Business Process outsourcing The Competitive Advantage phần 8 pot

the strategies for managing a BPO project that focuses on IT functions differ from those that would be used to manage a BPO project focusing on HR functions. At the same time, there is overlap and general lessons to be learned from any BPO initiative that apply regardless of the target function. We have examined hundreds of BPO cases and reviewed voluminous articles in both the popular and academic literature to seek patterns among the wide variety of successful BPO relationships. Although each relationship is unique and has nuances that cannot be generalized, several ingredients of a successful re- lationship have appeared often enough to be considered mandatory. Based on a basic foundation of trust, we have identified six other essential ingredi- ents of a successful BPO buyer–vendor relationship: 1. The BPO buyer must understand and respect the vendor’s need to make a profit. The BPO relationship cannot be driven by cost reduc- tion above all other considerations. In order for the vendor to continue to be motivated to provide high-quality services, there must be profit in the relationship. 2. The contract should have provisions for SLA recalibration. As business conditions change, the original SLAs may be out of line with industry practice and need to be recalibrated. 3. The buyer’s responsibilities should be clearly articulated. Many BPO contracts clearly articulate the vendor’s responsibilities, ignoring or min- imizing those of the buyer. 4. The BPO project management plan should include provisions for chang- ing the PMT structure or members. Although changes in PMT structure and membership should not be cavalier, allowances should be made for member attrition and rotation. 5. The PMT should use systematic problem identification and resolution techniques. Rather than waiting for problems to arise in the relationship, Managing the Buyer–Vendor Relationship 161 EXHIBIT 8.2 Ingredients of a Trusting BPO Relationship • Shared vision and expectations • Consistency of actions • Predictability of responses •Respectful of confidentiality issues • Long-term, mature, and enduring • Aligned interests and goals • Mutual respect and understanding • Proactive and intense communication • Integrated systems and processes • Encouraging and participative • Sharing of risks and rewards • Operating as extended organizations ch08_4307.qxd 8/18/04 11:40 AM Page 161 the PMT should use a systematic and proactive approach. Of course, such an approach must be based on interorganizational trust and honesty. 6. The PMT should develop interpersonal relationship norms. Such norms should arise from within the group and should govern the manner in which PMT members relate to one another. Profits and the BPO Relationship A reasonable profit margin for the outsourcing vendor is essential to the long- term success of an outsourcing relationship. In an outsourcing relationship, neither party should aspire to an unrealistic business advantage. 4 Outsourc- ing is designed to deliver financial benefits to the BPO buyer, to be sure. It must be kept in mind, however, that the vendor is also a business and must maintain a profitable operation to survive and excel. The profit and reward that goes along with outstanding work motivates the provider to commit re- sources, ensure quality and service levels, identify new opportunities, address the client’s business issues in a timely and proactive manner, and innovate. Outsourcing relationships that are focused exclusively on cost reduction often result in situations in which the vendor ends up delivering minimum lev- els of service to justify the continuation of the contract. This can be avoided, and both parties can reap benefits, if the buyer expects a fair profit for the vendor and encourages reinvestment of profits in extension of the vendor’s core competencies. This will enable the vendor to commit additional high-level services to the buyer. Recalibration of Terms SLA recalibration clauses are effective tools for reassessing and adjusting con- tract terms. 5 Incorporating and exercising a benchmarking clause in the con- tractual framework of a BPO relationship provides an opportunity to baseline service levels, repair a strained relationship, and adjust terms to new business or service conditions. By identifying and quantifying the specific elements of service delivery that need to be recalibrated from time to time, the parties can stay motivated by virtue of the tenor of the contract. The project management plan should incorporate any contractual clauses regarding changes to SLAs and should execute changes as required. This is not as easy as it sounds, of course. Each change will require negotiations and a thorough review of the implications. The PMT should handle all changes according to its operating principles, which may include voting guidelines and issue resolution protocols. For example, in the case of a deadlock, it may be necessary to escalate the issue to the Steering Team for final resolution. Buyer’s Responsibilities The BPO buyer’s responsibilities to manage the outsourcing partner are one of the most neglected areas of outsourcing relationship governance. Compa- 162 EXECUTING AN OUTSOURCING PROJECT ch08_4307.qxd 8/18/04 11:40 