The New BPO: Skin in the Game

No longer restricted to a "contract" but a real partnership, with both sides sharing risk and reward. It’s happening already at Microsoft’s OneFinance group and is undoubtedly the way of the future. If there is a "black hole" in the world of BPO – one we all know is out there but struggle to understand – then Srinivas Krishna, Director of Global Supplier Management for Microsoft’s Finance Operations might just be the physicist to decipher it. He would of course be too modest to agree, and would be quick to demur that really the concept was hashed out "over a weekend." Still, it won him the SSON’s "Personal Contribution to the Industry" Award in India, last year and that is saying something as the award is based on nominations from the industry. We'll be posting the full interview on the transformation of Microsoft’s OneFinance project online soon, but one point is worth making right now: namely, that BPO contracts in the future will be very different to those of the past, and if you want to get an idea of what they'll look like, then look no further then the arrangement that Microsoft’s finance team has worked out with Accenture. It’s called "OneFinance," and what's really interesting about it is that it deals cleverly with the traditional "Outsourcing Paradox" – where clients outsource the process, but effectively tell the provider how they want it done. That approach leaves very little wiggle room and is one of the reasons too many BPO arrangements lead to disappointment. The BPO contract of the future will circumvent this problem. Instead, chances are we’ll see more of what is often referred to as "vested outsourcing" (we have Kate Vitasek from the University of Tennessee to thank for coining that phrase). Effectively, both parties have "skin in the game," and emphasis is put on outcomes as opposed to transactions. This implies a leap of faith from the buy side to the sell side, whereby the client hands over the process, but no longer stipulates how it ought to be run. What's important is that the client has a vision of what the outcomes should look like and that that vision is communicated to the provider. Then the client steps aside. Risk is shared between client and provider, with the provider in addition reaping some of the gains made beyond those committed into contractually. What's also interesting is that the outsourcing of "ongoing business" is run separately from the outsourcing of "transformation" – so that costs incurred in transformation don’t impact payments for business outsourcing. "It's hard to put a price on transformation, as it represents the unknown" explains Srini. Something else that will undoubtedly change is that the BPO relationship will be managed as a "business" in and of itself – not just a standalone, or a series of contracts. This is already happening at Microsoft. Viewed this way all stakeholders are committed to monitor and deliver on "revenue", "costs", and the "bottom line". Srini explains that the OneFinance governance is required to deliver a return annually to the businesses that "funds" this initiative; as for any other business, every quarter the business case benefits are reported to the senior Finance leadership. With visibility thus extending up into the highest levels within Microsoft, OneFinance has not fallen into the trap most outsourcing business cases fall into: that of being forgotten. The OneFinance contract has a formal mechanism whereby subsidiaries, as the end customers, are charged for the services they consume. Very often organisations ignore this element within the overall BPO model. The governance organisation that manages the OneFinance contract views this as its "revenue". This drives discipline and brings about a change in mindset internally, within Microsoft. As the subsidiaries have to pay for the services they consume there is discipline in terms of usage – services are not viewed as a "corporate freebie". The governance organisation is accountable for what it charges the subsidiaries, so it cannot merely pass through costs. This forces the governance team to be efficient in how it manages the outsourced business. Similarly, the payments to Accenture are a cost item to the "outsourced business" and the need to keep this cost down is what drives transformation. "Now that you're looking at it as a business, it’s a natural step to take a balanced scorecard view. And when you do that, all these things start to appear on the dashboard that weren’t taken into account before," says Srini. At this stage of maturity, the impact of BPO on the finance function at Microsoft has been enormous and as a result, the impact on Microsoft corporate is equally significant. "That’s the switch you need to make," says Srini. "You’re no longer dealing with a contract; you’re dealing with how finance is delivered to the business. You have a vision of what it should look like, and you’re partnering to get there." Microsoft's OneFinance team has already garnered hard cash benefits in its first five years. On a TCV of around $300 million over 10 years, this programme has already delivered savings of nearly 10%, with two thirds of the contract still to run. "And that, says Srini, "becomes a significant factor." [eventpdf]

The New BPO: Skin in the Game

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