The best business process outsourcing strategies and contracts

The best business process outsourcing strategies and contracts

A business engagement becomes possible when the two parties (mostly the case) to the contract see something in it through which they will create value for their respective organizations. The value creation referred to is in the long term or eventual sense, since strategically it is possible to take short-term losses in pursuit of a vision that takes it to a golden tomorrow. Take Amazon for example. It was not always the market-shaping giant it is today. It failed to make a profit for many years, but persisted as it had a vision of a tomorrow when the marketplace would align with its vision and make it successful.

It cannot be one contracting party’s case to run the other party into the ground. If that happens, the service will also cease. Of course, this is not to deny the other party’s responsibility in ensuring the contract entered into is one that is beneficial to them.

To state the obvious, each engagement between two companies is unique, while relying on past similar engagements as a guideline and reference point. It is as true for the business process outsourcing (BPO) industry as it is for any other. Just like other industries, business process outsourcing strategies and contracts, that could differ for each relationship, are deployed by each contracting entity to the best of their knowledge and ability.

With a short runway of only eight years, BPO provider oWorkers, which specializes in data based services, has taken off rapidly to become one of the top three providers in the world.

We lay out an approach that outsourcing companies might like to consider and adopt.

 

It is a business proposal

Revenue is the driver of business in most cases. No revenue, no business. A structure of incurring costs is established once there is a revenue outlook and some assurance of realization. Otherwise, there is no merit in setting up a structure for incurring cost. In pursuit of what?

Most proposals in a company, therefore, are in pursuit of business, and driven by revenue generation. A proposal with business process outsourcing strategies and contracts at its heart, it must be recognized, is not your everyday proposal. It is a strategic proposal and needs to be guided carefully. In terms of measurable scope, it is perhaps designed to save cost for the company, but as a strategic intervention, it generally also seeks to position the company to do more with comparable resources.

Led by a team that has over 20 years of hands-on experience in the industry, oWorkers receives invitations for partnerships from companies around the world. The leadership team is able to guide the discussions to a place where both contracting parties benefit. 

 

Impact on staff

Business process outsourcing has received a lot of bad press over the years as it seemed to be taking jobs away to another location, possibly another country. And that becomes an emotional issue and is painted in a variety of hues like anti-national by impacted parties.

There is no taking away from the fact that jobs will be lost. That is one of the primary drivers of value creation in business process outsourcing strategies and contracts. And that will never be a factual discussion. Despite all the good things like people being reskilled, remaining jobs being the more important ones, etc. the bottom line is that there will be a net loss of jobs in most cases. Even though no company hires employees with a lifetime employment warranty, the loss of a job is a daunting prospect and needs to be handled with care. While it will no doubt be influenced by the regulatory environment the company operates in, it needs to be understood that it is a sensitive issue. The earlier the company can start preparing for it, the better it can be managed.

It needs to be borne in mind that commitment and involvement of staff members is important for the eventual success of the initiative. While rebadging, if possible, could be a good option for many staff members, transitioning their work over to a new company or a new set of people can be best done by the people doing it on a daily basis, not by a management team.

With the prominence it occupies in local communities, oWorkers attracts a variety of talent that satisfies the hiring requirement of most of their client projects. With their policy of working with employees, and not freelancers, oWorkers is able to transition work for all new projects in a sensitive manner, recognizing the possible issues at the client end.

 

Impact on customers in business process outsourcing strategies and contracts

Customers have choices. While in a free world even staff have choices, what ends up happening is that many people become used to a certain work routine and continue working for the same employer, hence the loss of one’s job being a fairly traumatic experience for many. Not so with customers. In the same free market, customers are the ones providing the revenue, and hence have pride of place in the hierarchy. And most customers perhaps understand this facet.

That being said, in the most extreme articulation, customers wouldn’t really care. The BPO initiative is usually designed with delivery as its core premise. The work that was happening in the engine room of the company was never really visible to customers. They only saw the output coming out of it. Whether that engine room is located in their town or state, or is located across the seven seas in another continent, they may not even know or need to know.

Not that there is an effort to hide anything, but if they do not know to know, why tell them. However, many large companies still make it a point to communicate key initiatives of the company to their customers, from time to time.

The preferred employer status gives oWorkers the leverage to hire for peaks that arrive unannounced and unforeseen. It can hire an additional hundred hands within 48 hours, when required. This takes away a lot of pressure from the clients’ bottomline as they now no longer need to maintain a bench for these situations.

 

Regulatory issues

Each company operates under a variety of laws and jurisdictions. There could be state laws and federal laws. With the expansion of BPO to anywhere in the world, the complexity of jurisdictions and legal systems that need to be complied with has only increased.

While an outsourcer is naturally subject to the laws of their land, in some cases, the laws of the land they outsource work to also need to be complied with; directly if they are operating as a ‘captive’ unit of the parent, or through the ‘vendor’ if working with a third party. As an example, many outsourcers need to comply with labor laws like working conditions and health and safety, especially when working with partners situated in geographies where labor law compliance is not the highest priority for the local government.

