How to Select a BPO Supplier

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How to Select a BPO Supplier

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Analyst Keys Is there a difference in the methodology of selecting a BPO supplier as opposed to a traditional IT outsourcing supplier? Robert Joslin, senior consultant with the Everest Group, says there are definitely some crucial factors that need to be taken into consideration. He sorts through the issues and here presents key points as a guide for buyers embarking into the world of BPO.

Assessment

You should establish a team of key people to consider all aspects of whether to outsource. The team's first task is to look at the organization's reasons to outsource. It might be to reduce or control operating costs, free up resources to be able to focus on core business, gain access to technology capabilities or any number of other reasons. Then identify areas that would fit with outsourcing. Establish your current baseline costs and the level of performance you have achieved. Your team then needs to analyze whether it makes sense to go forward with outsourcing. You should confirm that all team members understand the ramifications of outsourcing in that your organization will be turning over the control of your outsourced process to a supplier. The supplier will manage the process, and you'll be managing the supplier.

Distinguishing Features

Joslin explains the most important characteristics to seek in a BPO supplier. "You should look first at the market presence of the supplier," he advises. "Is your supplier a niche player or a major player? Does it provide the scope and scale of services and service levels you are going to need?" Process expertise is always going to be a critical factor.

Secondly, he says, "The BPO world sometimes reaches fingers into a lot more areas." If your outsourced process is financials or HR, for example, those processes touch everything in your organization; and you'll need a suppler with capability to integrate or interface. This is even more critical if your organization is going to outsource other processes to other vendors. You need to know how well the supplier will work with other vendors. "You don't want your supplier ever to be a roadblock to getting things done," he advises.

A third critical factor is to choose a supplier that has a solid change management process and mechanism and one that can integrate into your corporate change management process.

Planning for a Goal of Continual Process Improvement

When it is determined that a change of process is needed, your Request for Quote (RFQ) should define the direction your company is headed toward with the process. "The RFQ must let the bidding suppliers know that you are have an expectation for continual process improvement, and that the eventual contract is to be structured as such. In this way, the suppliers will be able to map a continual improvement into their bids."

Joslin recommends identifying business drivers and structuring continual process improvement around those drivers. For example, in an objective to revamp your accounts receivable process, the goal would be to improve your cash flow. One driver might be the aging of the bills. One of your targets for continual improvement, then, might be to have the bills on hand for a shorter timeframe, thus decreasing the aging of the bills and increasing your cash flow.

Regarding targets the supplier will aim to hit, he advises buyers to raise the bar annually. "Even if the supplier is already exceeding what your target for that year is, you continue raising the bar so that there won't be any slipping down in the level of service." All of the targets and algorithms are set out in detail in the contract and service level agreement.

Steer Clear of Hazards

Unfortunately, buyers run into problems if they don't adequately and clearly describe the scope and boundaries of the process definition. Issues arise when you think you included something in the process scope but, in reality, neglected to include it. Another challenge is not being able to isolate a component of the process as being out of scope so that you can control it. Joslin says the buyer must determine what it needs and wants and then tell the supplier what that is.

Joslin advises buyers to get multiple suppliers' input and not to approach a single supplier to design solutions, even if the supplier has a consulting alliance. "It's better to drive the solution through an RFQ process and let the market help you decide what to do." This frequently happens when buyers already have a relationship with a supplier or already know of the world-renowned resources and capabilities of the supplier. "It almost seems to make logical sense to go to them and have them design a solution for you" he says. "But you don't get the advantage of multiple viewpoints. If you go to the supplier to design a solution, you will get an isolated perspective; and you'll get the version that fits best in the supplier's environment." The best way to handle it is to state the outcome you want and let multiple suppliers run it through their solution process. "You may still end up with the world-class supplier you had already considered, but they will probably sharpen the pencil a little bit more when they are competing with somebody else," Joslin explains.

After 15 years of experience working with several suppliers, Joslin saw that deals went a lot smoother for both parties when there was an external consultant advising the buyer. He decided to "get in the middle" and assist buyers. Now with two years of helping Everest Group clients in North America, Australia, South Africa and Europe with large BPO and IT agreements, his primary recommendation to buyers who have not been through an outsourcing process before is to get external assistance. "The facts clearly show that the success of your engagement is built upon how solid your initial contract, service definitions and metrics are."

Lessons from the Outsourcing Primer:

The BPO supplier you select should be able to provide the scope and scale of services and service levels you are going to need, process expertise, and be capable of integration.
If you want to include continual process improvement, be sure to identify key business drivers and structure improvement around them.

Publish Date: November 2000

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