How to Build a Successful Outsourcing Partnership?
Wojciech Krasniewski
SVP @ COPC EMEA Business Development I CX I Consulting I Training I BPO focused on ROI
All relationships need balance to work, the outsourcing partnership is no different.
More than ever, customer experience (CX) has become of critical importance in every company’s strategy. More products and services are easily available, consequently growth trends have shifted into the experience economy. Consumers can conveniently choose what and when to buy, making their decisions often based on emotions, including brand identity and the experiences they, or people they know, have had with the brand. It is expected that the Experience Economy will further continue to expand.
That said, this article summarizes some of the topics and the insights from discussions with clients and CX peers concerning outsourcing of CX Services. And to be clear, discussions around CX solutions, pricing or contract topics never get boring. Some of the topics mentioned in this article are:
1. What are the main factors to consider when solutioning and outsourcing services?
As today’s possibilities increase, new ways to interact with customers, digital solutions and a multitude of new channels, the complexity of contracting models increases too. Whilst change being the only constant nowadays, it has become increasingly difficult to design the “right-fit” BPO solutions for your business, agree contract terms, and finally manage these solutions successfully on an ongoing basis.
First of all, why do organizations typically outsource? Let’s have a look at the top 6 reasons based on COPCs Inc. recent research and findings. The main reason for outsourcing remains “Cost Reduction”, followed by flexibility, and not surprisingly technology closing the top 3 reasons. The remaining reasons are performance management, out of hours support and finally multilingual support closing the top 6 reasons for which Customer Service Provider (CSP or client) outsource to Outsourcing Service Provider (OSP):
Down the line, there are far more reasons to consider. Of course, it depends on your individual business needs but usually it’s the balance and the combination of the above reasons for which organisations outsource, with each reason having a different weight and priority. Mentioning the top priorities such as cost reduction, flexibility, performance management, these are obviously impacted by shoring strategies and location (domestic, near- or off-shore) but also highly dependent on the operational performance of the service delivery itself. That said, despite cost, flexibility, technology and innovation and analytics, it is still important to get the basics right. Isn’t it?
Absolutely, even by applying high-end digital capacities or CRM solutions, it is impossible to achieve high performance and high efficiencies without focusing on strong operational processes and structure addressing amongst other recruitment, people management, learning and development, workforce management, and quality assurance. Therefore, designing and delivering effective outsourcing solutions which drive day to day performance and continuous improvement for the organization and the customer, require a robust operational model in the first place as the main foundation for success. High Tech only will not make the customer happier, and vice-versa no technology at all neither. The key drivers for outsourcing success are, and likely will remain in the future, the right balance of human empathy and high end technology, packed in a robust operational framework provided at the right price, at the right time and being well measured and managed by yourself and/or your OSP.
Great, but how do I achieve this? To answer this question, let’s have a look at the typical challenges of an CSP and OSP organization. You might think your challenges must be the same for your OSP, because ultimately you are compensating your OSP to help you solve your business challenges in the first place. But is that true? Well, only to a certain degree. Based on recent research, the only common challenge, being the number 1 for CSP and OSPs, is “Improving Customer Experience”. The other two top 3 challenges differ significantly between CSPs and OSPs:
There are more challenges, right? Yes absolutely, as you may have noticed there are several more challenges to accomplish to achieve high performance in a mutual outsourcing partnership. Amongst others capacity planning, real time management, staff turnover, budget constraints, organizational restructuring, sales, and many others. Challenges have obviously a different weight and impact to your business, and therefore require a differentiated prioritization within the outsourcing solution too. Why?
Because your and the OSPs challenges aren’t the same, they need to be differently addressed throughout the outsourcing solution itself. To ensure the outsourcing model is in line with your specific business challenges and objectives, the defining requirements to selection stages of procurement is key to enable for a high performing outsourcing partnership in the future. In different words, a penny spent in the OSP selection process becomes priceless at a later stage, after the OSP selection process is finalized and go live with your OSP is accomplished. If you make the right things right in the beginning of the selection process, you will have less effort down the road for all parties, your customer, yourself and the OSP.
