We're still recovering from one of the longest discussion-threads in the history of outsourcing when we asked whether some outsourcing vendors had thrown in the innovation towel.
This also inspired my old friend Bob Cecil to reach out and ask us to work with him to provide some practical advice to the industry on how to achieve some innovation; without coupons, promotional discounts, or even early-bird specials. Just plans old advice, practical thinking, and - heaven forbid - maybe even some patience. "But wait! If you call in the next 10 minutes, we'll also throw in..."
Bob, simply-put, is "Equa-Man" - one of the original champions of BPO who has been a key figure in helping mastermind the growth of outsourcing advisory firm Equaterra since its inception. If there's ever a complex BPO engagement in the works, Bob's usually somewhere on the scene (and likely holding up a warning sign). He's also hard to track down, as you have to drag him off a basketball court or ski-slope when he's not on a plane somewhere, but we did manage to grab a few minutes with him earlier this week...
Phil Fersht (PF): Bob, firstly, what are the main issues you’re hearing from your clients these days? What are the main contrasts between now and before the economic crash last year?
Bob Cecil (BC): We’ve seen a significant shift in the fundamentals of how companies are looking to compete. Before the economic crash, a large number of companies were competing based on taking cheap capital and deploying it to growth opportunities such as acquisitions. When capital dried up and consumers stopped spending, these companies had to reorient themselves to compete on factors such as cost and balance sheet strength. All of this has fueled initiatives such as outsourcing and shared services on a broad basis. Before, we often saw these initiatives launched for an individual function or geography. Now, companies are looking more broadly across all support services, all geographies, and all business units. The question they are addressing is how do I fundamentally change how I deliver all of my support services to have a significant business impact?
PF: Our joint paper talks about the challenges facing buyers today to achieve innovation when they move into a BPO environment. In short, how would you surmise what they need to do to get beyond achieving merely “operational” results?
BC: It starts with expectation setting. Buyers often go into a BPO relationship stating they want innovation, but in reality they haven’t thought through what innovation may mean for them, what business benefits they are expected to achieve from innovation, and what the costs are to achieve innovation both in terms of hard economics and softer change management. Once buyers define what innovation they need, both at the beginning of a BPO relationship and as the relationship matures, there are a variety of techniques (as outlined in our joint paper) such as innovation boards, risk/reward pricing models, and the like that they can use to ensure they gain the innovation desired.
PF: And what do service providers need to do to help their clients achieve innovation in BPO?
BC: Many of the service providers have moved beyond the traditional “lift and shift and continuously improve” models and have built out real innovation capabilities. Unfortunately, the highest level of innovation discussion only happens during the sales and bid cycle. The provider teams “go operational” very quickly once the contract is signed. The mantra becomes stability at all cost and creating “no noise.” While this may be appropriate during the early transition stage, it hardly engenders innovation over the long haul. Incentives need to be realigned and skilled staff knowledgeable about innovation need to be deployed beyond the pursuit teams.
PF: We’ve also seen advisors try and step up and deliver governance services, but many have found this challenging (clients don’t exactly ring up and ask to “buy some governance”). What – in your experience – is working, and what isn’t?
BC: I think it is hard to outsource governance on a wholesale basis, although we have had some clients ask. In reality, particularly when you are dealing with more complex outsourcing relationships that need to evolve over time, the client should maintain ownership over the relationship. That doesn’t mean clients can’t offload some of the transactional work of governance such as invoice verification. Right now you see clients building governance teams internally and deploying more sophisticated governance software to help them manage the operational aspects of the relationship. Over time this could evolve toward more of a software as a service (SaaS) offering.
PF: And finally, you’ve been a figurehead for finance BPO and shared service delivery for many years now. What are the three key developments you expect to see in the next couple of years, based on your vast experience of this industry?
BC: I see a greater movement toward standardization for transactional and pseudo-transactional activities under a variety of forms. For pure transactional services with few integration requirements, I see SaaS continuing to grow as an alternative. This will appeal to mid-size clients as well as larger clients who are willing to take their transactional processes to a true common standard configuration offered by a SaaS provider. For those processes that don’t lend themselves as well to a pure cross-industry solution, we will see instead greater emergence of industry standard process, technology and location BPO platforms. A second trend is a continued focus on higher end value-added services in BPO and shared services as companies become more comfortable with how to manage and outsource more global and multifunctional shared services relationships. These services will take the form of analytics and what were formerly considered “close to the core” processes. The line between knowledge process outsourcing (KPO) and business process outsourcing (BPO) will quickly blur. Where the first generation BPO focus was on cost efficiency and service levels, the next generation will include broader business results and impact. Finally, I see clients grasping the importance of governance to manage complex, internal shared services and outsourcing relationships. They are setting up enterprise-wide governance teams with the right blend of skills and enabled by more standard processes and tools. These groups are becoming increasingly sophisticated in not only managing the service-provider-to-client relationship, but also in managing the internal relationship with the business units to avoid the creep of “shadow staff.”
PF: Thanks for your time, Bob. Am sure everyone who visits the Horses appreciates it.
Bob Cecil (pictured) is Executive Director, Business & Financial Processes Advisory (Global) for outsourcing advisor Equaterra. He has advised on some of the largest sourcing engagements in the industry over the last two decades.
You can read our joint white-paper "Eradicating the Innovation Dearth in Business Process Outsourcing: Practical Advice on how to Achieve it" in full by clicking here: Download Fersht-Cecil - The_Innovation_Dearth_in_BPO_6030_Feb2010
Outsourcing a governance team is equivalent to a client asking for a lobotomy. If requested, an advisor should say, "I'll teach you how to do it, I'll help you hire the right people, and I'll advise you while you govern, but I will not do it for you."
I often wonder, "If innovation was known up front, is it innovation?" In other words, there are thing you want to upgrade on day one, but everything else will evolve. This gets to the point that clients cannot truly structure incentives in their contracts when they need to innovate on a broad scale in the future. Instead, they need to open the contract up in a collaborative nature with the vendor, or take the innovation to the market and factor in switching costs and ability of a vendor to innovate. In this case, switching costs are the costs of bad vendor selection, management, and governance.
Posted by: Tony | Feb 26, 2010 at 11:56 PM