Taxation related issues also come to the forefront when navigating the twisting lanes of business process outsourcing strategies and contracts, even though bilateral double taxation avoidance agreements are in place in most cases. One needs to evaluate the implications and make choices that minimize the additional taxation liability. The choice of location, form of engagement (captive or third party) and other key decision areas could be impacted by these considerations.

oWorkers’ sensitivity to regulatory issues and issues pertaining to security and risk is evident in their operations that are ISO certifications (27001 :2013 & 9001:2015) certified. They are also GDPR compliant.

 

Contract

Eventually a contract needs to be signed for work to commence.

While we have established that business process outsourcing strategies and contracts will become a reality when both contracting parties have something to gain from it.

That notwithstanding, the contracting process itself can be tortuous as. To borrow a proverb, “one man’s meat is another man’s poison.” The more one side gains, the more the other side loses. If the rate has to increase, it will go from the pockets of the outsourcer to the pockets of the vendor. Hence, it needs to be conducted with care and in a sensitive manner.

You will probably find many sources that tell you what should be included in a contract. We list below several areas where conflict could arise and hence should be handled with care.

Pricing

As already mentioned, the vendor wants the pricing to be high while the client would like it to be low.

Hiring of staff

While the client would want to clear each individual staff member to ensure quality, it could be onerous for the vendor as it will increase rejection rate and hence the cost. The vendor would like independence in staff selection.

Training

If training is the responsibility of the vendor, he would want it to be short as it takes away from production, or revenue generation opportunity. The client, on the other hand, would want it to be long as that might improve quality.

Delivery of required staffing and adherence

While the client would like the staffing, in contracts where hourly or daily staff requirements are specified, to be adhered to and exceeded. They would like to penalize for shortages with no incentive for excess. The vendor, on the other hand, would like flexibility in delivering staffing requirements and making up the shortfall of one day with excess on another day.

Agent utilization

If the contract basis is the number of frontline workers, the client may wish to increase agent utilization in a bid to get more, while the vendor would wish to reduce it as higher utilization levels could lead to burnout.

Termination clause

Both parties would perhaps like to be able to terminate at short notice with the other party needing to provide a long advance notice. Eventually, a standard timeframe will apply to both. This would apply to increasing or decreasing capacity as well.

Performance based incentive or penalty

While the client would wish to pay purely on the basis of performance, the vendor, while welcoming incentives for good performance, would like the downside risk to be covered in the form of an assured payment for the capacity.

Whatever the nature of the contract, oWorkers is geared to provide services in over 20 languages. This way, they can support clients as they grow across geographies.

 

Governance structure

A governance system needs to be put in place by the outsourcer to ensure that once the work has been kicked off by the vendor, it is delivering satisfactorily. This is an ongoing process that serves like an early warning system for the outsourcer in case the vendor is not able to meet its commitments.

While a bulk of the monitoring is done through MIS and reports, many clients prefer to appoint on-the-ground resources who are able to keep an eye out for danger signals and also keep the vendor ‘honest.’ 

Some clients also require the provider to adopt QA (Quality Assurance) and QC (Quality Control) processes that represent the client and aim to detect and resolve errors, with a reporting line that is independent of the delivery team.

oWorkers employs an independent strategic quality team that reports directly to the senior management. It acts as the eyes and ears of the leadership team while checking the performance of the delivery team and even providing feedback and inputs. oWorkers consistently delivering over 98% accuracy across a variety of measurement systems adopted by clients with a variety of scales, is not an accident.

 

Backout plan

‘The best laid schemes of mice and men, often go awry.’

This line, based on a line in a poem by Robert Burns, perhaps sums it up well. Despite best intentions, a partnership does not work out. What happens then?

A BPO project is never a simple project. And the task being outsourced might just be one of the simpler parts of the project. It is an activity that has been done many times in the past, perhaps has a well-documented procedure for guidance. The difficult parts of such a project often arise around the softer aspects like culture and people.

Additionally, all business people are human. While the intention is to plan in a comprehensive manner, things do get overlooked, even after being reviewed by many other people many times. Unforeseen costs and issues could be encountered. The quality might not be able to match the pre-outsourcing quality, at least at the start. There could be delays in ramping up capacity, leading to backlogs building up.

While the people responsible for business process outsourcing strategies and contracts would have tried, some issues do surprise everyone. Perhaps one of the wise things that could be done is to provide for this eventuality at the time of entering the contract. If it does come to a point where it needs to be unravelled, at least it was not a surprise and there was a path laid out for the withdrawal.

oWorkers is aware of this possibility arising on occasion, even though, with savings close to 80% as confirmed by many of our US and Western European clients, they rarely pull out of a carefully constructed contract with oWorkers.

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