Until fairly recently, what companies expected from business process outsourcing was relatively straightforward: greater efficiency, streamlined operations and lower costs. Today, however, the performance bar has been raised, and clients expect more from their BPO providers: business insight, innovation, industry expertise, solutions adapted to more individualized needs, a commitment to continuous improvement and more.
How well are providers stepping up to meet these new business goals? Which clients are succeeding and why?
These are some of the key questions answered through new research, the Accenture High-Performance BPO study, conducted in cooperation with the Everest Group and the Outsourcing Unit at the London School of Economics. The results of this quantitative survey of more than 250 buyer executives helped us to identify eight specific practices that, together, produce business value for a company that exceeds that of its industry peers in a way that can be sustained over time (see Sidebar 1).
High-performance BPO, as with high performance in general, is the result of achieving excellence in a broad range of areas across an enterprise. However, a distinctive characteristic of high performance in a BPO context is that it is highly dependent on the quality of the partner relationship.
Our research uncovered remarkable similarities in BPO relationships that have produced extraordinary business value: a commitment to effective strategies but also the right technologies and processes; effective organization and change management skills; industry and domain knowledge; strong leadership and savvy governance; and operational capabilities. High performance is the result of not just one or a few things but several—all of them executed in coordination, with a shared commitment from both client and provider.
Strategic and thoughtful
One of the more promising findings of our research is that high-performance BPO is not dependent on organization size, industry, geography, tenure or business function involved. It results, rather, from taking a more strategic and thoughtful approach to establishing and managing BPO engagements.
From an initial list of hypotheses about what high-performance BPO might mean—specifically, about what factors clearly separated high performers from typical performers—eight practices in particular emerged as being critical.
Practice No. 1: An end-to-end approach
What is the ideal scope for a BPO arrangement? In high-performance BPO, it’s the entire end-to-end business process, including those elements managed within the client’s enterprise, those run by third parties and even other related processes that might have an impact in some way on performance.
BPO high performers go beyond the execution of existing processes and use the BPO relationship to optimize those processes. Eighty-nine percent of high performers in our survey consider the pursuit of process excellence to be an important priority in a BPO relationship, compared with only 63 percent of typical performers.
Moreover, high performers take a more expansive and holistic view of what they are doing than typical performers do, looking beyond a single process or function to think about how it affects and is affected by other processes both upstream and downstream. The client also includes the provider and business end users as key players when optimizing a set of related business processes, even when the provider is directly accountable only for particular sub-processes.
Many of the positive business outcomes delivered from high-performance BPO can be traced in part to this ability to connect the dots among interrelated processes. The disciplined pursuit of excellence in one function has the collateral effect of improving performance in other parts of the enterprise. “Traditionally, our business was really ad hoc in understanding and fulfilling its needs,” an executive for one communications and high-tech company told us. “Outsourcing has certainly driven a much more rigorous and thoughtful planning process, given us more structure and, therefore, made us more effective.”
Underpinning this pursuit of performance excellence are the tools and metrics that enable the BPO partners to determine how well the processes are performing and where improvements can be made. As one company executive put it, “We created a service catalog, putting metrics and SLAs [service-level agreements] around those activities to hold the right people accountable. Then we put governance around that, connecting it to higher-level metrics and more strategic conversations.”
Practice No. 2: Collaborative BPO governance
In high-performance BPO relationships, the commitment to collaborative governance goes well beyond committees and meetings to include the attitudes toward the relationship and the behaviors that strengthen it and drive both parties toward higher performance. Here is how one client executive—a senior director for a technology company—described a winning attitude: “We are in the outsourcing together. There is nothing that the ‘provider’ has to do or ‘we’ have to do—we have to work [on] issues together.”
In many successful relationships, the partnership view is reinforced through three especially important behaviors by leaders from both client and provider.
- Senior leadership from both parties work to understand each other’s objectives. In our survey, 75 percent of high performers stated that senior leaders from both client and provider spend time understanding each other’s objectives and strategies. This was true for only 33 percent of typical performers.
