class 8 - managing the buyer–vendor relationship

8/3/2019 Class 8 - Managing the BuyerVendor Relationship

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DAC 3106: BUSINESSPROCESS OUTSOURCING

Class 8: Managing the BuyerVendor RelationshipOctober 22, 2011


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Agenda2

Introduction

BPO Management Skills

BPO Relationship Success Factors

Relationship Risk Factors


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Introduction3

Managing the BPO relationship successfully is achallenge for buyers and vendors alike.

The complex nature of an outsourcing agreement lendsitself to a variety of challenging relationshipmanagement issues.

Relationship management is a key component of anysuccessful outsourcing project, however, it is the mostoften neglected one.

Successful management of the outsourcing relationshipdepends on how the requirements are defined, theobjectives described, the vendor chosen, the keypeople, and the contract written.


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BPO Management Skills4

Managing BPO relationships requires a variety of skills,including the following: Negotiation skills. There will often be give and take in a BPO

relationship. Thus, it is important that the project

management team be skilled in negotiating points of viewand in presenting them in an acceptable manner to thevendor.

Communication skills. Outsourcing project management teamsare the glue between a companys business needs and thevendors services. Effective communication skills arenecessary to prevent simple problems from becomingcomplex ones.

Business skills. It is important to continually understand thechanging business needs and align the services from thevendor with the BPO buyers business objectives.


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BPO Management Skills5

The senior management of the BPO buyer must

necessarily be involved in periodically monitoring

the BPO relationship and in ensuring that it stays on

track. Senior management plays a critical role in

communicating the reasons for and results of

outsourcing across the company.

Some firms, create the position of Outsourcing

Relationship Manager


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BPO Relationship Success Factors6

Build trusting relationship

BPO buyer and vendor is intimately related to thecontract between the parties, but is not confined to thecontract alone.

Companies must reach beyond the deliverables,timetables, penalties, and remedies specified in thecontract and SLAs.

Each party should dedicate sufficient time andresources to the relationship to build trust.

It is difficult to conceive how the requirement to build trust could be

specified in a contract. In fact, the very idea that it would be spelled out

in legal terms seems to contradict the meaning of the term.


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BPO Relationship Success Factors7

Ingredients of a Trusting BPO Relationship Shared vision and expectations

Consistency of actions

Predictability of responses

Respectful of confidentiality issues Long-term, mature, and enduring

Aligned interests and goals

Mutual respect and understanding

Proactive and intense communication

Integrated systems and processes Encouraging and participative

Sharing of risks and rewards

Operating as extended organizations


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BPO Relationship Success Factors (1/2)8

Six other essential ingredients of a successful BPORelationship:

The BPO buyer must understand and respect the vendors needto make a profit. The BPO relationship cannot be driven by

cost reduction above all other considerations. In order forthe vendor to continue to be motivated to provide high-quality services, there must be profit in the relationship.

The contractshould have provisions for SLA recalibration. As

business conditions change, the original SLAs may be out ofline with industry practice and need to be recalibrated.

The buyers responsibilities should be clearly articulated. ManyBPO contracts clearly articulate the vendors responsibilities,ignoring or minimizing those of the buyer.


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BPO Relationship Success Factors (2/2)9

Six other essential ingredients of a successful BPORelationship:

The BPO project management plan should include provisionsfor changing the PMT structure or members. Although changes

in PMT structure and membership should not be cavalier,allowances should be made for member attrition androtation.

The PMT should use systematic problem identification andresolution techniques. Rather than waiting for problems toarise in the relationship, the PMT should use a systematicand proactive approach. Of course, such an approach mustbe based on interorganizational trust and honesty.

The PMT should develop interpersonal relationship norms. Suchnorms should arise from within the group and should governthe manner in which PMT members relate to one another.


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Relationship Risk Factors10

Although a mature and seamless relationship would

most likely enhance the benefits of outsourcing,

failure in the BPO relationship can lead to negative

and potentially irreparable consequences. It is impossible to control the way the BPO market

will evolve, but organizations can control with whom

they partner and how that relationship evolves


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Seven common pitfalls of failed BPO relationships.

Lack of appropriate buyer control A buyer that tries to maintain complete control over the outsourced

process will undermine the leverage the vendor can employ to

deliver satisfactory services. However, the danger in an outsourcing relationship lies in the

inability of the buyer to develop an appropriate level ofrelationship control.

Cultural differences Differences in culture and work styles between the client and the

BPO provider can result in severe misunderstanding and mistrust.

Differences between buyer and vendor cultures are aggravated ifone or both parties is unable to listen to and understand the other.

BPO buyers should be especially sensitive during the vendorselection process to how well the various bidders listen to their

needs.


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Inflexibility in BPO agreements It is necessary that BPO agreements be designed to provide for

adequate flexibility in order to withstand both the dynamics of thebusiness environment and the pressures that are inherent in such a

contractual agreement. Typically, BPO contract agreements are crafted on certain key

assumptions pertaining to technologies, business conditions, personnel,and other relevant issues. But these assumptions are likely to change withtime.

No matter how detailed the contract or favorable the terms, BPOagreements cannot anticipate all of the changes that occur in a dynamic,

global business environment. This inability to anticipate changes tends to ensure that one, if not both,

of the parties will be disappointed with the relationship over time.

Long-term contracts that lack flexibility significantly increase thelikelihood of dissatisfaction between the parties and can adverselyaffect the relationship.


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Inadequate SLA specifications and/or metrics SLA specifications and metrics measure the providers

performance during the operating phase of the BPO Life Cycle.

The specifications must be clearly defined and effectivelydesigned into the contract because this is what allows the buyer acomfort level in turning over control of its business processes tothe vendor.

Too often, firms turn over a business process to a vendor andexpect them to deliver services that conform to expectations,without providing a clear statement of those expectations.

Carefully structured SLAs and rigorously applied metrics willensure that none of these potential corrupters of vendorperformance levels result in adverse consequences.


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Inadequate governance Informal, unstructured, and/or inadequate attention given to

relationship governance issues often leads to relationship difficulties.

There is adequate contractual attention given to compliance toservice levels, but attention is rarely given to governance andachieving relationship maturity levels

Lack of goal alignment Goal alignment means that both parties take action, including

investment of time and financial resources, toward the goals theyarticulate to one another.

Merely stating goals is not enough. Both firms must demonstratecommitment to those goals through actions.

An outsourcing relationship is bound to fail in a situation where theparties do not align goals, objectives, and interests.


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Lack of integration The development of an effective BPO relationship is not only a

process or infrastructure issue but also requires cultural

replication, and sharing of vision and values.

Infrastructure Integration and challenges ( - NEXT WEEK)


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End of Class 2

References

The Handbook of Global Outsourcing and Offshoring

Essentials of Business Process Outsourcing

Business Process OutsourcingThe competitiveadvantage

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class 8 - managing the buyer–vendor relationship

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