AM Page 162 nies tend to minimize the internal management resources required to effec- tively manage a provider. BPO buyers either devote too few resources to man- aging the vendor relationship or supervisory resources deployed in charge of the relationship lack the skills, training, and inclination to make the relation- ship succeed. Relationship management becomes especially difficult if the buyer views outsourcing primarily as an opportunity to reduce costs and cut headcount. The general tendency to draw PMT members only from the af- fected process can also be problematic. Although people from the process area may be technically qualified, they may lack the other skills needed to ef- fectively manage the outsourcing process. Attention must be paid to the non- technical skills of individuals on the PMT, as discussed previously. Changes in the Project Management Team In a strained BPO relationship, the existence of ill will on one or both sides often presents a major hurdle to a successful resurrection of the relationship. In some cases, it may be useful to replace team members who have become hostile to the BPO project or who have developed personal animosities. The PMT may also want to turn over members, other than the BPO champion, from time to time. This can help reduce the potential for inter- personal conflicts to develop into lingering problems. This approach may also bring in fresh perspectives and improve the possibilities of revitalizing the relationship. Systematic Problem Identification and Resolution Several tools are available to the PMT to constantly monitor and assess the re- sults of the BPO project. The metrics specified in the SLAs are the starting point for assessing the project’s effectiveness. Beyond that, the team should regularly scout the external environment to determine whether strategic ad- vantages are also accruing to the partners as a result of their BPO-based work- ing relationship. Many BPO partnerships have adopted the balanced scorecard approach in order to evaluate performance and facilitate discussion on value creation opportunities. By using added value as one of the scorecard perspectives, the model provides the vendor with an opportunity to identify value provided over the course of the contractual term and to define the linkages between business needs and services delivered. If an outsourcing relationship is damaged or strained, another strategy is for the PMT to use a Top Ten Issues approach. Using this approach, the PMT identifies at each meeting the Top Ten Issues confronting the project. Subsequent meetings track the progress on the issues and, hopefully, drive them down the list and out of the top ten. This approach requires a substan- tial amount of due diligence to establish that the concerns are objective and can be unambiguously documented. Once both sides agree on the nature and Managing the Buyer–Vendor Relationship 163 ch08_4307.qxd 8/18/04 11:40 AM Page 163 extent of the ten issues, they are given time to develop and implement accept- able solutions to each one. The PMT’s responsibility is to establish moni- toring mechanisms to ensure that the buyer’s or vendor’s actions agreed to for each of the issues are actually implemented. In either case, the task requires a high level of senior management commitment to implement the metrics, mechanisms, and processes necessary to ensure that both sides are meeting expectations. Develop Interpersonal Relationships Tools and techniques will help in monitoring the relationship and the level of performance on the outsourced process, but there is no avoiding the neces- sity for buyer and vendor to develop trusting interpersonal relationships. Ex- hibit 8.3 provides a few recommendations to help organizations develop effective interpersonal relationships with their BPO partner. Most of the standard principles of interpersonal relationship development apply to BPO relationships. Offshore BPO relationships will be challenging in that on-site meetings may require international travel. Today, international meetings can be handled using a form of teleconferencing. Teleconferencing technology should be leveraged to help reduce costs associated with manag- ing the offshore BPO project. However, each party should visit the other’s premises at least once per year to keep the interpersonal feelings alive and to renew personal and business bonds. The most important factor in the interpersonal arena is the establish- ment of acceptable norms that govern the relationship between the parties. The norms of behavior in a healthy BPO relationship are based on three dimensions: 6 1. Flexibility. Which defines a bilateral expectation of the willingness to make adaptations as circumstances change. 164 EXECUTING AN OUTSOURCING PROJECT EXHIBIT 8.3 Tips for Developing Effective Interpersonal BPO Relationships • Develop an approach for the relationship as allies. • Regard attendance at the regularly scheduled PMT meetings as a top priority. • Be tolerant of cultural differences as they apply to issues of power and authority. • Arrange seating during PMT meetings in a manner that avoids furthering an “us versus them” mentality. • Seek “win-win” in negotiations over SLA term changes or contract extensions. • Develop an understanding of and appreciation for the other party’s business and competitive arena. • Hold meetings at each other’s premises on a rotating basis, allowing each to serve as the “host.” ch08_4307.qxd 8/18/04 11:40 AM Page 164 2. Information exchange. Which defines a bilateral expectation that buyer and vendor will proactively provide information useful to each other. 