Firms should evaluate a good outsourced process on several dimensions and then tailor the deal accordingly.
According to SAP INFO Options, four out of five business process outsourcing (BPO) agreements inked today will likely need to be renegotiated within two years. Additionally, 20% of such contracts may collapse. When BPO measures fail, companies and their particular outsourcing providers pay the value in lost period and money. Furthermore, customer satisfaction in addition to competitiveness can decline as companies fail to own efficiencies and cost savings promised by BPO.
Yet these scenarios can be avoided if organizations carefully analyze the type of processes they are outsourcing and establish the best contractual relationship with their vendors. The correct fit between processes in addition to BPO relationship governance can improve the odds that the actual arrangement will produce the competitive advantages that outsourcing assures.
The researchers found patterns inside data suggesting that BPO arrangements have an improved chance of generating the desired benefits if organizations evaluate an outsourced process on several dimensions and then tailor the contract to install those dimensions. Based on the authors, there are three relevant process measurements:
Complexity: The extent that people performing the process must adopt distinct methods or procedures to accomplish their work and the degree to which they lack immediate, established answers to process problems.
Freedom: The degree to which a procedure is assessed and changed without affecting other processes inside the organization.
Strategic magnitude: The extent that the process affords a company competitive advantages.
Any process, the authors contend, can be a candidate for BPO. To raise the odds of any successful outsourcing agreement, however, the approach to relationship governance should reflect the type of process under consideration. That is, both should be aligned — with all the BPO governance structure matched to the nature of the actual outsourced process.
The authors describe a couple configurations as particularly aligned. In the first, the outsourced process is seen as low complexity, substantial independence, and minimal strategic importance. To outsource such a process, the authors declare that a company may wish to establish a BPO governance product that included a good arm’s-length contract that has a best-of-breed specialty company, in which anyone firm has very little operational involvement inside management of the actual outsourced process.
Inside the second well-aligned setup, the outsourced process is seen as highly complex, with minimal independence, and substantial strategic importance. The authors declare that an effective BPO governance model would include a partnership arrangement with all of the vendors. This would contain joint ownership on the outsourced process; high numbers of information exchange; and an increased exposure of coordination tasks (strategic dialogues concerning continuous improvements, deals of ideas in addition to plans, and recurrent communication and interaction).
As businesses increasingly look to outsourcing to provide competitive advantages, choosing the governance model that aligns with all the unique characteristics of outsourced process has grown to be more important. By understanding the kinds of governance types available and tailoring the crooks to the relative difficulty, independence and strategic significance about an outsourced process, executives can improve odds of sustaining a very good BPO relationship.