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Outsource magazine: thought-leadership and outsourcing strategy | September 20, 2017

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The “I” Word: How can you buy Scotch mist?

The “I” Word: How can you buy Scotch mist?
Outsource Magazine

Even if all the SLAs are hit and the client is happy with the supplier’s work, “we didn’t get any innovation from our BPO supplier”. Innovation is still a frequent disappointment when we interview clients about satisfaction with their BPO deals. It is one of the hardest areas to find a good level of satisfaction with.

This is because it is very hard to contract for some undefined innovative improvements to be made, especially if the contract is written to buy just people (also known as full-time equivalents or FTEs) with no pre-defined ways in which “new to the organisation” technology can be approved to work with the existing technology infrastructure. These contracting constraints and lack of ways of easily adding new technologies to the process outsource operation are huge challenges to overcome. So whilst it is very hard to plan in advance of a five- or seven-year deal that you don’t want to be stuck with old, outdated ways of doing the process, using the word “innovation” in the contract, without defining it, will not help you get innovation.

It is a truth in most BPO activities that, before the activity is outsourced, process has rarely previously been measured, monitored and managed in a way that allows an organisation to know whether the process is performed better once it is outsourced. Now organisations are getting better at baselining activities before they outsource, or collecting this data on process efficiency and process effectiveness in the very early days of process outsourcing – and this is an essential step to knowing where the shortfalls are in the process.

These shortfalls in the process performance, or the opportunity cost of getting better at the process, are the newer places to look for supporting business cases to figure out how to improve the process.  Unfortunately, it might surprise you to learn that some organisations think when they outsource a process that it will improve by osmosis.  In other words, it is surprisingly common to think that simply by contracting for BPO the process will dramatically improve. The improvement  depends on how you contract for the service, what flexibility was built in to improve the process and what internal changes  your organisation is also internally “contracted” to make, either in how employees are personally incentivised to make changes, what internal process changes need to be made or what IT applications changes need to be made. For real, measurable, positive change to happen to how processes are modernised to support organisations in 2014 and for the next five to seven years, you need to baseline processes before you outsource and understand “what good looks like” in that process today – and see how far you are from this, and how much do you want to invest in improving the process: what is the opportunity cost of being better or staying the same in this process.

Now of course there will be new technology that we haven’t imagined that could dramatically improve the effectiveness and efficiency of the process. But using the word innovation as a “catch all” with no or limited evaluation metrics is what is leading to the frequent disappointment with the addition of innovation to the process.  How do you evaluate if you need automation, how do you know what good looks like? Is it moving from 50 FTEs to 48 FTEs or moving from 50 to two FTEs. Is it a Turn-Around-Time of five days, five hours, five minutes or five seconds?  What is the overall business return worth to your organisation?

Now to me the word innovation somehow implies something that is brand new, a new invention – but in most dictionaries it simply means something novel or new to you. See a few dictionary definitions:

  • “The action of innovating; the introduction of novelties; the alteration of what is established by the introduction of new elements or forms.” Oxford English Dictionary
  • “Something new which is introduced, eg a new idea or method.” Chambers
  • “The introduction of something new.” Merriam-Webster

However, when outsourcing for business process you need to decide how to contract for the novel. Is it NEW to you or NEW to the planet? I will suggest that it is incredibly – yes INCREDIBLY – rare, especially in BPO for administrative purposes that an organisation actually wants some brand new technologies invented especially for them. Most likely an organisation wants some technology that is proven and will offer new benefits  to that organisation.

When an organisation is trying to buy ITO, the word innovation in a contract means “not being left with last year’s old kit in ITO service” and in BPO it usually is really not defined well at all.

Ideas to move from disappointment with the lack of innovation to a strategy for evaluating what innovative improvements are needed, which include:

  • Taking a holistic view of impact of the process on an organisation – whether it is the customer journey, or the source-to-pay cycle or order-to-cash or human resources services, do you have a “full” view of the end-to-end activities, all the inputs, all the outputs across the organisation?
  • Getting collaborative insight across your organisation from IT, Procurement, Digital Business project teams and a holistic business process improvement committee.
    • Redesigning the work process in an organisation and streamlining activities with no technology additions or changes OR redesigning supported by minor or major systems changes.  These are split in two:
      1. Minor changes with a major impact is replacing people (FTEs) with new technologies which help automate keying in and manipulating data in systems, currently being described by Gartner as “phantom robotics”.
      2. Adding new technologies to improve workflow, process management or supplement an ERP.

But these decisions need to include people from “the business and IT” and need budget to integrate into the existing IT architecture. A current dilemma in organisations is “what is it worth your organization to invest in technology improvements?”

Should you:

  • use the systems the BPO provider is suggesting which will likely optimise  a process but will potentially tie an organisation to a supplier; OR
  • buy the technology outright and licence it to the BPO supplier to use – which means finding investment funds and trying to get this to the top of the IT priorities in the organisation (often harder than it sounds); OR
  • add/use the functionality to the existing core system – whether that is a core banking system, or core insurance system or an ERP landscape?

This “buyer’s dilemma” needs a strong team effort to establish if the “return on investment” of both effectiveness improvements in actual cost reduction and efficiency of process optimisation will be worth it.

Now you are no longer trying to contract for “Scotch mist”; you have a process to work with and to help evaluate the supplier before you contract with them as to whether and how they will be able to work with you, within the “constraints” or “flexibility” of the contract to bring business benefit-based improvements to the process cost and the process contribution to the organisation.

For more from our special feature on innovation, from the Summer 2014 issue of Outsource, go to the index page.


About the Author

Cathy TornbohmCathy Tornbohm is VP, BPO Research for Gartner and one of the most prominent analysts in the global outsourcing space.

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