So, your boss just got back from a management meeting and you find yourself in a situation where the directive from the Executive Team is to implement a new set of cost cutting initiatives across the enterprise. Naturally, the Executive Team wants to tackle the cost centers and decide that an outsource strategy needs to be identified. Given you are in Operations, your boss looks at you and asks that you start the research. What do you do? Where do you start? It seems apparent that you need to assess the components of your operations and start prioritizing what processes you can begin to offload to a partner. You develop a transition strategy where you start small with a pilot, and as you begin to realize the benefits of outsourcing and gain confidence, you continue to outsource more processes as your comfort level rises. Sound simple? Well, it is one thing to have the vision; it is another thing to execute on that vision. Like anything else, proper preparation will be the best tool to guarantee your success.
While there is a lot to defining an outsourcing strategy, the key components to execution are being able to assess, qualify, source, and transition to 3rd party providers. However, in all my experiences, it always seems that time-and-time again I hear the same story with companies making the leap to BPO – they don’t feel they are earning enough contract value with their partners. The largest complaint is that everything looked good on paper, but that the demonstrated contract value is not following the model. Does this sound familiar? If you are nodding at your screen, you are not alone. There are lots of smart people out there jumping into outsourcing. They assess vendors, get the security engineers and compliance officers to assist with due diligence, they make the decision to move forward, and they launch their sourcing strategy. That being said, if you ask them about their contract structure, they usually say – "yeah, we have a contract…we moved through the process quickly so we could start executing the project…we had lots of deadlines…the contract was just a formality."
Deadlines are deadlines, but a contract is a contract. The contract is by far the most important part of your preparation to achieve earned value and get the true benefit out of your sourcing relationships. While most people focus on costs (as they should), there are other key components that must be negotiated to streamline operations and make your partnership a success. Without negotiating and administering these critical relationship components, you are setting up your company to achieve lackluster results with their outsourced partnerships.
Besides the standard price structures, indemnification, and legal terms and conditions, a sound contract must contain the following key components to help ensure success. I discuss these topics in the paragraphs below.
Governance Model
Governance is a buzzword in the outsourcing industry. It seems everyone knows it is important, but everyone has a different opinion on how a governance structure must be designed. Well, I tend to agree that there is no standard governance model; however, there are several necessary components of a governance model that should be developed. When you think about it, outsourcing is only as good as the partnership that is established. It is imperative that you manage that relationship with a governance structure that keeps all business strategy and objectives in-sync. You must develop the governance model to communicate a clear plan that can be executed by all involved parties.
It is my opinion that a contract needs to provide the definition of how you intend to govern the relationship. All outsourcing contracts should have some language around steering committees, management structure, account structure, training platform, quality platform, meeting schedules, management tools, reporting, and feedback channels. As a small example of something that should be included in a contract, a Quarterly Business Review (QBR) is essential to the success of the relationship. A QBR should be performed to communicate business strategy from both the client and vendor perspective. Additionally, both the client and vendor should perform a SWOT assessment – Strengths, Weaknesses, Opportunities, and Threats.
Defining a governance model upfront will prevent a lot of headache as the relationship progresses. There is nothing worse than getting into a nasty cycle of placing blame. If you don’t understand each other, you will not enable yourself for success.
Performance Model
Performance metrics are probably the most straightforward negotiation you can have in any outsourcing contract. There needs to be a set of objective measurements that determine how successful your vendor is performing. Often times, people will resort to industry standard Service Level Agreements (SLA). However, I would encourage you not to be satisfied with anything just because it is industry standard. Industry standard doesn’t mean much to a unique business – your business. When entering contract negotiations, you need to negotiate what’s in the best interest for your company, not what the industry has come to accept. Make sure you understand what it is you are trying to achieve and why you are trying to achieve it.
As an example, an industry standard SLA for answering phones is 80:30. This means 80% of all calls are answered in 30 seconds. While this may accommodate most businesses, you need to ask yourself if this SLA fulfills your requirements. Think about answering the phone quicker if you have an elite customer base that you can’t afford to lose. Think about allowing customers to wait longer if your customers are not at risk. Remember, resources or more directly, cost, is driven by your performance metrics. You need to make sure you negotiate what is best for your company; it is about making your customers happy – both external and internal. Keep costs low and satisfaction high to ensure ultimate success.
