The Top 4 Pitfalls of BPO

Posted: 07/09/2012

With IT outsourcing and business process outsourcing (BPO) having been around for more than 40 years as well-established options for companies, one can wonder why we often can read about outsourcing contracts failing to deliver as expected. The main reason is still that many companies do not take in professional help to support them through the outsourcing, but try to do it with the resources available within the company instead of using these resources on other internal project where their skills would match better.

1. No clear strategy

There are numerous good reasons to outsource, but the worst is not to have a reason. Some companies suffer with the "us too" complex. This arises when a competitor is successfully outsourcing, so it must be good for your company too. BPO should create added value for the company and shareholders by releasing resources from spending time on accounts payable, invoicing and general ledger processing to focus on strategic analysis, finance mission development and policy setting and approval. BPO can also add value by integrating different functions within your organisation that otherwise could not be cost-justified, and, at the same time, provide the necessary resources to maintain the integration. Some companies even take it a step further and partner up with the service provider to develop new tools and processes. The risk and rewards are then shared between then two, including revenue created from offering the tools and processes to other organisations.

2. Selecting the right service provider

When evaluating a BPO service provider, the three key criteria to look for are: a proven track record, technical excellence and the ability to deliver improvement. When evaluating any potential service provider, these are some of the essential questions to ask:

  • is the supplier aligned to the strategic goals of the business?
  • does the supplier understand the business today and will they have the ability to in the future?
  • is the supplier being innovative in solving long-term business issues?
  • does the relationship add any value to core business operations?

The most effective method of answering these questions is to talk to existing clients, preferably within the same industry as your organisation. Learn from their experience – identify the issues they encountered and their method of resolution. Determine the strengths and weaknesses of their service provider and why this provider was selected in favour of the others evaluated.

3. Contract negotiation

Service level agreements (SLAs) lie at the core of the BPO contract. These identify the service deliverables and expectations of your service provider. Good contracts will also describe the reporting methods for service levels measurement, how, when and the level of attainment required. This will include any potential penalties or benefits.

An important issue that is often missed from the contract is the termination or exit strategy. Legally, both parties should have an agreement for how to terminate the contract at any point in time, should it be necessary. Be aware that in contrast to traditional IT, outsourcing BPO SLAs are business-based, not IT-based. Therefore, you will need to focus on handling processes, business outcomes and people.

4. Creating a successful relationship

On this point, traditional IT outsourcing and BPO are no different. It is essential that you have a good relationship with your service provider to achieve a successful outsourcing contract. IT service providers have recognised the importance of a strong cultural match. However, many BPO service providers do not yet appreciate the importance of this. It is imperative that the client and service provider trust each other. If there is no trust, there will be mistrust. This will create issues for each party. The relationship will become ineffectual, the service will suffer and communication will break down.


Careful selection of a service provider can take advantage of business projects, innovation, continuous improvement and - a rare commodity – imagination. Most suppliers do not want to "run your mess for less", but want to bring value from their delivery expertise and industry knowledge. BPO is concerned with the softer element of the company. It involves processes and people. As well as the provision of lower cost and better economic control, it should bring best of breed processes and a better retention of business knowledge. This can only be accomplished in the context of a positive partnership with the service provider.

Posted: 07/09/2012

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