A candidate who recently interviewed with our firm asked me, “How much cross learning takes place in your organization?” After I answered his question and our interview concluded, I began thinking about how much cross learning among various segments of the BPO industry is affecting the way key deal components are being structured today.
Over the last 10 years, the different BPO towers – including HR outsourcing (HRO), Finance and Accounting outsourcing (FAO) and Procurement outsourcing (PO) –have evolved through dissimilar routes and models. But as the BPO market matures, buyers and providers in each of these functions are applying lessons learned from the others to bring more value to their engagements. Following are the four primary areas of learning convergence.
A componentized/phased approach is more practical and valuable. We all find it exciting to read headline news about a big-bang deal that includes end-to-end process scope across multiple geographies. But that excitement fades – except perhaps among competitors – when we read news stories about the failure of the engagement due to factors including implementation delays, buyer dissatisfaction and supplier write offs. We’ve seen, especially in HRO, that the multitude of moving parts in mega-deals make it extremely difficult for both buyers and suppliers to control and manage all the elements of the relationship, and can significantly detract from realization of short-term gains and long-term benefits. Learning from HRO’s missteps, FAO and PO engagements are increasingly leveraging a phased approach that addresses the major pain points in the immediate term and paves the path for more strategic objectives down the road. Seeing the successes of this model, HRO is increasingly following in their phased approach footsteps.
Global sourcing is an integral part of the solution. Global sourcing ensures that the delivered services most optimally meet each buyer’s cost, quality and risk requirements. The FAO market really developed utilizing this “shore-agnostic” concept as a fulcrum, and created substantial value for buyers. While solutions for the HRO and PO markets were originally rooted in an onshore-centric delivery model, they are increasingly embracing the FAO-proven global sourcing value proposition.
Technology is an important enabler of value creation. In addition to providing efficiency and productivity gains, the right set of tools and underlying technology backbone ensure that buyers realize value beyond cost savings. For example, robust forecasting and analytics tools deliver critical information to stakeholders when making R&D investment, marketing mix, employee engagement or customer retention strategy decisions. Providing buyers with access to the best-fit technology platform was an integral part of the HRO value proposition, and more and more tools are being added to the HRO solutions portfolio. PO and FAO buyers and suppliers are taking notice, recognizing the value and increasingly following suit to gain the same types of benefits.
Pricing structure that measures the output of services. An output-based pricing structure closely ties the cost of services to buyer’s business needs. With this model, buyers pay for what they consume, and suppliers are incentivized to improve and innovate in the productivity and efficiency metrics. While there is currently a predominance of input-based pricing structures within the FAO market, we see an increased appetite for and interest among FAO buyers to move to an output-based model, a norm within the HRO market.
Clearly, we have not reached a stage –and probably never will –in which a standard approach applies across all BPO segments because of their inherent distinctiveness. But the important thing is that as each of these segments evolve, they keep on learning from each other to enhance the value of outsourcing.
Back to the beginning. My answer to the candidate? Cross learning is a way of life at Everest Group!