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What does innovation mean in BPO?

What does innovation mean in BPO?
  • On January 3, 2014

Innovation, in particular its application in outsourcing and the delivery of IT services, is one of those buzz words that you hear being bandied about with increasing frequency. The “I word” has progressed in recent years from being commonly included in vendor marketing to commonly being included in contracts (the “innovation clause”). Nevertheless, it remains one of those terms that defy a definition in the specific context of a BPO engagement. At NelsonHall, we also note that while service providers often emphasise how they are bringing innovation in an engagement, we seldom hear about this from their clients. So is there any innovation beyond marketing spiel?

Well no. There are ways in which BPO service providers are applying “innovation” within their engagements that are different from the various increasingly well-established levers that vendors apply in transformational BPO engagements. With some trepidation, I shall outline a few. Of course, this means that I cannot skirt around clarifying what I mean in this article by “innovation” in BPO – though I would not dare to venture into the world of semantics to attempt a definition. I imagine the readers of this article would come up with a very broad set of answers if asked to define “innovation in BPO” and to distinguish between “transformation” and “innovation” in this context. I will go only so far as to attempt a general distinction.

Transformation Programs: the desired destination is known and mapped out

Transformation programs are now fairly well established in BPO. They have attributes such as target operating models, with roadmaps for process standardisation and they typically involve applying multiple levers to achieve process improvement and cost take out. These levers are usually based on proven best practices such as Six Sigma/LEAN projects; KAIZEN; value stream mapping; process benchmarking; process enabling tools; process analytics; sub-process disaggregation in support of global delivery (to name but a few). Increasingly in BPO, there is a clear focus on achieving measurable business value for the client, and this is the key driver in transformation programs.

Innovation: may take you into unknown territories

By my understanding, “innovation” can be a lever in helping deliver transformation. It includes the introduction of ideas and practices – for example, how things are done in other disciplines or other sectors – or technologies that might not have not been applied before in this particular manner. Innovative initiatives can be creative, whereas transformational ones should be based on proven best practice.

Another key difference with transformation is that the outcome of an innovative initiative may not be known in advance.

Before giving examples of “innovation in practice in BPO, let’s consider “Innovation Boards”, a practice that is by no means new: vendors and clients have been conducting quarterly, six-monthly, or annual innovation reviews for many years now. To an extent they provide the service provider with a “license-to-sell” innovation to the client. Typical areas of focus of these meetings are trends in the client’s sector and relevant technology updates. But the effectiveness of innovation boards is variable; at their worst they can deteriorate to fulfilling compliance with contract requirements around innovation

Innovation boards are most valuable when attended by C-level execs on both sides, and when the client brings to the discussion their current business challenges and pain-points, also their strategic and business objectives, with a vision of where they would like to see themselves in future. The vendor brings to the table an outside view of future visions for the client’s industry, of how the client might get there (roadmap), and how technology and/or best practices in other sectors, and their BPO services can support the client. This is the sign of a partnership mentality with a clear focus on the future of the client’s business. Where we see clients expressing real appreciation of the value of innovation boards, the service provider is very often relatively small (sub $1 billion), has clear BPO specialisations and a few sizeable clients. Hence their focus on these meetings is very sharp. Large IT services/BPO vendors that have strong industry-specific credentials and consulting capabilities are also at a clear advantage in innovation boards.

So how can one identify “innovation in practice” in BPO?

Innovation is evident when a vendor introduces new ideas (about, for example, how things are done, including from other disciplines) and/or technology. There is something more creative in what is being done, or it has seldom been done before in this context. Thus today’s innovation may become tomorrow’s best practice.

One example where this will happen is outcome-based pricing, which in spite of vendor hype, is still very uncommon in BPO, except for activities such as collections and in new revenue generating scenarios. Outcome-based is often confused with output-based pricing, which is at last gaining momentum in some areas of BPO.