Change Management
Change management is something that every contract needs to define because as your business grows and scales, your contract needs to evolve as well. There needs to be a process for managing these changes. Your contract should define how this process should work within the relationship. Are you empowering the relationship managers to execute change? Do the executives have to sign-off? Is there a forum to discuss change? How do you perform a change? What is the lead time to execute change or is this defined within the change request? I can go on-and-on, but I will tell you that you need to think about this process because nothing can ever be set-in-stone. You will hinder your success if you a draw a line in the sand. You need to work through change effectively, and it needs to be defined on how you will perform that function.
Security Management
If there is anything that will put your business at risk, it is the release of sensitive customer information or proprietary company data. The media loves to publish stories of outsourcing companies that have associates breaching data. You need to make sure your company never makes it to the news by defining the security policy and getting it integrated into the contract.
As an example, security should start with offshore associate background checks and drug testing. A lot of vendors may not sign-up for drug testing, but you may want to drive to get that in your contract. You never know what people may do to support a habit.
After you work through the human resource screening, you need to focus on facility access, account access, and system or data access. In general, more security is better. You should never allow cell phones, PDAs, cameras, or any other electronic device into the walls of your account. Prevent Internet access, instant messaging, enforce a clean desk policy, and disable USB drives on computers. There are so many things that can be established in your security policy; my suggestion is you poll all the key players within your organization, and ensure you cover your bases on the security front. A mistake within this category can be terrible for your career and the well being of your company.
Business Continuity and Disaster Recovery
All vendors that are being considered for partnership should be able to provide you with a successfully tested disaster recovery (DR) plan. It has been my experience that issues happen – especially in developing countries where you are planning to facilitate operations. I have seen monsoons, typhoons, hurricanes, citizen strikes, and Telco failure that all have prevented daily operations from moving forward. For that reason, it is imperative you build-in a DR strategy into your contract. While you can’t prevent natural events from happening, you can prevent significant risk to your business. My suggestion would be to inquire about DR plans, and work a clause into your contract that provides your business with the schedule and results for quarterly DR tests. Your vendor should have generators, UPS backups, and other contingency plans in the event an emergency response is required.
In addition to vendor DR, you need to think about your own DR. Do you have a multi-sourced environment that can take on the workload from another center? Do you have captive centers that you can failover to in the event of an emergency? How do you queue calls or transactions to easily distribute if needed? These are all things to take into account when preparing to outsource. The better prepared your vendor is for DR, the better prepared you will be for DR.
Culture
Company culture is different for everyone. However, one commonality that people have within an organization is that they want to feel a sense of belonging. Belonging is one of the easiest and least expensive things that you can provide to your relationship where the reward is an intangible measure of gain. Making people feel the pride of working for your organization will more than likely lower attrition and turnover because you establish a level of trust with your people. Obviously this is a personal opinion, but in my experience, it has been consistently true.
You can quickly address culture by setting aside a fixed budget with your vendors to provide company events, clothing, tchotchkes, and other incentives. Additionally, you should have your staff managing the relationships take the time and visit the facility to show that you care about what your associates do for the business. Every time you get face-to-face with your associates, the better morale will be on the account. It is essential you put in the effort to make your folks happy. The more you do, the better the relationship. The better the relationship, the more productive, efficient, and cost-positive your account will be for the long-run.
Conclusion
We have discussed a variety of topics in this article regarding the importance of preparing the right contract with the right BPO provider. To be successful, you need to setup a contract to ensure there is a clear communication path that is designed to strengthen the relationship between the vendor and client. It is imperative that you earn contract value by negotiating and planning the correct relationship management structure upfront so there is no contention after transition. Outsourcing is all about the strength of a relationship, and you need to do everything in your power to ensure success by negotiating a sound contract that defines how you are going to govern that relationship.
More later.
Brad Rubin