3. Solidarity. Which defines a bilateral expectation that a high value is placed on the relationship. It prescribes behaviors directed specifically toward relationship maintenance. As the individuals assigned to the PMT interact and develop a sense of comfort with one another, norms of behavior will develop, although it may take a while for that to happen. One of the biggest mistakes in managing teams is to intervene with prescribed norms, circumventing the natural group team norming process. Enabling the PMT to meet often during the early stages facilitates the norming process. The PMT should attempt to codify some of its norms into its project management plan, being cognizant that the norms may need to be changed and rewritten from time to time as the team matures. RELATIONSHIP RISK FACTORS Although a mature and seamless relationship would most likely enhance the benefits of outsourcing, failure in the BPO relationship can lead to negative and potentially irreparable consequences. The business literature is rife with stories about BPO relationships gone bad, and there will be many more in the coming years. As the BPO revolution picks up steam, no doubt many new vendor firms entering the market will make claims about capabilities and ca- pacities they do not possess. Unwary BPO buyers will get burned, and large amounts of money will go to waste. It is impossible to control the way the BPO market will evolve, but or- ganizations can control with whom they partner and how that relationship evolves. There is ample experience among BPO buyer and vendor firms alike to highlight some of the more common pitfalls of failed BPO relationships. Seven common pitfalls have been identified as follows: 1. Lack of appropriate buyer control 2. Cultural differences 3. Inflexibility in BPO agreements 4. Inadequate SLA specifications and/or metrics 5. Inadequate governance 6. Lack of goal alignment 7. Lack of integration Lack of Appropriate Buyer Control Organizations that undertake an outsourcing initiative must recognize that outsourcing is not the same as abdication. When an activity is outsourced, the Managing the Buyer–Vendor Relationship 165 ch08_4307.qxd 8/18/04 11:40 AM Page 165 buyer should dedicate a manager (BPO Champion) or team (PMT) to interact with the vendor. This relationship will work best when both sides seek to provide value-added service to the operations and strategy of each other. However, a buyer that tries to maintain complete control over the outsourced process will undermine the leverage the vendor can employ to deliver satis- factory services. The danger in an outsourcing relationship lies in the inability of the buyer to develop an appropriate level of relationship control. An appropriate con- trol level is one that allows the vendor the freedom to provide the services for which it was contracted without ceding the ability to prevent small prob- lems from becoming large ones. This is a delicate balancing act that will un- doubtedly need to be adjusted over time. For example, at the beginning of the relationship, the vendor is focused on performing at a high level and pleas- ing the new client. At this point, the buyer may not need as much control as later in the relationship when the enthusiasm wanes and performing on the contract becomes routine. Problems are most likely to arise when the vendor unconsciously shifts to viewing performance on the buyer’s contract as rou- tine and reduces its level of internal oversight. A proactive relationship man- agement approach will anticipate these fluctuations in vendor diligence and will establish metrics and reporting regimes to counteract these variations. Cultural Differences Differences in culture and work styles between the client and the BPO provider can result in severe misunderstanding and mistrust. Organizational culture is defined as the operating principles and norms that are embodied in an organization’s policies, decisions, and actions. 7 Problems can arise when a BPO buyer initiates a project with a vendor whose culture and operating style are vastly different. Such differences can and often are bridged. What matters is whether the two firms recognize the cultural differences and take proactive steps to deal with them. Differences between buyer and vendor cultures are exacerbated if one or both parties is unable to listen to and understand the other. BPO buyers should be especially sensitive during the vendor selection process to how well the various bidders listen to their needs and whether they ask the penetrat- ing questions that reveal their awareness of the potential for problems arising from cultural differences. A vendor that does not listen well or ask the right questions during the selection phase should probably be eliminated from consideration. Of course, it is impossible to uncover all cultural differences during the vendor selection phase; some will only become manifest during the operating phase. The project