Based on our experience, the best solution is managing challenges even before they appear and become a threat to your business. However, this proactive approach requires moving away from a ‘one-size-fits-all transformational approach’ towards a truly operations centred management model, capable to measure and manage human- and digital-assisted channels, with cost and quality focused goals. Outsourcing is complex and an outsourcing partnership is never the same due to different clients, KPIs, strategies, budgets, people and finally customers being different too. Hence a solution, contract and pricing model are never the same either. A well balanced solution and consequently, contract and pricing, is always the outcome of the inputs. As client requirements and inputs vary, outputs are different too. To design a contract and pricing model sustainably, focus on the inputs first to create an operations centered management model with cost and quality focused goals, rather than the outputs and the price itself.
2. Have I considered all factors, and their impact to performance and pricing?
To provide you a better view about the inputs required in the solutioning phase, and consequently the complexity, I’ve summarized the main factors which have a direct impact to your customer experience, performance, and costs, and consequently the overall success of the outsourcing partnership.
There are far more than 50 variables to consider when designing outsourcing solutions. Each of these variables directly or indirectly effect the customer experience, performance and costs. Some of the variables are more critical than others and decide about future success or failure of your partnership. Here is the overview of the 50 most important variables to consider when designing outsourcing solutions:
To create a mutually beneficial partnership requires to get the puzzle completed linking piece by piece without losing sight of the bigger picture. This must be done pre-contract stage during the OSP RFP and selection phase and be clearly reflected in the contract as the final step. Due to the high complexity, CX Vendor Management Organizations may not be fully aware of the impact of their requirements on performance and costs of the OSP solution, hence do not differentiate the critical ones from the less important factors to better balance performance vs costs.
Similar applies to the OSPs, who may propose approaches not being fully aligned to what the CSP or Vendor Management Organization truly want. Either through not fully understanding the CSP requirements, or because of the lack of certain capabilities. To be clearer, waiving one requirement from the requirements list may result in a significant better balance between performance and costs, without impacting customers satisfaction nor dissatisfaction. And vice-versa, adding a requirement might results in a better synergy and cost to performance balance. The question remains which is the variable or trigger that won’t harm my customers and reduce my outsourcing spend by a few percent? This depends on the details and can be pricing model all way through to performance management elements, as your solution is unique, this variable and trigger is unique too.
Further, the OSPs bidding for the partnership are not always fully transparent as the OSPs main interest is to win your business in the first place whilst ensuring high profitability. And yes, OSPs need to be profitable when providing services to ensure a successful partnership, but their profitability should be dependent on the performance of the services provided, and not purely on services rendered. Certainly, all OSPs are competing on the marketplace to win new clients, therefore consider the price being often their key differentiator and input to the solution. Why is that a mistake?
Although cost being the top 3 priority, it is an output of the requirements and solution and not an input, therefore similar as with everything else: "The bitterness of poor quality remains long after the sweetness of low price is forgotten."
Low price most often does not mean a well-balanced outsourcing operation, and high prices neither. In different words, a typical car consists of more than 30 000 parts. Each part alone doesn’t make the car drive, only the combination of these deliver the purpose it’s been built for, regardless of price. The same logic applies to a high performing outsourced CX service operation, and there are more purposes than purely low-price, especially from a customer perspective.
3. How do I select my Outsourcing Service Provider (OSP) and what are the pitfalls?
Without a doubt, the OSP selection process is the most critical step for creating a long-term high performing outsourcing partnership. However, it often results in being a ‘check-list’ routine with limited prioritization of customer experience, performance and cost critical factors. If not conducted by professionals who truly understand the dependencies and specifics of the CSP and OSP worlds, it may not lead to the desired results, consequently with disputes and issues during the partnership itself. Customer, performance, cost critical factors will create the foundation of your contract topped with performance based reward schemes, which will be supplemented by legal aspects, such as liability and exit clauses which all together lead to the essentials of a ‘performance focused’ and mutually beneficial partnership.