The UK central government is, perhaps surprisingly to some, at the forefront of outcome-based pricing in BPO, in activities in welfare to workforce programs and disability screening services. In April 2011 the UK government selected 18 private, public and voluntary organisations to provide services to support the Work Program, with payment based on results (the number of people placed in work still in place later on). A key feature of these contracts was that providers were free to design their own services to deliver policy objectives – the government did not prescribe their approach. And the costs to the DWP were to be met through savings generated from the legacy £148bn benefits payments. These are potentially, huge BPO contracts: the total value was projected in 2011 at £3–5 billion over seven years, based on the number of people expected to go through the service.

But a big issue with outcome-based pricing is in the level of risk passed over to suppliers, and in this case it is huge. Success rates of outsourced welfare-to-work programs have historically been very low. Outcome-based pricing works best in a partnership environment, and worst when the client is throwing a problem over the fence…

Robotic Automation: for some forms of BPO this may be the next big thing

Our take is it still very early days, but over the next few years robotic automaton is likely to be a real differentiator for BPO vendors in some process areas, particularly those that are high volume and rules-based.

For vendors, robotic automation offers the promise of breaking the link between FTEs and volume (revenue) growth that they are so very keen to achieve. Where applied, it goes beyond labour arbitrage in reducing the cost to serve that – though the reality is that for the foreseeable future, labour arbitrage will remain to be by far the largest cost lever for vendors to apply.

This article is not the place for a primer on robotic automation, but some of the potential benefits are worth listing. Robotic automation can take out some mundane repetitive tasks within processes, leading in theory to better employee motivation and potentially reduced attrition), while doing so with better accuracy. It also provides real scalability. Productivity is improved at the task level without the need for radical process reengineering or changes to legacy systems of record.

Accuracy is assured

An outcome of robotic automation is the delivery of analytics at the sub-process level that can provide insights for process improvement.

To date, we are aware of a few instances where vendors, for example HP Enterprise Services and IBM, have used their own technology to build a basic automation solution that addressed a specific pressing client problem that also avoided major operational change such as process modification or putting in additional resources.

However, one relatively small BPO vendor has just secured an F&A contract that will leverage robotic automation technology from the UK’s own Blue Prism; this has helped the vendor go in at a price point that was clearly very compelling to the large multi-national client. This will be the first BPO contract using Blue Prism and may be a game-changer. Some BPO vendors are beginning to work on identifying common sub-processes where automation would be relevant for them. And expect to see a rise in consultancies offering advisory services around robotic automation.

Applying other disciplines, e.g. to improve accuracy and speed in judgement-based tasks

Several years ago, HCL Technologies combined theories about pattern recognition/chunks of knowledge (Herman Simon, 1980s) and positioning /branding (Jack Trout) and applied them to inform coaching on defective judgements about auto claim payments. What was then innovative has become best practice at HCL. BPO delivery personnel have less to think about when making informed judgements on patterns that have been mentally ingrained. This has led to much faster and more accurate decision-making.

If we look at one form of BPO, HR, the use of gamification in learning services is relatively well established. But social learning, which offers some significant benefits to learners, perhaps surprisingly, is not. Some BPO vendors, for example RPS, Xerox, IBM and Accenture, are investing in social learning and collaboration. Social learning, which is how many younger employees want to learn, offers many benefits, including speed to competence, and better employee engagement while being more cost-effective than instructor-led training. It also fosters innovation. Expect to see social learning becoming a mainstream feature in the delivery of learning services BPO.

If we turn to analytics (another buzz word), process analytics is becoming a common feature in BPO, in helping service providers improve their operational effectiveness. Arguably, what is more innovative today (as opposed to best practice), is the use by vendors of predictive analytics, to help them obtain insights about their clients’ customers, suppliers, and employees, and their likely future behaviours. Today’s innovation is tomorrow’s best practice, and the use of predictive analytics within different areas of BPO is likely to become mainstream within a few years.

You may not agree that the examples I have given illustrate innovation in BPO; you may have many other suggestions. But in the end the reality is that innovation (in BPO) is “in the eye of the beholder”.

This column was written by Rachael Stormonth, Senior VP, NelsonHall, and was first published in Outsource magazine Issue #34 Winter 2013.

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