temporal Focus
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.
Contract Fatigue
Contracts, tax declarations and travel reimbursement are common topics that we delay dealing with, or avoid altogether if we can. I have thought a lot about how to make contract learning and contract management more engaging. What generally works is to start by explaining them. It is hard for anyone to pick up a stack of legal agreements – which are often the work of others and not entailing what you would expect and want – and then to own those documents. After that my client knows what the agreements say, I move on to explain why certain sections exist and how certain other sections are important but not relevant for month-by-month active management. Then I try to find that minimum sensible level of systematic tracking and render it easy to become, and stay, on top of contract delivery. I look at what is being done and align the tracker to existing and preferred ways of managing. That balance of what one must do and what one wants to do needs to be right for governance to be sustainably operated. To embed contract management in employee objectives will boost management for a while, but only to a point. Sustainability is key. Tools and reports help, too.
Vendor-led Conversation
Whenever I come into an organization without formal vendor governance, it becomes striking to me to which degree discussions are led by vendors. For a trained observer, it is easy to spot why a contact came about, why the client stakeholder was contacted at this moment and in this way, where the vendor is at, what it needs and what it wants. Your organization is perhaps not doing formal vendor management but the vendor is certainly managing your account, including how it appears and interacts with you. Your client executive maintains stakeholder maps and logs and tracks what they say and do with your organization. They are not wrong to do this. It serves not only their potential new sales but the effectiveness of client services. It is not wrong. What would be wrong is if you denied its existence or neglected its importance. I think of a vendor’s account management like a lobby activity based on partnership. You should match it. Operate your side of interactions in such a way that vendor focus is on delivery, and on any other topic that matters to you. Listen to what the vendor knows better than you, but don’t let others set your agenda.
The Vendor View
Let’s take the view of the vendor. They won your work. Perhaps that was a painstaking and costly process for them. Now is the time when they make money from their investment. For the work they won with you, there will be other work they lost for others. Hopefully there is a good fit between you as partners (read more). Perhaps they are still in the process to ramp up of services or to train new people on the contract. This means to make investment in people and processes. People at different levels and in different roles will be under various types of pressure. The existence of the contract serves as a (legal) frame for fulfilment but it must be insulated a little bit, and the delivery team needs to build a reputation for performance; you are a part of this. Trust me that vendor staff know the contract and are managing it, even if it doesn’t come up in conversation. One of the things on their radar is how well you know the agreements. That’s not in order to “compete” with you, but the better you demonstrate your intention to get what you sourced, the better they work on it and the greater the chance that is gets delivered. What gets measured gets done. If you ramp up your vendor management team it will be noted. You will see a “ramp up” on the vendor side as well, through better interaction and – sometimes – better staffing.
Tailor It
I think the benefits of an independent consultant for vendor governance assessment and improvement are plentiful. We are not bound by any need to sell services. We take your perspective. We have opinions and will state them, but ultimately tailor our solution to you, where you are at and what you want and need. We are trained and networked. We can help you connect with others. If you decide to invest in more change than one of us can manage, we can either scale up with others or be your sounding board when you source services from a larger consultancy.
Personally, I came to this area of work because of a great respect for money, to use it well and not to waste it, and because I’ve seen how people hurt when contract management is neglected and people are reported to “fail” in their jobs just because of that slow decrease in attention. Building a governance system takes some effort but it is an effort that pays off.
Don’t let vendor relationships remain an untapped source of strategic advantage. Contact me now to explore how my expertise can transform your procurement processes and elevate your vendor partnerships. The first hour and a half of trial advisory is free, if you want to set us up for a video call. Book it here.
About the Author
I am a manager and business partner independently working for clients in the greater Zurich area and sometimes abroad. I have vast experience in service design, strategic sourcing, vendor governance and financial performance management. I am fascinated about well-functioning systems, with clear rules of engagement and respectful and interest-based collaboration and negotiation. My work includes business plans and business cases, outsourcing transactions, risk and financial frameworks and policies, and service transformation. I act as trusted advisor and leverage experiences gained in consulting (McKinsey, Accenture) and in industry (Zurich Insurance, UBS) in service delivery and capability building. A socially apt relationship-builder and confident communicator and negotiator, I interact with care and have a track record of achieving change. I energize from people, and care about both organizational performance and people’s health. Read more about each area, and check out my work.
