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Keys to Successful BPO Relationships

Outsourcing business processes hits much closer to home than simply outsourcing IT. Here's how some executives balance the risks and rewards.

Indalex, a Chicago-based provider of aluminum extrusions, bases the success of its procurement process outsourcing to ICG Commerce on “routine, friendly meetings between us and them,” says Mike Alger, executive vice president of the $750 million company. “We’ve got SLAs that require certain responsiveness from ICG and penalties if they fail, but what makes this work is that we are partners in the truest sense. They’re the part of our team doing procurement, and we hold them accountable in the same way we would our own people.”

Relationship management also is the cornerstone of a BPO engagement for CIBC, a Toronto-based financial institution with 1,200 branches and 8 million customers that outsources end-to-end HR to Plano, Texas-based EDS. “We’ve created a governance model that requires structured meetings, so there are regular opportunities for folks to meet and work on issues, even if there aren’t any,” says Hugh MacDonald, vice president of strategic alliance management in CIBC’s HR division.

Without these meetings, says MacDonald, “it would be like a guerilla leader and a NATO platoon commander meeting out of the blue at the Khyber Pass to negotiate. That’s no way to run a partnership.”

Russ Banham is a contributing editor for CFO.com.

Off Limits?

BPO presents risks beyond the transactional. Indeed, companies that have shifted key business processes to service providers in India and China have endured negative public relations. Not that this is slowing the trend toward “offshoring” — Forrester Research predicts that American employers will move about 3.3 million white-collar service jobs and $136 billion in wages overseas in the next 15 years, up from $4 billion in 2000.

“Companies should be nervous about taking a key business process and moving it to a country 10 times zones away, particularly when the country is politically unstable and where the protection of intellectual capital is not their strongpoint,” says Forrester’s Giera. “Offshore may be OK for a call center, but it’s not the place yet for BPO. And is offshoring really worth the bad public relations?”

The risk of a foreign government mandating anti-American business sanctions also looms large. “India is extremely bureaucratic,” says John Minor, head of political risk at Chicago-based insurance broker Aon Trade Credit. “In Maharashtra, where a new Enron power project was in the works, a new provincial government campaigned on the slogan ‘Throw Enron in the sea.’ And when they were elected, they fulfilled their promise, canceling a multibillion-dollar project that involved not only Enron, but also General Electric and Bechtel. It doesn’t take much of a spark these days to ignite anti-American or xenophobic attitudes overseas.”

Political risks associated with offshoring business processes can be managed through the purchase of specialized insurance, or through arrangements with providers that offer service in more than just one country. Kanbay International, a BPO provider focused on the financial services industry, offers clients the opportunity to outsource processes to multiple locations, including India, Canada and the United States. “Our model is not to walk into a client’s office and say, ‘Take this offshore’,” says Kanbay president Shiraz Patel. “We offer a diversity of delivery locations. We don’t force jobs to any locale.”

As for the insurance, Aon recently introduced a policy for its clients that reimburses them for the cost of relocating an offshore BPO arrangement “back home or to another country,” says Minor. Lloyd’s of London is the underwriter of the policy, which costs roughly 1 percent of the coverage limits provided. —R.B.

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