management framework should include inducements for 166 EXECUTING AN OUTSOURCING PROJECT ch08_4307.qxd 8/18/04 11:40 AM Page 166 each side to identify and detect problems that are a direct result of cultural differences. Inflexibility in BPO Agreements It is necessary that BPO agreements be designed to provide for adequate flex- ibility in order to withstand both the dynamics of the business environment and the pressures that are inherent in such a contractual agreement. Typically, BPO contract agreements are crafted on certain key assumptions pertaining to technologies, business conditions, personnel, and other relevant issues. But these assumptions are likely to change with time. No matter how de- tailed the contract or favorable the terms, BPO agreements cannot anticipate all of the changes that occur in a dynamic, global business environment. This inability to anticipate changes tends to ensure that one, if not both, of the parties will become disenchanted with the relationship over time. Long-term contracts that lack flexibility significantly increase the likelihood of dissatis- faction between the parties and can adversely affect the relationship. Once the contract is in force, there is a great temptation for both parties to suboptimize the relationship and attempt to better their lot—often at the expense of the other party. The best way to reduce this temptation is to craft a contract for a long-term relationship with short-term SLAs that can be ad- justed to meet changing conditions. The long-term provisions in the contract spell out the spirit and intent of the parties. The short-term SLAs can be ad- justed to include changing metrics and measurement instruments, as well as changing strategic goals of one or both parties. Inadequate SLA Specifications SLA specifications and metrics measure the provider’s performance during the operating phase of the BPO Life Cycle. They must be clearly defined and effectively designed into the contract because this is what allows the buyer a comfort level in turning over control of its business processes to the vendor. The metrics associated with SLAs indicate whether the company is receiving the services it is paying for. Many organizations have learned that the business process they have been performing for years is exceedingly difficult to describe in precise written terms. Yet, clear specification of the manner in which a process must be per- formed is critical to ensure effective vendor performance. Too often, firms turn over a business process to a vendor and expect them to deliver services that conform to expectations, without providing a clear statement of those expectations. The task of specifying a process in detail is difficult. It requires discussions with people involved in the process, mapping the process, and specifying Managing the Buyer–Vendor Relationship 167 ch08_4307.qxd 8/18/04 11:40 AM Page 167 acceptable service levels and remedies. Most organizations will find that, no matter how careful they are in specifying expectations for vendor performance on a given process, there will always be a few details that slip through the cracks. In addition, vendors are not in perfect control of their employees, many of whom may decide unilaterally that the specifications they receive can be ignored. They will simply do things their own way because they do not agree with the specifications or believe they have a better idea. Carefully struc- tured SLAs and rigorously applied metrics will ensure that none of these po- tential corrupters of vendor performance levels result in adverse consequences. Inadequate Governance Informal, unstructured, and/or inadequate attention given to relationship governance issues often leads to relationship difficulties. There is adequate contractual attention given to compliance to service levels, but attention is rarely given to governance and achieving relationship maturity levels. We described the concept of a project management team (PMT) in Chapter 7. It is important to note that this team performs both judiciary and legislative roles in the oversight and implementation of the executive document—the con- tract. In its judicial role, the PMT specifies how often the parties will share in- formation and measure performance. It will also specify what will be done in the event of nonperformance. In its legislative role, the project management team will develop and de- liberate changes to the project management plan. This ongoing process should be conducted in the spirit of the contract, which serves as the constitution to the judicial and legislative roles of the PMT. Lack of Goal Alignment An outsourcing relationship is bound to fail in a situation where the parties do not align goals, objectives, and interests. As separate economic entities, the parties are not naturally aligned. In fact, there are market incentives for one or both parties to suboptimize on the contract, as mentioned previously. Goal alignment means that both parties take action, including investment of time and financial resources, toward the goals they articulate to one another. Merely stating goals is not enough. Both firms must demonstrate commitment to those goals through actions. Many BPO relationships fail when one or the other party perceives that the other is not acting