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 Nine Shock Waves That Will Hit BPO in the Next 24 Months
Category: Business Processes Outsourcing
The biggest headline in the Business Process Outsourcing (BPO) world today is that continuing global economic changes are causing a paradigm shift in the way organizations are doing business, according to Dinanath Kholkar, Head, BFS & INS, BPO Services, Tata Consultancy Services (TCS). "Higher returns on investments, faster turnaround times and the need to reach out to emerging markets are the needs of the hour," he notes.
The outsourcing market is experiencing a radical change from the first generation lift-and-shift paradigm to today's BPO solution model, according to Richard Jeffery, managing director, Active Operations Management International (AOMi). Rahul Kanodia, CEO and vice chairman of Datamatics adds, "Today it's no longer just about cost. Buyers want you to produce value from more complex transactions. In fact, BPO providers need to scale up to the next level, which is knowledge process outsourcing (KPO) and business process management, for demonstrating value adds to their customers."
This article reveals nine of the biggest shock waves that will hit the BPO and Business Process as a Service (BPaaS) world in the next 24 months, such as:
- The move away from headcount-based contracts - BPO buyers now no longer just want to move a chunk of their back offices
- Buyers want more transparency inside the BPO process - Today's buyers are more sophisticated in what BPO should look like
- Productivity matters - There's a lot of pressure on productivity in BPO, you can also improve your costs by improving productivity through process automation
- The rise of the BPO specialist - Today companies don't want to hire a business process outsourcer that does everything
- Offshore providers are doing more work onshore - The conversation is shifting dramatically
- Regulatory pressure will continue to increase - U.S. auditors will increase their scrutiny of BPO transactions
- Social media is a new biz op for BPO providers - Social media is an increasingly relevant factor in the end-customer's decision process
- Business Process as a Service (BPaaS) is catching on - buyers like the idea of paying as they go, but they also like buying the services behind it
- Buyers are getting savvier - Which puts BPO providers under pressure
Consequential and Direct Losses in the BPO Environment
Category: Negotiations / Renegotiations Business Processes Outsourcing
In any Business Process Outsourcing (BPO) project one of the issues guaranteed to excite both provider and customer is the scope of limitations of liability. Negotiating overall caps on liability is a straightforward commercial haggle.
Negotiating overall caps on sourcing liability is a straightforward commercial haggle. The service provider aims low, usually hiding behind the "market practice" and "corporate policy" defenses. The customer reacts with a high figure, which more closely reflects the likely loss to the customer's business of serious supplier failure, but which often fails to take into account the risk/reward analysis that the provider has to perform in evaluating whether to proceed with the deal. After a process of practical risk evaluation and confidence building the parties usually arrive at a compromise figure.
Once the cap is agreed it is surprising how often the parties pay little attention to the types of loss that may be recovered. Any service provider will expect to include in the contract some form of consequential loss exclusion. However, to simply rely on or accept the presence of a boilerplate clause excluding either party's liability for "special, indirect, consequential or incidental damages", without any further detailed discussion and drafting about specific losses which would or should fall outside such exclusion, could potentially leave both parties financially exposed. In Finance and Accounting outsourcing, for example, the supplier will usually be responsible for cash management functions, accounts receivable, accounts payable and a degree of financial reporting. A failure or delay by the provider could give rise to a variety of losses for the customer. An underpayment or failure to pay a third party supplier could give rise to interest charges, loss of early payment discounts, order cancellation or delay in product delivery (which in turn could give rise to production losses and possible loss of business for the customer).
A failure to collect receivables could give rise to financing or overdraft charges, or cash flow problems for the customer. Late provision of financial reports could affect the customer's ability to submit statutory accounts or tax returns with the consequent risk of fines or interest charges. Do these losses fall within or outside consequential loss exclusion?
How to Implement the Results of a Benchmark
Category: Benchmarking IT Infrastructure & Applications Outsourcing
A benchmark can seem like an easy answer to improving the price performance of your outsourced operations. By finding out the market price of your services, you should be able to simply change your pricing to reflect the market, right? Wrong!
A sourcing benchmark needs to investigate the causes of any price differences to market, rather than just show the price difference itself. Without an analysis of causes, it is nearly impossible to make any changes to the price of your services because there could be multiple issues at stake. Will the provider agree to the change? What will that change do to the pricing mechanism? How will the price change impact the service? What effects will it have on the client/provider relationship?
To be effective in these circumstances, a sourcing benchmark needs to uncover the drivers of any price difference, such as volume changes, asset refresh rates, residual transformation charges, etc. These sourcing price drivers will determine the ability of either party to derive price benefits from the agreement.
This article describes how considering sourcing price drivers is essential to finding the best way to implement your sourcing benchmark results.
Are You Ready for Outsourcing?
Category: Strategy & Business Case IT Infrastructure & Applications Outsourcing
Is your organization ready for outsourcing? It's an important question, and one that too many executives fail to consider.
Oftentimes, an organization makes a decision to outsource and leaps straight into the RFP process without looking back. A variety of independent research studies have put the percentage of outsourcing deals that fail somewhere between 50 to 75%. A well thought through process should focus on a comprehensive evaluation of the full range of sourcing options available, rather than simply churning out standard RFPs focused solely on reducing vendor pricing against cost points that may or may not have relevance to the success of the business or the vendor service delivery.
Conducting a thorough and deliberative feasibility and strategy phase before developing the RFP will help you avoid becoming one of the aforementioned statistics by (A) determining whether you should be outsourcing the function; (B) if so, how much of it; and (C) where the work should be done. This tenet holds true in all situations, but is especially important for complex, global organizations attempting to restructure multiple functions and processes.
Make no mistake about it: outsourcing is a risky proposition. Hopefully, the sourcing advisor you select will do their best to anticipate, define, monitor, and mitigate the risks involved - but you should accept that there are risks. Therefore, before knowingly taking the risk, it is important to understand whether it has a chance of paying off.
Most organizations perceive that much of the work required to create a sourcing strategy has been conducted under other initiatives, and that gathering the results of these "one-off" efforts can serve as a significant process accelerator. It is our experience that most such work has been done without a common understanding of the structure, content, or tools necessary for developing a total sourcing strategy.
This article discusses why a thorough assessment of an organization's current state (functions, processes, baseline costs, etc.), is essential to revealing the sourcing options available and the strategies to be considered for your organization.
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