- Senior leadership from both parties resolve conflicts fairly. This is where we found one of the largest disparities in BPO performance. Fully 90 percent of high performers said that client and provider were able to productively resolve conflicts. This was true with only 44 percent of typical performers.
- Companies adapt to changing business and market conditions. In high-performance BPO relationships, the provider’s account executives invariably responded to client requests to help remedy a deteriorating commercial position.
Practice No. 3: Making change management a priority
Change management is important not only to the success of the initial transition that takes place as a BPO provider assumes responsibility for a function but also as the client and provider adapt to change in the long run. The best providers evolve to meet clients’ ongoing business needs and opportunities, while clients, for their part, commit to driving change across the enterprise, sticking with the change program even in the face of resistance or pressure to reduce its funding.
The difference between high performers and typical performers is especially marked when it comes to executing a robust change management program. Eighty-eight percent of companies working within a high-performance BPO relationship regard change management as important, compared with 62 percent of typical performers. And more than three-fourths (77 percent) of high performers characterize themselves as successful at executing change management plans—33 percentage points higher than typical performers.
Practice No. 4: Value beyond cost
A retail industry executive summarized this practice succinctly in characterizing the goals of his BPO initiative: “Outsourcing is more about service to our customers than about cost reduction.”
This approach manifests itself in several ways. The first is in how the business case for the BPO program is constructed. High performers consider cost benefits to be just table stakes. Indeed, two-thirds of them focus on the potential value of business benefits beyond cost alone when creating the business case, compared with only 26 percent of typical performers.
BPO high performers are also more willing than typical performers to consider greater functionality from the outsourced service even if it costs more. Cost reduction is important, but by itself it is a one-time gain, not a sustainable benefit. “You have to be thinking way beyond cost,” cautions the shared services manager for a manufacturing company. “You need to know what you are trying to accomplish with outsourcing. Strategy emerges from that.”
Practice No. 5: A focus on business outcomes
As noted above, effective BPO relationships go beyond a focus on cost issues alone and aim for higher levels of business value. But beyond that, they target specific outcomes that can be measured and can help improve the performance of the function and/or the business as a whole. And then, beyond even that, they forge agreements that commit both client and provider to the achievement of those outcomes—including financial penalties and incentives to motivate outcome-based performance.
For example, through its finance and accounting outsourcing relationship, Microsoft targeted improved performance in the specific business outcome of the number of invoices paid within terms—something that was previously being accomplished only 70 percent of the time. The provider analyzed that process and found that Microsoft employees in decentralized locations were not approving invoices until late in the cycle because they simply were not aware discounts were at risk (see Sidebar 2).
As a result of a project to address the issue, the organization improved performance so that 88 percent of invoices were paid within terms; the target is to reach 92 percent in the coming year. Besides realizing the monetary discounts of paying on term, the improvement also enhanced the company’s relationships with its suppliers.
One sticking point in driving improved business outcomes and innovation in a BPO relationship has to do with motivation. Providers need incentives if they are expected to achieve higher-impact or even transformative results. For a significant number of high performers, the answer is outcome-based pricing. In some instances, sharing in the gains from those outcomes may also be involved, though that raises the important question of how the parties fairly determine the actual benefits to share as gains. Many external factors can influence performance outcomes. How can the partners isolate the effects of a single innovation project?
Microsoft approaches this issue by agreeing to the gain-share in advance with a “do no harm” approach. The company and its provider created a transformation program with an associated governance structure that embedded the quest for innovations into the relationship from the start.
Another important point is that funding for innovation is driven by a program that is outside of the economics of the original contract. So Microsoft actually compensates the provider for any impact the innovation, and the resultant improved performance, has on the original contract economics. The partners align incentives through gain-sharing but avoid the conflicts gain-sharing can trigger by agreeing to the gain-share in advance.
Practice No. 6: Domain expertise and analytics
Both industry and process expertise are important to today’s BPO clients. Even more important, however, is what providers do with that industry knowledge on behalf of their clients.
