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The must-haves and differentiators for service providers according to Multi-process HR Outsourcing (MPHRO) buyers
Although service providers have developed extensive digital capabilities, most enterprises with a digital-first mandate are not satisfied with their service provider’s performance
Compares IT service provider performance on specific services with the perceived importance to enterprises.
For large transformation projects, the services world has locked itself into a world permeated with high dead deal costs, wasted solutioning, and long transitions of nine to 18 months where the client sees low value and tries to get the provider to absorb the cost as well as expensive consultants and legal fees for the client on top of distracting management. And in the end, we have a lot of unhappy clients. This needs to change.
Remember John Lennon’s song: “Imagine?” Imagine a world in which we compress these cycles and we don’t have high transition costs. As Lennon wrote, you may say that I’m a dreamer, but I’m not the only one. Over the years there have been a lot of experiments in how to shorten the sales cycle. But largely they were frustrating. Even when you rush through the process, it still tends to straighten back out to the nine-plus months’ duration because it takes time for the enterprise to understand and absorb the journey and get to decisions. Others have experimented with sole sourcing, but it doesn’t really shorten the sales cycle and has a lot of limitations from the client side in terms of leaving them wondering whether they got a market deal, despite benchmarks and pricing assurance.
From studying this over the years, I’ve come to believe that as long as providers and clients define the goal in terms of procurement, they’re likely to be disappointed. The process and price become too influential and the provider loses sight of the client’s real goal. So they end up with incremental gains but not breakthrough, transformation gains.
Let’s think about these deals as transformation journeys instead of procurements. Just imagine ….
After all, the client doesn’t want the outcome to be a contract; the outcome needs to be a transformed state of the client’s process or capability. So we need to reconceive the origination of these transformation deals along this line.
We need to first focus on the benefits, defining the game-changing benefits the enterprise wants to build. Typically those benefits in today’s world have something to do with efficiency gains, cost savings, better aligning the process to the requirements of the business users, and improving the speed and agility to be responsive to the business needs.
If service providers stop thinking about the procurement process and think from the consumer’s point of view, it works great. The client gets what it wants and needs, friction is reduced, it’s clear what the client needs to reach its goal, and the provider gets to pull the client on the journey rather than pushing and selling to the client.
After defining the business outcome goal from the client’s perspective, the next step in developing a solution would be to develop breakthrough metrics to drive the change through the client’s organization. I’ll discuss this in my next blog post.
The parties build the journey together, and the client sees the solutioning as value rather than a sales exercise to be viewed with skepticism. In effect, this method turns the procurement process on its head and eliminates the sales cycle. The provider get paid to assist the client in solutioning rather than for building a complete construct to be compared to competitors’ solutions and examined at every level.
The result is a better outcome, focused not on contractual terms but on results for the client. And this process goes a long way to eliminate the nettlesome issues around the procurement transition phase because transition is accomplished as the transformation journey progresses. Just imagine.
In John Lennon’s words, I hope someday you’ll join us, and the world will be as one.
Used to be that if you delivered against the SLAs in your CCO engagements service providers could count on a pretty stable book of business. The formula was to deliver consistently solid service and continue to drive a compelling business case for clients. In fact, adherence to SLAs was often one of the top criteria against which the buyers we spoke to would evaluate the success of their CCO engagement. But times are changing. Everest Group’s research shows that delivering on SLAs is now table stakes. And despite the fact that CCO providers typically do a solid job delivering on SLAs, over the past 2-3 years the rate of contract terminations has edged up from 50% in 2012 to 60% in 2014. What’s driving this ongoing shift?
There’s more to the story than meets the eye. While terminations are up, so too is the number of net new contracts and the scope and size of existing active contracts. In fact, total spending on CCO services continues to grow at 5% CAGR. While this may seem slow compared to other services markets, you have to keep in mind that the CCO market is huge at US$75 billion in annual revenues, so the absolute spending growth is not insignificant.
A key point here is that existing contracts are now contributing the larger share of net new spending in the CCO market, with average contract sizes growing from US$32 million in 2009-2011, to US$51 million in 2014. This growth in spending tends to come from a notable expansion in process scope. Not only have we seen growth in the total number of processes clients are asking their CCO providers to assume on their behalf, a bulk of the incremental processes fall into the category of value-added services. Growing from an aggregated inclusion rate of 42% to 61%, this could involve processes such as channel management, customer retention, analytics, or performance management.
At the same time, major CCO buyers tell Everest Group they are increasingly looking for opportunities to develop deeper working relationships with fewer CCO service providers – essentially consolidating their portfolio of work with fewer strategic partners. The expectation of these relationships is that CCO providers will meet a larger set of client requirements through a broader range of capabilities, including process scope, geographic coverage, and industry specialization. We have already seen CCO providers responding to this shift in buyer expectations as evidenced by the number of acquisitions taking place in the market, targeting both growth in scale/scope, but also in terms of vertical industry and technology capabilities.
For service providers to hold onto their client relationships they must continue innovating their approach to client relationships, the offerings in their portfolios, and their willingness to broaden the definition of customer care services.
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