Why is Total Cost of Process key to the future of BPO?
BPO presents organisations with a possible way to reduce costs, scale business activity, increase service quality, access hard-to-find skills and talent, and acquire best-of-breed processes and technology for front, middle and back offices. But usually organiations do not know the true total cost of their processes – the cost to the business or being less than optimal at the activity and the actual day-to-day running cost of the process.
In 2013 the success of BPO is directly proportional to the style of involvement of the organisation buying BPO. The correct style is to be focussed and vigilant about the client organisation’s inputs and the outputs of the process activity as this is the key to a successful deal. How the provider delivers the work will differ by process type and the type of BPO but ultimately within a set of guidelines the BPO provider should have delivery-style discretion.
BPO is typically acquired to support the existing overly siloed organisational structure. Too often BPO has failed to be commissioned to focus on the overall organisation’s success. For example, many call centre deals do not include the impact of/on the web channel and how this could be leveraged to reduce calls. A further example is that organisations contract for numbers of people to process invoices or even numbers of invoices processed, but fail to contract for reducing the actual number of invoices – either by rationalising suppliers or by using electronic invoicing. This lack of focus on outcomes and actually improving business processes leads to deals where no “step changes”, that is no major change, is made – sometimes characterised as “lift, shift and forget!”. Gartner recommends quarterly governance meetings which focus on whether step changes are possible and these meetings need to have the organisation’s IT specialists and business specialists debating the pros and cons of changes, as it is often rigidity and lack of investment in IT that stalls major process changes.
In future organisations must take a holistic view of the total cost of their processes. This will include the actual efficiency costs of the people, applications and infrastructure supporting the process and the effectiveness costs of the process. That is the cost of being less than optimum at the process, for example, paying for duplicate invoices, double paying or not paying employees, taking too long to close the books. These costs are mostly not understood by organisations – but cutting them can be the real prize of re-engineering the process with or without a BPO provider. The advantage of using the optimum BPO provider with the right levels of experience is that they have delivered these processes before and can if used correctly get an organisation to have improved, modernised, better processes faster than an organisation doing these alone – and often delivered back at a cheaper rate. Hence delivering efficiency and effectiveness – but in order to benefit a client organisation must know its starting metrics… otherwise the business will frequently claim it was better before outsourcing!
About the Author
Cathy Tornbohm is VP BPO Research at Gartner.