Suppliers: What is wrong with the BPO procurement process?

We in Alsbridge believe in the power of Business Process Outsourcing. Members of our team could (if they were so-inclined) claim to be founders of the industry. Of course, we do not believe that BPO is "a cure for all ills"; indeed, we are as happy to work with clients in an in-house environment as we are in an outsourced one. Nevertheless, we have no doubt that in the right business circumstances BPO can generate significant business benefits. And, as business develops, economic well-being increases and, ultimately, people's lives are enriched.

However, we also recognize that the industry is still immature and believe there are areas in which urgent improvement is required. All those in and around the industry are aware of the stories about deals having gone bad, and even when we take account of a certain amount of sensationalizing by parties with vested interests, we know there is often a significant slice of underlying truth.

One area Alsbridge is particularly concerned about - and have therefore committed ourselves to changing - is what some call the "procurement" phase of a deal. In this phase, the solution is determined, the transition plan is constructed, the commercial model is shaped and the relationship is built. Clearly, mistakes made in this phase will have profound effects later in the deal lifecycle.

Recently, our friends on both the client and supplier sides of the industry have been telling us that they are not happy with how this phase is managed. We agree. We feel that the tight procurement processes currently in-vogue are suppressing the development of partnering relationships and stifling innovation in solution design and deal-shaping. In fact, we would prefer not to describe the phase as "procurement" as, to an extent this implies buying a pre-specified, even "commodity" service - something that BPO is patently not.

Because we care about the industry, and because, as "intermediaries", Alsbridge is in an advantageous position to facilitate change, we felt that it was time we took a lead. This is why we took the rather unusual step of inviting ten representatives from different BPO suppliers to participate in an informal round-table event under "Chatham House rules" in order to identify issues with the BPO "procurement" process and generate ideas for solutions. We asked two questions:

What is wrong - from A to Z?
What should be done about it? Your top 5 recommendations.
 
The key findings of our "supply-side" session are summarized below.

Session 1: What is wrong? From A to Z

1. Arms-length supplier/client relationships in the engagement and solution-design phases hinder development of the right solution, right deal, and right relationship
2. "Believability" is threatened by false promises on part of suppliers and unrealistic demands on part of clients and advisors
3. Clients take too long to decide whether or not to outsource - wasted effort all round
4. Deals can be mis-sold due to pushy salesmen and naïve buyers
5. Everything is financially driven, but cost is not the only source of value
6. Far too long sales process
7. Groan - the procurement process is far too onerous
8. HRO market is not growing fast enough - is HR community ready to embrace idea that change may be acceptable if it is for benefit of business? Or is it "no" at any cost?
9. Inexperienced people acting as advisors - no real BPO experience
10. Jimmy's gone! Top people leaving the industry because work is too adversarial and repetitive
11. Killer! Time kills deals because the process is too cumbersome and a lack of decision-making
12. Low-balling by certain suppliers (names withheld)
13. Margin - can't make a decent one!
14. No common vocabulary or a tool-set available to allow buyers to buy - e.g. business case development, etc.
15. Outsourcing has a bad name - too many parties trying to scare-monger
16. Price, price, price - what about service, fit with strategic goals, risk management and so forth? Buying BPO is not like buying a commodity!
17. Quick fixes sought at expense of longer term business transformation benefits
18. Requirements, not solutions, are what should be presented to suppliers. Why do advisors think they can develop solution ideas better than the people who do it every day?
19. Suppliers do not meet client expectations: contracting versus delivering. The sales pitch does not match real capability
20. Too much time spent negotiating silly legal clauses that always end up the same anyway
21. Unrealistic client expectations exacerbated by advisors
22. Very long and complicated sales process
23. Why is all the benefits-realization focused on the outsourced piece? What about the retained elements? Solution design and deal shaping are not holistic enough
24. Extremely difficult to engage in proper conversation with the buyer in some processes
25. Yields from BPO (i.e., ROI) are often not tracked well enough
26. ZZZ…Just the same old commodity solution - engagement process run by advisors rules out innovation and creativity from suppliers

Session 2: What should be done about it? Your top 5 recommendations

1. Improve decision-making and communication thereof
Decide outsourcing or in-house early (Clients, Advisors)
Do not go on "fishing expeditions" with potential suppliers (Clients, Advisors)
Qualify opportunities assertively (Suppliers)
Reject and inform unsuccessful suppliers as soon as possible (Clients, Advisors)

2. Improve solution-design process
Engage suppliers in solution design, as opposed to trying to design a solution, and then get the best price for it (Clients, Advisors)
Become much more collaborative (Advisors, Suppliers, Clients)
Cut out the sales flannel (Suppliers) and the unrealistic demands (Advisors, Clients)
Focus on value, not just price (Advisors, Clients, Suppliers)
Invest in operations/transition capabilities (Suppliers)

3. Improve contracting process
Build "standard form" contracts accepted by the industry for all common terms without violating competition law (Advisors, Suppliers)
Explore use of "neutral facilitator" to manage contracting process - paid by both sides (Advisors, Suppliers)
Always agree process of negotiation prior to launching negotiation proper (Advisors, Suppliers)

4. Change how commercial relationships in engagement phase
Move away from time & materials pricing by Advisors (Advisors)
Start charging/paying for intellectual property developed/shared in bid responses (Suppliers, Clients, Advisors)
Explore three-way gain sharing on deals (Clients, Advisors, Suppliers)

5. Create common industry vocabularies/tools (without limiting possibilities for innovation and differentiation)
Develop training offering to client-side which can be accessible to intermediaries and service providers (industry bodies?)

Summary

So, in summary, a clear set of messages emerges:

Cumbersome and costly procurement processes are producing sub-optimal, price-based solutions framed by adversarial relationships

Radical new approaches are needed in the engagement phase to produce the right solution supported by the right deal

Advisory companies like Alsbridge can play a key role in changing (improving) the market; but, as a whole, they will have to significantly change their practices, which are currently creating/exacerbating the problem

About the facilitators
Howard Spode
Howard is a Principal Consultant at Alsbridge with extensive experience in helping outsourcing suppliers develop their strategies and capabilities. In his early career, he developed deep experience in change management and organization development, both as an in-house practitioner and an external consultant. He has operated in business process outsourcing and shared services since the mid-90's, initially focusing on managing the complex change and HR transition challenges created by such transactions but, over time, gaining direct experience of every stage of the life-cycle - marketing, sales, solution design, contracting, transition, operations and transformation. Howard can be contacted at howard.spode@alsbridge.com or Tel: +44 (0) 20 7242 0666

Meritxell Macia
Meritxell is a Managing Consultant at Alsbridge focusing on the design and implementation of outsourced and in-sourced Shared Service Centers. Meritxell has over 11 years experience in consulting working on international engagements in Europe, South America and Asia-Pacific. Her main areas of expertise are BPO, Shared Service Centre design and implementation, Applications Outsourcing and Systems Implementation. Meritxell can be contacted at Meritxell.macia@alsbridge.com or Tel: +44 (0) 20 7242 0666

For more information about Alsbridge, visit http://www.alsbridge.com/