Easy said, but hard to achieve. Hard doesn’t mean impossible and there are many examples that prove that mutually beneficial outsourcing partnerships do exist. How does it all start? Usually, an outsourcing partnership begins with firstly thoroughly understanding and documenting your business requirements and a comprehensive structured selection process through an RFI/RFQ/RFP in which the CSP outlines the key parameters and problem/mission statement. In a nutshell, the CSP usually provides a comprehensive description of the requirements including but by far not limited to:
The OSP responds to this request with a comprehensive proposal, proposing their solution to meet the CSP requirements and objectives, which usually includes:
What’s next? The CSP short lists the top 3 to 5 OSPs who have qualified to the next stage, and the evaluation continues involving structured site visits, OSP presentations and final stage negations. This process usually takes 3 to 12 months depending on the scale, sometimes even longer to have the final contract agreement and project implementation completed. The efforts and resource requirements are usually very high pre and post OSP selection process. It typically involves CX Executives within the client organization supported by SMEs amongst other in operations, HR, IT, compliance, procurement and legal and others. There are certainly more relevant elements and equally the evaluation and final scores are prioritized and weighted. Once completed, usually the legal team supported by procurement and operations moves forward with negotiating and finalizing the contract details. What are the common pitfalls and risks of this process?
The OSP selection process is fundamentally important to create a high performing partnership. However, often because of the complexity and duration of this process whilst maintaining business as usual, the key intention to achieve a high performing partnership at competitive costs is getting out of sight. To avoid common risks and pitfalls, a few recommendations you may consider based on best practice to ensure an efficient OSP selection process:
1. Lack of clarity in your business requirements create a lot of misunderstanding down the line. Make sure to spend enough time to determine and document the inputs to your RFP.
2. Calibration with your internal teams to create a list of priorities from each department is usually a good starting point. This may include questions, the intention is to avoid an “RFP as usual routine” which may not be adapted to your specific real-world customer, performance, cost critical requirements and variables.
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3. Identification and differentiation of your specific customer, performance, cost critical inputs. Consider differentiating critical vs non-critical inputs before issuing the RFP. This will also allow the OSP to identify what you truly want and avoid ‘one-size-fits-all’ solutions and proposals.
4. Setting and using a defined and clear list of evaluation criteria is a must. Ideally, using a scoring tool will significantly reduce efforts for scoring whilst ensuring objectivity during the OSP evaluation process.
5. Setting realistic deadlines, both internally and externally for the OSP, consider sufficient time for the internal evaluation and (re)modelling. Reality shows you receive better results when allowing sufficient time for the OSP to evaluate your needs and model effective solutions.
6. This depends on the specific case but you may consider the re-evaluation of your requirements during the process, sometimes it is worth reassessing priorities based on the solutions and commercial models received from the OSP. You may want to plan time for this with the team and set milestones accordingly in the project plan.
7. The proposed solution by the OSP often requires in-depth analysis and modelling to find the best balance between performance and costs. Trust the OSPs but not without evidence. OSPs know what you want to hear, don’t take it for granted and request evidence for customer, performance, cost critical factors.
8. Most importantly, you may consider going in depth to analyse the OSPs solutions, to understand why it has a better price than the competitor’s solution. There are a lot of variables to consider but this is core to success, don’t hesitate to seek external and objective SME support if required. The investment will pay off during the entire contract period.
4. What are the best practices to consider when building an outsourcing partnership?
To summarize, building a high performing outsourcing partnership from the ground starts with inputs, and not the price. And most importantly, it’s all about the right balance and design for purpose to achieve a well-balanced and future proof partnership. Creating the links between all inputs, identifying the true operational business requirements, will drive significant better outcomes. Amongst many others, a few important things to consider as best practice, which will impact future performance of the outsourcing partnership, and which need to work well in reality and day to day business operations:
1. Setting goals and directions, setting clear targets, governance and a mechanism of reviewing these on an ongoing basis which needs to be clearly reflected in the contract with the OSP.
2. Focusing on customer critical, business critical and compliance critical elements, aligning the targets to reflect the ambition of High Performance and linking them to commercials.
3. Focusing on operations critical elements impacting performance and efficiency, such as WFM – Forecasting, capacity planning, scheduling, real time management as well quality assurance and voice of the customer analytics. This includes technologies used.
4. The OSP needs to have an operating standard that is robust, structured, and capable to measure and manage people, processes, technology to drive outputs and continuously improve. Reflect this in the contract especially for multi-site delivery or Work at Home (WAH).
5. The Performance based part of the payment model must be realistic and achievable, focus on bonus and reward high performance rather than penalize average performance. There are a variety of pricing approaches and benefits that may drive different behaviours, chose wisely as this will impact the entire future OSP partnership.