on its articulated goals—or is not acting in a manner consistent with its goals. This can be observed through a lack of investment in new technologies or innovations that might further the stated goals or a lack of interest in pursuing joint development projects. When one party feels the other is not living up to its stated goals, resentment and other negative emotions can arise. If left untreated, these negative emotions can rot the spirit 168 EXECUTING AN OUTSOURCING PROJECT ch08_4307.qxd 8/18/04 11:40 AM Page 168 of a healthy and enduring relationship, leading both parties to develop mis- trust for one another. A strong project management plan will require each party not only to articulate its organizational goals and objectives, but also to demonstrate how it is pursuing them. Regularly updating each other on goal attainment and aspirations for the future is a strong antidote to fear and mistrust that can arise from uncertainty about the other party’s commitment to the BPO relationship. Lack of Integration The development of an effective BPO relationship is not only a process or in- frastructure issue but also requires cultural replication, and sharing of vision and values. The integration of IT will carry unique challenges, especially if the process is to be outsourced offshore. At the same time, anyone who has ever initiated a major software installation or hardware changeover will readily cite integration as a major challenge. From that perspective, the IT integration issues associated with a BPO project are not unique. Even more, most ven- dors are prepared for the data and information integration challenges based on their experience with other clients and their desire for economic survival. BPO buyers should leverage the market pressures that force integration re- sponsibilities and costs primarily onto vendors. Additionally, third-party firms that specialize in getting disparate databases to talk to one another can be hired to assist in the process. Again, the buyer should seek to shift the inte- gration cost burden to the vendor. Integrating cultures, work styles, and policies and procedures is a less specific science and will pose difficult challenges for BPO buyer and vendor alike. We have already discussed the need for the PMT to consider questions of “whose culture?” and “whose assets?” in the BPO transition and operating phases. These are pragmatic questions, but the process of transitioning from one cultural style to another requires change management tactics. These are covered in greater detail in Chapter 7. Here, we mention only that this area is frequently overlooked in the administration of a BPO project. Overlooking the cultural transition, as well as the policy and procedure transition issues, is a leading cause of BPO project failure. Application of the internal change management tactics discussed in Chapter 7 will help avoid these potentially fatal problems. CONCLUSION Because of the comprehensive nature of any potential BPO project, the buyer–vendor relationship can only be mastered through continuous focus on the business benefits anticipated by both sides. Buyers and vendors need to employ a competent and empowered BPO champion and/or a full-fledged Managing the Buyer–Vendor Relationship 169 ch08_4307.qxd 8/18/04 11:40 AM Page 169 project management team, particularly in the operating phase of the BPO Life Cycle. Along with the transition of the process from an internally delivered service to an externally delivered service, the relationship must be imple- mented as roles and responsibilities of the parties become exposed and refined. Contracts must be built on the realization of the business goals, with SLAs that measure the critical success factors of the outsourced business process. The entire relationship must be viewed as a business asset that is worthy of investment over time. Not only will the SLAs evolve, but the relationship will also evolve as market conditions change and as strategies for delivery of out- sourcing services respond to dynamic business conditions. With outsourcing having the potential to add significant competitive ad- vantage to companies through quantifiable business and strategic value, it is imperative that buyer–vendor relationships are aligned seamlessly in an inte- grated manner. If the BPO buyer does not have internal capabilities to design and execute an effective project management plan, assistance should be sought from external consulting agencies to help craft a project management model that would best meet the outsourcing objectives. SUMMARY Companies considering BPO must be aware that the traditional tactics for managing relationships between buyers and suppliers are inadequate for managing a BPO relationship. Management of a BPO relationship requires negotiation, communica- tion, and business skills. The project management plan will include elements of interpersonal and interorganizational interaction that simply cannot be specified in a contract. Trust is essential if the partners to the BPO relationship are to realize gains that go beyond those articulated in the contract. The BPO relationship must be managed from day one with strategic intent. Instead of specifying the project management plan in the formal contract, a separate plan should be drafted and shared between the organizations. The BPO champion will generally have high visibility within the organi- zation and possess the essential business skills. He or she should also be familiar with the business case for BPO and be willing to discuss it within the organization whenever necessary. The four fundamental characteristics of a BPO relationship are (1) depth of the relationship, (2) scope of the relationship, (3) choice of assets to use, and (4) choice of business culture to adopt. 