Outsourcing providers accumulate a wealth of data and information over the course of a multiyear contract. If providers have a mature analytics capability, they can deploy that capability with models and sophisticated algorithms to identify weaknesses and opportunities, and then redesign processes to deliver measurable business improvements.
In high-performance BPO, clients know how important their provider’s analytics capability is to achieving greater business value. In 48 percent of high-performance engagements, the partners identified ways to use data to capture additional benefits from the BPO relationship, compared with just 25 percent of typical performers.
|What is perhaps most important in this high-performance BPO practice is the manner in which domain expertise and analytics become an iterative cycle that makes both the client and provider stronger. Domain expertise enables the companies to identify contexts and scenarios in which data analytics might produce insight; those insights, in turn, cycle back to increase understanding of the company and its industry. This cycle creates a kind of relentless drive toward improvement and innovation that is difficult to replicate in companies not availing themselves of advanced analytics capabilities (see chart).
Practice No. 7: Transformation of the retained organization
The transition to a BPO relationship can be tough on workers in the retained organization. So it is perhaps not surprising that our research found that BPO high performers place as much importance on internal transformation as they do on transforming the outsourced processes.
Companies need to transform the retained organization that is responsible for managing the service and then clarify roles, responsibilities and requisite skills. Our survey found that half of BPO high performers have modified their retained organization to optimize the BPO operating model, compared with only 29 percent of typical performers.
“You [can] never do enough communication and meetings,” noted one procurement process manager, “explaining to [the people in the retained organization] why we are doing it, what we are doing to change, how they should report things, what are the escalation procedures. This kind of element of work is very important in the day-to-day operations of the BPO.”
Besides the change management program, three additional work streams need to be managed in parallel during the transformation:
- Aligning organizational structures and operating models: organization architecture and design, job realignment and performance management.
- Enhancing skills and capabilities of the retained workforce: training, knowledge transfer and performance support.
- Maximizing coordination and interaction between the retained and outsourced workforces: organizational culture, cross-culture awareness and workforce collaboration.
One manufacturing company completed a complex transition from existing providers to its new outsourcing provider in an aggressive, 10-month timeline. This included a six-stage knowledge transfer program that initially had individuals from the provider working alongside existing vendors.
Success was due, in large measure, to the impressive collaboration between the client and the provider’s onshore and offshore teams, which gained deep insights into the client’s business processes and systems. Client and provider have also worked hard to improve communication and intercultural awareness, leveraging virtual collaboration tools.
Practice No. 8: Technology as a business enabler
Technology is a source of innovation and advantage in high-performance BPO relationships. Savvy clients look for differentiated technology capabilities from their providers. Technology can add value through the analytics capabilities integrated into the services of a BPO provider. Finally, high-performance BPO arrangements explore how current technology trends can be applied to improve operational performance.
Technology-based tools can also create the kind of information transparency that fosters trust between client and providers. For example, Microsoft and its provider have co-developed a tool they call the Governance Workspace portal. It automates the monitoring of processes and makes sure relevant stakeholders have access to the information they need. Another tool, Controller Workspace, is a global, centralized repository for all data about close and compliance processes. The portal can be accessed by employees around the globe to get accurate, timely and reliable data. Together, these applications of technology contribute to a culture of data-driven, continuous improvement in the BPO partnership.
BPO today is changing more than just how companies operate; it’s changing the very way they are designed. In the process, the nature of what an enterprise means, what its boundaries are and how it works are being dramatically transformed. Achieving high performance in BPO is rapidly becoming essential to achieving high performance in general.
The companies our research has identified as BPO high performers are true pioneers. They can also inspire other companies to become fast followers. Achieving BPO success in the near term can create a performance advantage that might be difficult for laggards to catch up to. In other words, there is great promise identified in our high-performance BPO study—and great urgency as well.
For further reading
“What Is High Performance in BPO?”
