Saturday, 14 April 2007

Owning the Key Processes in BPO

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Whatever the figures seem to show, the paradoxical fact is that interest in outsourcing, even in information technology has steadily declined in the past few years. The media have been full of high profile failures by major players with high visibility accounts. Not written or talked about (of course) are the deals that went sour and resulted in reversing the engine – and in-sourcing all over again.

Today a new wave of interest (and spending!) on BPO-centric IT solutions has become apparent. This new wave has made it almost inevitable that some of the out-sourcing companies would start to rebrand themselves; and sure enough, riding along on this upsurge are some new and some established contenders.

Now, to see outsourcing companies rebranding or re-inventing themselves is not necessarily a bad thing – as long as some of the important issues of the past are dealt with properly. For a start, there's one vital question: do the IT outsourcers and their clients now fully understand that, while you can outsource the tasks or functions and even some of the responsibility, you cannot outsource the accountability.

Over the coming years this critical issue could be highlighted in the courts of al places. Both Europe and the US are seeing masses of new legislation coming into effect with regard to corporate governance and directors' liability. The essence of this legislation, on both sides of the Atlantic, is that directors of companies large or small are increasingly being held to account for the actions of their staff or companies. It will be interesting to see how many directors can successfully plead outsourcing as a defense!

There's a second but almost more important issue; that of flexibility. The very act of outsourcing has resulted in many companies severely restricting their ability to update or change internal operations within their businesses. Many outsourcing companies will be quick to suggest that this may be the case for their competitors but not for them. Yet how many IT outsourcers provide the real flexibility that their clients need? (Of course, this should not be expected, either – how can you provide fixed price services, and reducing price services, to a client who keeps changing his mind!).

By way of example, one major UK plc contracted with a very large outsourcer. Under the contract terms, the client cannot install any software without the approval of its outsourcing supplier. Not unusual, maybe, but the crunch came when the client company wanted to do some serious Business Process Analysis with a view to increasing revenue; it eventually decided that it was too difficult to fight the outsourcer. The latter, of course, was looking to protect its own business. Consequently, the client's shareholders and employees were the losers.

Enough of the bad news. Is there any good news? Yes, so long as you realize that, before you can contemplate outsourcing any Business Process, you first need to understand it. Many of the not-so-good IT outsourcing deals of the last 10 years would have benefited from such understanding.

Quite apart from the issues of outsourcing, having a clear, documented and shared vision of Business Processes within an organization has major financial benefit. Of course, it makes it easy to identify cost savings, but it also helps to identify areas for improvement projects. Many of the latter can be undertaken at significantly lower cost than most people realize.

Clear Business Processes have other major benefits. For example, they make it easier to manage corporate governance and accountability issues. At a time when companies which want to win the competitive wars need to reinvent themselves and introduce new products faster than ever, Business Processes are also becoming a key differentiator.

Undertaking a serious BP project is a large undertaking and requires great commitment on the part of an organization. The lure of having someone undertake this for you, with perceived low pain thresholds, is very enticing. But why would the IT outsourcing companies be so obliging? Think about trying to change a company or bring in different suppliers or launch new projects; how will you be able to proceed if outsourcers own the IT processes? The answer is simple – by spending more money with the outsourcer.

If these comments seem too harsh or even too negative, that is not the intention at all. However, the outsourcing business is playing for high stakes – and so are its customers. Mistakes are not measured in thousands or even tens of thousands of pounds, they are measured (if they can be!) in millions or tens of millions.

Also, in moving out from IT (or accounting or HR for that matter), companies are moving into a BPO market that has known troubles in the past. It took years to recover from the negative impacts of some early champions of what was then known as Business Process Reengineering.

With those travails behind it, the BPO market is seeing unprecedented growth. In many market sectors, many technology vendors are using the Business Process tag o try and stimulate revenues further. But one thing that the business process market does not need are exaggerated claims that risk setting the market back again and making potential client companies wary of a principle that holds the key to their future success.

To conclude, there is no doubt that outsourcing non-key or non-value added functions can be a great idea. It is certainly rue that Business Process analysis and mapping will help to identify the value-added and non-value added processes and so help you to identify candidates for out-sourcing. Documented Business Processes will certainly help in requesting proposals for out-sourcing and in drawing up service-level agreements and in the on-going management of such contracts.

But at the end of the day it is your business, and the accountability stops with you, so the ownership of any Business Process projects also has to start and stop with you. The recommendation would be that you either start on the BP road fully internally, or turn to a partner who will do no more than help you through the project. With that complete, and when you therefore know what you want to do, use that information to identify the best of your potential outsourcing partners from the field.

One observer I know equates BPO to performing "Enterprise Brain Surgery" and suggests that the degree of caution you exercise should be commensurate with the risk s that the surgeon takes!

Lloyds TSB's proactive internal consultancy supports change: understanding the Business Processes is a basic to success in outsourcing