170 EXECUTING AN OUTSOURCING PROJECT ch08_4307.qxd 8/18/04 11:40 AM Page 170 [...]... retaining new capacities in the outsourced process is a major determinant of whose hardware to use in the BPO project Another consideration that affects this decision is the potential to develop synergies with other business units as a result of building internal hardware maturity and capacity for the BPO project While scaling systems to meet the demands of the enhanced business process, the BPO buyer creates... sufficient for most BPO projects The daily tapes are used over a two-week period For example, on Monday the seventh day of the month, the Monday–Odd tape is used On Monday the 14th day of the month, the Monday–Even tape is used On the first Friday of the month, the Friday–First tape is used; on the second Friday of the month, the Friday–Second tape is used, and so on The two parties should select a... strategic advantages through the BPO project may elect to leverage and/or build their own hardware systems utilizing the vendor’s knowledge and experience to design the necessary systems This ensures that any competitive advantages realized through hardware advances will be retained within the buyer organization in the event that the contract with the BPO vendor is terminated or not renewed The extent of the. .. configuration of the components— the way they are structured and the way they interact with one another In other words, an infrastructure model provides a description of hardware resources and their individual functions, whereas the architecture describes their interrelationships and the services that can be delivered For example, a system’s infrastructure may include e-mail servers and network cabling Their... collaboration.2 HARDWARE INFRASTRUCTURE The first issue to consider with respect to the hardware infrastructure underlying the BPO project is whose systems to use Because providing high levels of service in the specific business process is the vendor’s core competence, their hardware capabilities usually outstrip those of the buyer Despite this common circumstance, the decision to use the vendor’s hardware system... Internet backbone providers)? 176 EXECUTING AN OUTSOURCING PROJECT The system architecture designed for the BPO initiative will most often be based on the vendor’s systems At the same time, it is important to note that many BPO projects uncover inefficiencies in noncore processes and systems that are linked to the business process slated for outsourcing The PMT should be trained to identify such inefficiencies... difficulties because their internal systems are likely to lag behind the latest technology upgrades The BPO vendor, however, has chosen to focus on the specific business process as its core business competence and is likely to be current in its software infrastructure, including its database systems The greater the gap between buyer and vendor software maturity, the greater will be the challenges in database... capacity of their human resources It is easy to maintain the perspective of people as knowledge repositories, but their key role as knowledge generators is too often underappreciated Outsourcing a business process means that the organization will not be exposed to the raw data that used to be transformed into knowledge by people within the organization For example, as a result of outsourcing the firm... outsourced the maintenance of its mainframes to IBM, but Linfoot felt the company was not getting enough benefits from the arrangement When the contract ended, Linfoot switched the outsourcing deal to Gedas, the information services arm of Volkswagen The outsourcing contract has allowed LDV to focus on what it does best—manufacturing vans and other commercial vehicles—while still benefiting from the mainframe... vendor must also consider other factors when determining whether to shift processes to the vendor’s hardware 174 EXECUTING AN OUTSOURCING PROJECT Among the considerations that affect this decision is the intent of the BPO agreement Firms that outsource primarily to save costs should leverage the vendor’s systems, eliminating depreciating assets from the balance sheet and converting them to monthly pretax . business processes to the vendor. The metrics associated with SLAs indicate whether the company is receiving the services it is paying for. Many organizations have learned that the business process. and understand the other. BPO buyers should be especially sensitive during the vendor selection process to how well the various bidders listen to their needs and whether they ask the penetrat- ing. Although people from the process area may be technically qualified, they may lack the other skills needed to ef- fectively manage the outsourcing process. Attention must be paid to the non- technical