A majority of business-process outsourcing (BPO) customers believe that outsourcing improves business processes, yet many of those respondents are only moderately satisfied with their service providers. This is a key finding of a comprehensive study of BPO customer satisfaction conducted by Managing Offshore, InformationWeek magazine, and EquaTerra, an outsourcing advisory services firm. The study, timed to coincide with a NASSCOM BPO conference in Bangalore, focuses specifically on customer-satisfaction levels regarding finance and accounting (F&A) and human resources (HRO) both onshore and offshore. The interviews were conducted by telephone and on the Web in April and early May with 200 business and IT decision-makers in the North American market across all major industries.

Our analysis of the BPO customer study data indicates that:

• BPO is an effective way to achieve “transformational” improvements. In fact, 77% of BPO customers say their outsourced process requires optimization and 73% say BPO is improving it. This contradicts the assertion that BPO is just about cost savings due to labor arbitrage; it’s about efficiency and effectiveness, too.
• BPO is not just about controlling costs. More than half the respondents say that the top benefit is offloading non-core issues, thus giving management the ability to focus its attention on critical issues.
• Contrary to advice by strategic consultants, slightly more than half the BPO customers we interviewed choose to optimize a business process after turning it over to a BPO provider.
• The more experience an organization has with BPO, the higher its satisfaction levels.
• Offshore BPO services are held in no higher or lower regard than onshore BPO services.
• BPO leads to layoffs more often than not, but it’s not a requisite step.
• Spending on BPO is rising or staying the same, but rarely declining.

Reports To The Contrary

Judging by recent events, it would seem that BPO and IT outsourcing, particularly offshore project delivery, has peaked and is in decline.

• Deloitte Consulting is “calling for a change” in outsourcing. A recent study the company produced concluded that “in the near future, with structural risks that cannot be fully mitigated, uncertain cost savings, and a multitude of components to manage, outsourcing will likely lose luster for large organizations.” Ironically, Deloitte itself is an outsourcing service provider.
• Political hostilities: More than 100 bills have been introduced in U.S. state legislatures to restrict outsourcing offshore or, in some cases, outside of state boundaries, though few of these bills have (or likely will) make it into law.
• JPMorgan Chase and, more recently, Sears annulled major IT outsourcing deals.
• Privacy is a question mark: There have been several highly publicized information-security breaches in Indian-based call centers. The identity-theft incidents in the U.S. certainly haven’t helped ease concerns that “if we can’t protect data here, how can we protect it 5,000 miles away?”
• Red tape: Regulatory compliance mandates like Sarbanes-Oxley (see The Compliance Imperative, this issue) and HIPAA are cited as complicating the outsourcing equation and driving organizations to pull back from its usage.

These points suggest that it’s not getting any easier to conduct offshore outsourcing, much less predict the future business or political context of these practices. Yet, significantly, BPO is on the rise, as evidenced by broad-based corporate investment.

Secrets Of Satisfaction

One of the most conclusive findings in the BPO study is that 73% of respondents agree with the statement that “BPO is improving our business processes.” Nearly four in five BPO veterans with more than two years experience agree with the statement, compared to two-thirds of the BPO customers with one or two years under their belts. These findings validate BPO’s role in enabling process improvement, a goal that many organizations make paramount in undertaking any BPO effort.

Overall, the F&A and HRO customers rated their experience a moderately satisfied 6.7, based on a 1 to 10 scale, where 10 is extremely satisfied. Strikingly, the BPO veterans are much more satisfied than those with less than two years experience. This highlights that BPO is complicated and difficult to master quickly, and that the transition to the outsourced environment is often a painful process that can hurt satisfaction levels in the short term.

Though we interviewed customers spanning a wide range of BPO applications, we put F&A and HRO under the microscope to look for variations suggesting greater commercial viability for one form of BPO versus the other. The results were virtually identical for organizations attaining their F&A or HRO goals: a 6.7 average on the same satisfaction scale. (A rating in the 8 to 10 range is considered highly satisfied; 4 to 7 is moderately satisfied; and 1 to 3 is unsatisfied.)

Three in five respondents report that BPO is “well established” in their organizations. In this instance, there is a direct correlation between a well-established process, higher customer satisfaction, and management experience with it. Accordingly, three in five customers with low satisfaction ratings concede that BPO is not well established in their organization.

Another contributing factor to satisfaction levels is the number of service providers engaged. Nearly 80% of sites that use more than one BPO service provider (as in a “best of breed” approach) characterize themselves as satisfied, as compared to 60% of respondents who have taken a sole-source approach. Though some organizations feel that it’s easier to manage one provider, engaging with multiple BPO providers enables companies to implement competitive bidding and share best practices.

Not surprisingly, establishing best practices for managing BPO providers generally leads to higher satisfaction. The request for proposal (RFP) process is a case in point. Companies that embark on it—often in combination with request for information (RFI)—generally experience higher satisfaction, compared with those that skip the step. Another practice that leads to higher satisfaction is implementing penalties and metrics in service level agreements (SLAs).

The study also points to some inconsistencies in the way client organizations manage their service providers. While three out of four respondents believe that SLAs with penalties are valuable tools, only 50% have SLAs that include metrics. Without metrics, it’s difficult to invoke a penalty clause. And consider this: Nearly four in five sites prefer to manage ongoing BPO relationships without the outside assistance of advisors, law firms, or consultants.

The Outlook

Outsourcing failures can and do happen—they just seem a bit worse when the work is offshore. While there has been an up-tick in negative publicity lately, it is in part due to the fact that many large deals were signed in the late 1990s and are now currently reaching the renewal time frame, where non-renewals and swaps are more likely to occur. For most organizations involved in BPO, however, the results have been positive.

Despite some reports to the contrary, BPO is alive and well. Business trends such as Lean Six Sigma and determining core and non-core processes are pushing organizations toward it every day. While there is a learning curve, most (but not all) organizations are able to meet it successfully. Yet, experience combined with the implementation of service levels, metrics, and optimized processes are what makes for satisfied BPO customers.