Maximizing the Benefit from Long-Term BPO

By Peter Ackerson and AJ Warner Business Process Outsourcing (BPO) is a growth business, with Human Resources one of the hottest areas of interest. While single process outsourcing hay been a mainstay of HR for years, the growth of end-to-end outsourcing where virtually all processes, including technology are outsourced is a new phenomenon.

While much is written on determining the value of such arrangements, not enough has been written on the management of such important relationships. This is a long-term issue, in that implementations can take six to 16 months with contracts lengths spanning an average seven to 10 years.

Both the implementation and operations phases are critical to success, HR outsourcing touches everyone within the organization - employees, HR, and senior executives. There is no room for finger pointing or exhaustive uses of the contract's language to assign blame should problems occur. during the BPO relationship. It is far better to create a mutually beneficial relationship through the use of appropriate contract language and then live within that relationship. We'd like to discuss some basic principles around the client-provider contract to help you maximize benefits and minimize disruptions throughout your BPO relationship.

Six Principles for a Successful BPO Project and Relationship

1. Be a partner, not an adversary.
2. Flexibility is a requirement.
3. AS1 parties must win from the contract.
4. Outsourcing changes roles.
5. Management tools strengthen the partnership.
6. Change will occur.

1 Be a partner, not an adversary

- Since the client-provider relationship is defined in the contract, get it right from the start with a solid framework outlining mutual responsibilities. Attempting to go back later and rewrite a poor contract once the BPO arrangement is in place is not an option

- A successful contract needs language to encourage and reinforce a mutually beneficial long-term relationship for both parties; one-sided contracts may appear good at the beginning, but over the life of the contract they create unhappy clients or providers. If the provider cannot make money, they are unlikely to invest in process changes required over these lengthy deals.

- Both parties need to approach the relationship from the viewpoint of a partnership

2 Flexibility is a requirement; unforeseen changes will occur

- An effective contract will guide the relationship through changes, such as client management and strategy changes that will occur during the seven to 10 years of the contract.

- A flexible process allows for contract adjustments when needed to help the client and provider to overcome issues and obstacles - processes put in place in the initial agreement may no longer fit the needs of either the client or provider in later contract years.

- Potential issues such as mergers and/or acquisitions, exponential growth, new technologies, etc., need clear contract language included in the initial agreement to avoid forcing the partnership to renegotiate the total contract.

3 All parties must win from the contract; be creative with gain-sharing and other tools

- Gain-sharing works best when both the client and provider are willing to make policy changes to enable improved results.

- Clients need incentives to make policy changes. For example, too many pay frequencies drive administrative expense. A well drafted business case matched with a gain-sharing agreement whore the client will share some in the reduced operating expense gives the client a reason to consolidate pay frequencies.

- Identify ways, such as banding, to address expected and forecasted volume movement in the original contract to minimize change course of the contract such structures often work better than complex models that prove difficult to implement and require time to work (just look at our current legal system), Design the governance structure to involve top executives throughout the relationship and orders. Seasonal staffing adjustments should be part of the defined bands.

4 Outsourcing changes roles, it does not necessarily eliminate them

- Roles change from managing people to managing relationships.

- There may be enhanced roles with the new provider far employees from the client; this is their core business, ensure your staff displays the individual skills and traits developed during their tenure-this will assist them in securing the best positions in the new structure.

- Use your best staff in the changeover and look for ways to reward them. Understand this change can be traumatic,

5 Use management tools to strengthen the partnership, not for punishment

- Structure service level agreements (SLAs) to measure the key objectives of the contract that maximize the value of the BPO arrangement.

* Involve operational staff to develop SLAs that reflect business needs,
and don't allow them to become punitive in nature. Don't over-measure;
focus on leading indicators.

* Craft the contract to allow for periodic renegotiation of SLA's to
acknowledge changing conditions and strategies.

- Put in place a simple, but effective governance structure. Over the thereby make certain executive support continues for the project and reinforces the overreaching BPO strategy.

* Schedule regular meetings at all levels between the client, and the BPO
provider.

- Develop an escalation process to handle problems quickly and effectively.

* Multiple layers cause unnecessary delays and miscommunications.

* Avoid processes that allow simple issues to tuna into problems, which
may affect the entire client-provider relationship.

6 Changes will inevitably occur; take advantage of new opportunities

- Use change management techniques with all involved parties employees, human resource professionals, and senior management. Use outside resources if necessary. This change can be traumatic or "no big deal;'' your management of the situation is important for your own IT employees and the employee population as a whole.

- Begin change workshops from the announcement date and continue for at least the fast year of operation.

- Make the BPO provider's staff feel more a part of the client organization; involve them in appropriate planning meetings; hand out the logo shuts; be creative in your approach.

- Encourage programs to solicit recommendations for improving processes from provider and client staff throughout the BPO arrangement; reward staff that make valuable contributions.

HR BPO is not a fad; it is a growth industry. The role of HRIT staff and leadership is crucial to successful leadership. Advise senior management not just on the technical issues of BPO implementation, but also on the trends and cultural issues that need to he addressed in the BPO agreement. Your view, while at times "behind the screen," is vital to the success of your organization.