Why do companies expect that the implementation of outsourcing or offshoring means storming the top quartile of business-process performance in the single stroke of the pen on the contract? Is it reasonable to expect that an outsourcer can deliver step changes in quality, cost and speed in months, whereas the results expected from an internal effort are far, far more modest? Lay the blame on a number of factors for unrealistic expectations of marvels and miracles.
Overselling. In the rush to gain support for what is often considered a radical change in operating model, the sponsoring department may err on the side of optimism, deliberately overstating the stream of benefits, and ignoring the preconditions for success — good baseline, strong executive support, talented transformation team, focus and hard work.
Desperation. Despite best efforts, and millions in re-engineering and technology investment, geographies maintain their own ways of working, the business lines complain, and functional performance is relegated to the fourth quartile. Believing offshoring or outsourcing is the silver bullet is sometimes the refuge of those who have tried and failed at internal options, and seek services globalization as the last resort.
Buying the hype. The service provider community must be named as a compliant co-conspirator. In the push to sell outsourcing as a superior operating model, providers’ headlines claim 40 to 50 percent savings, and more, with supposed limited effort on the part of the client. Yet, the fine print that qualifies these claims is sometimes hard to find or ignored during the development of the value proposition. Baseline conditions, scope and time to stabilize operations are all factors that contribute to the end state.
Lack of facts. It is easy to promise miracles when there are no facts to support the gap between the current state and the business-process nirvana. Most organizations have no concept of baseline activities, benchmarks or acceptable process performance, let along top quartile excellence.
Sheer naiveté. A breakdown in process delivery is generally years in the making. Process improvement, like process denigration, takes a long time. No provider or captive organization can undo in months or a few years what it took years to mess up. Improvement only occurs through hard work — process mapping, diagnostics, roadmap design, behavioral modification, institutionalization of service-level and operating-level agreements, and implementation of robust governance routines. Blame the term “lift and shift” — it conjures up visions of instantaneous improvement.
Yet, the implementation of global services may be the best strategy to enhance business-process performance available today. It presents a golden opportunity to change the way a corporate works, manipulating behaviour, re-engineering processes, instituting policies and moving the bar relative to productivity. The mere act of changing the operating model puts performance under the microscope, mandating that measurement systems are put in place, and management cannot accept the status quo.
What should an organization implementing global services do to ensure that aspirations for a step change in performance are reasonable and “stick.”
Take full ownership. Outsourcing and offshoring are no more than tools in a change-management arsenal. Deciding how, when and where they are deployed, and to what end, is the absolute responsibility of the organization, not that of internal nor third-party providers. Deferring the pace and scale of change to the provider organization, the success of whose business is driven by variables that may be diametrically opposed, is a mistake of great proportion.
It is amazing that companies embracing services globalization think that leadership ceases and decision-making stops when the operating model is in its early stages of design, and that signing a contract is the equivalent of abrogating responsibility for achieving higher performance. Services globalization is a contact sport; the scope, pace, and focus of change must be modified daily as business conditions evolve.
Setting up realistic expectations. In the internal sales process, tempering the hype around miracles is a very wise strategy. Levying realistic expectations means assembling a good baseline in order to quantify rational changes in performance, not grasping blindly for aspirational benchmarks that are completely outside of the realm of achievement.
Most targets are set assuming that business conditions are static. Understanding the inter-relationship between services implementation, market conditions and other corporate initiatives is critical. An acquisition or marketplace volatility may impact the pace of change and the achievement of the end state. Smart sponsors manage expectations accordingly.
Develop the contract as a vision of the end state. Whether the delivery method is outsourcing or establishment of a captive, a bipartite contract is a critical tool. It expresses, in a way no other declarations of program intent can, a description of an end state complete with methods of measurement, roles and responsibilities. With the power of enforcement, the discipline a clear contractual obligation imposes on business-process improvement is invaluable.
Embrace differences in culture and organization as an enabler of change. Much is written about the implications of culture when the delivery model goes global. Most organizations bash cultural differences, positioning them as a barrier to change rather than an enabler.
Cultural differences facilitate change in a range of ways. Just breaking the “cultural tariff” of a company can deliver benefit. When all employees, whether staff or line, have the same sense of empowerment and participation in the organization, the customer relationship can be suboptimal. Just delivering from a remote location, through staff whose compensation and benefits are tied to the performance of the business processes they deliver, can be sufficient to improve the customer relationship. And when the major focus of the delivery organization is to continually improve processes, and delight the customer, its DNA is very different from the customer organization. In effect, merely breaking the structure makes positive change.
Ensure change is end-to-end. Identify barriers to improvement in upstream and downstream processes concurrent with transition to a new operating model. Think of offshore or outsource delivery as a black box. Both captive entities and third-party providers can quickly become adept at streamlining and improving processes within their control, meeting and exceeding service-level agreements.
But the entire scope is not generally under the complete control of a global services’ entity. Upstream processes such as budget approvals, or downstream processes such as reporting, are delivered by the legacy organization. These processes, left as is, diminish the impact of improved delivery.
Higher standards are reached only when change affects the right scope. Delivery challenges typically occur outside of the processes delivered by a remote center. Fixing only part of a process or function is suboptimal. Ensuring that the change program encompasses improvements to the processes that intersect/interact is key.
Demand benchmarking to isolate and compare vertical, captive and third-party delivery. Much of the performance data that established benchmarking firms collect comes from participating companies without any distinction as to operating model — vertical, captive or third-party delivery. Therefore, it is nigh on impossible to compare the true performance of one operating structure versus another.
While many in the provider community balk at contractual benchmarking clauses, it is an independent measurement and acknowledgement of claims of performance. An accepted measurement framework dimensions the art of the possible. Only with third-party certification of a stream of benefits can corporate expectations of provider performance be tempered.
Are the expectations of global services delivery reasonable? Truth be told, most services globalization initiatives fail to deliver the benefits envisioned during the planning process. The performance level, the elapsed time to steady state or the achievement of cost savings often fall short of established targets. Yet, the change represented by outsourcing is probably the surest way to achieve higher standards in process performance.
Deborah is Chief Marketing Officer of a leading offshore business-process outsourcer. Formerly a Partner at two professional services firms, Managing Director at two global banks and a founding executive at a BPO service provider, she has a unique perspective on an industry that she believes will flourish, often in spite of itself.