“Deeper in the value chain,” Outlook 2011, No. 2
“The analytics advantage,” Outlook 2010, No. 3
Sidebar 1 | About the research
The Accenture High-Performance BPO research is based on multiple work streams: a quantitative survey of 263 buyer executives conducted in partnership with Everest Group; in-depth interviews with client-provider executive pairs in more than 20 organizations conducted in partnership with Professor Leslie Willcocks, founder of the Outsourcing Unit at the London School of Economics and Political Science, and Mary Lacity, a research fellow at LSE. The LSE team also drew upon its research into 26 organizations identified as high performers in collaborative innovation; and a review of 1,356 BPO and ITO findings from 254 academic research studies. Their findings are published in a series of reports available at www.accenture.com/highperformancebpo.
High performers—about 20 percent of the total companies studied—had to satisfy two criteria. First, they had to meet minimum contractual requirements of delivering consistent and predictable results at contracted service levels. Second, they had to capture value beyond cost savings, measured in seven areas: providing flexibility for changing volumes; preparing for changing business conditions; improving the entire process; improving performance in other parts of the organization; creating additional sources of value in the future; delivering business outcomes not originally expected; and increasing top-line performance. (Back to story.)
Sidebar 2 | Microsoft: Driving effective change within a finance and accounting outsourcing program
Microsoft’s OneFinance outsourcing arrangement was energized by a dedicated change management program that helped ensure the success of the initiative’s 230 go-live events. A combined team from Microsoft and its BPO provider created global, functional and subsidiary-specific communication plans to engage with the various audiences affected by the change.
Microsoft held two-day, face-to-face meetings with subsidiary controllers to educate key stakeholders. According to an executive from the provider responsible for the program, “We collectively made sure people bought into the change. That made a big difference.”
Local leaders were assigned the responsibility of client readiness, signaling to the subsidiary that change was “close to home.” Assigning subsidiary leaders to the transition team gave subsidiaries confidence that one of their own from the region was providing input and direction to the solution. Noted the provider executive, “Microsoft committed their best people to make the outsourcing program a success. They put in as many hours as we did to get this right.” (Back to story.)
Sidebar 3 | BPO analytics in action
A global manufacturer in the aerospace and defense industry with spare-parts distribution centers on four continents was experiencing poor customer order fill rates. Lacking sufficient in-house analytic tools and capabilities, the company sought to expand the scope of work with its existing service provider. The provider deployed its proprietary scientific service parts management tool to improve inventory modeling and to calculate optimum inventory targets. It then standardized processes for measuring and reporting on key performance indicators and automated some parts-ordering processes.
Armed with better data, the provider was able to perform root-cause analysis on the non-fulfillment of customer orders. As a result of the analytics, it discovered that the delays were caused by multiple process issues, including missing parts and incorrect fulfillment by distribution centers. It then analyzed parts availability versus order fill rates and provided insight into the gaps. The service provider measured, reported and acted on the new KPIs.
Within eight months, the provider helped the client improve the customer order fill rates for new parts from 60 percent to 85 percent and the turnaround time for delivering parts to grounded aircraft from 21 hours to 17 hours.
Sidebar 4 | Redefining business objectives in a long-term BPO relationship
The value of revisiting the business objectives of a BPO relationship over time can be seen in work that one company and its BPO provider have engaged in over the course of a long-term relationship.
This pioneering work began as a major finance and accounting outsourcing deal, then shifted to an industry shared services model, then extended into other regions of the company—all while focusing on continuous cost reduction and increasingly on improvements in F&A outcomes. These improvements included faster closing globally, more efficient procure-to-pay and reducing costs by millions of dollars while gaining better business outcomes, better cash use and tighter debt/credit control.
Over the course of the outsourcing relationship, there have been some periods when goals were fairly stable and other periods that have required refocusing on new business outcomes due to changes in the business environment. Since 2009, the strategic relationship has been revitalized as the company re-imagined its F&A operations within a larger global business services model. For its part, the BPO provider has stepped up to the new challenges, with both parties leveraging processes and mechanisms in the strategic relationship that had been in place but not fully optimized in the previous five years.
Throughout this history, both parties recognized and engaged with the fact that redefining business objectives required a further maturing of the outsourcing relationship.
About the author
Michael J. Salvino is group chief executive of the Accenture Business Process Outsourcing growth platform. He is based in Charlotte, North Carolina.