Those 2,000 companies that claim to be BPO providers aren’t all likely to remain in business, either. Ed Lawler, distinguished professor of the Marshall School of Business at USC in Los Angeles, says “bankruptcy” is a word rarely uttered regarding BPO providers, yet bankruptcy poses enormous risk. “If your outsourcing provider doesn’t survive, how do you make a quick, agile transition to a replacement?” Lawler says. “What happens if your outsourcing provider abandons the market or sells this part of its business to another company? Separating when you’re joined at the hip can be painful.”
Giera concurs: “If a massive end-to-end HR outsourcing contract calls for you to send over a lot of your technology and 500 of your employees to the BPO provider, what happens to that technology and intellectual capital if you want to end the agreement? Can you at least lease it back?”
Negotiating changes in service during the BPO engagement is difficult, contends Stikeman. “If you go back to the provider and say I’d like to negotiate a change in the way service is provided, the provider is likely to respond that it will cost you more money since this was not priced out in the original agreement,” she says. “Everything looks good on paper,” she adds, but since BPO is all so new, “not everything can possibly be spelled out.”
“The key question is whether or not you will have the flexibility to change a process down the road,” says Lepeak. “What typically happens within an organization is one group will select the BPO provider, another will negotiate the BPO agreement, and a third will manage the relationship. All three areas must be intertwined, however. Otherwise you run the risk of a partnership that fails to meet expectations.”
Out of House, but Not Out of Mind
BPO risks can be managed to create benefits for both the client and the provider. The first part of managing the relationship is contractual — the establishment of service level agreements (SLAs) that stipulate what the provider promises to do and measures progress toward this objective on a regular basis. “If you’re going to have an accountable vendor, you need to hold them accountable,” says CFO Calat. “We’ve got a detailed set of SLAs that our governance committee reviews monthly. If they are below contractual agreements, there are penalties.”
But contracts don’t guarantee a successful relationship. “It sounds corny and trite, but the key to a BPO endeavor really is partnership,” says Sekhar Ramaswamy, vice president of HR at Prudential Financial. When Prudential engaged BPO provider Exult in January 2002 to service multiple HR functions on a consolidated, integrated outsourced basis through 2012, the Newark, New Jersey-based insurer spent considerable time and effort beforehand ensuring the best possible partnership.
“For us to win doesn’t mean Exult has to lose,” explains Ramaswamy. “Ten years is a long time to engage a BPO provider. We do joint planning on business goals, many of which are joint goals. We have a joint roadmap for success.” Managing the partnership is a steering committee that includes representatives from both companies. “The committee’s job is to review a weekly project-status scorecard that reviews performance against project milestones,” says Ramaswamy. “Everything is measured and tracked.”