6. Ensure to consider the ‘People -Element’. In reality, contact centers are not always the best place to work, it is hard work, day in and day out. Make sure that your OSPs have a well balanced and proactive people management methodology and continuously measure and drive Employee Engagement. Confirm recruitment pool available, ask for Employee satisfaction measures and frequency as well as actions to ensure people are coached and developed and well taken care of. Attrition is one of the critical success factors and impacts all, customers experience, performance and costs.
5. Why is external support in the OSP selection process a benefit?
First of all, let’s differentiate between creating an efficient outsourcing solution and managing the solution throughout the outsourcing partnership. As mentioned, creating an effective and efficient outsourcing solution for both parties requires a clear understanding of the business requirements and the impact of the above mentioned variables to the solution and pricing of the OSP.
Customer experience, performance, and costs critical elements are not easy to identify for both, CSPs and OSPs and therefore hard to prioritize. However, even identifying those is only half the success. Each OSP is using different variables (their value itself) ranging from attrition, shrinkage, occupancy, locations, margin, capex, and many others. Therefore, each of the OSPs solutions being different too.
However, this doesn’t mean that the OSP with the lowest price has provided the best solution. And opposite to this, the OSP with the highest price neither. With price being the output of the solution, you need to understand the solution to understand the price. And to understand the price you need expert knowledge of both, the CSP requirements and variables AND the methodologies and calculations used by the OSPs.
It must be a solution fit for purpose, and that requires understanding each of the benefits of the solution to find the ideal balance. There are significant opportunities for optimization of a solution during the solution stages and consequently benefiting the future outsourcing partnership overall. In fact, there is not a single case where we haven’t found room for optimization. To be clearer, optimization in a mid-size outsourcing partnership usually means millions of spent during a typical 24/36 months contract term. A few percent optimization directly translates into substantial savings, usually in the 5 digits and more. Not to mention the benefits for your customers receiving better service and quality, consequently leading to promotors and higher loyalty, which leads to higher revenues.
Nonetheless, the important variables are usually deeply hidden in the multitude of requirements and solutions and the high overall complexity during an outsourcing project. That said, how do you reveal the hidden customer, performance and cost critical variables?
Similar as with the car, an effective outsourcing solution requires “experienced engineers” to ensure the solution is efficient, effective and customer focused, whilst ensuring the right balance of quality, flexibility, and control vs operating costs of the solution itself. Now, not everyone who buys an outsourcing solution is an "CX Engineer". And that’s fine, you need to have a driver’s licence, but you don’t need to be an engineer to drive a car. However, you rely alongside the process of buying the outsourcing solution that the OSP have done their best to ensure the solution is sustainable, efficient, flexible, easily to control and well balanced. Right?
Exactly, usually you don’t have all the required "CX Engineers" within your organization when “building” an outsourcing partnership. This is often one of the main challenges for procurement. And that’s exactly the point, you are trusting the OSPs to engineer the solution for you. And again, that’s ok, but how can you be sure that the solution that you are building is well engineered? No, low price does not mean well engineered.
As outlined across this article, price is an output of all the variables/requirements, so engineering against these variables might be very risky if you aren’t fully aware of the dependencies. Yes, you might receive a price which will meet your budget requirements but how can you ensure that the future quality of that partnership (or the car) isn’t low-priced either? In other words, without having “CX Engineers” who really understand your requirements and the variables, and the outsourcing Industry very well, you are actually buying a car that you have never seen, nor designed, nor ever driven before. And why would you want to risk it?
Instead of risking it, you could use external "CX Engineers", who exactly understand all your requirements, the variables, and are capable to deeply analyse OSP solutions. Further, you wouldn’t even need to explain the variables to the OSPs which is an entire universe of abbreviations and calculations. External and independant “CX Engineers” will significantly reduce your internal and external efforts whilst significantly improving the OSP solution and outcomes of your customer, performance and costs related elements.
Managing the outsourcing solution, once the building phase is completed, through the Vendor Management organization and governance model is a different topic and subject on it’s own which we may cover in a different article. Generally speaking, the better the outsourcing solution is set up, the easier it is to manage for both, the CSP and the OSP on an ongoing basis, with better outcomes for your customers and for your budget too.
We have often seen CSP and OSP Organization being heavily engaged in managing exceptions, escalations, budget constraints, flexibility constraints, and a multitude of subjects arising from the day-to-day outsourcing partnership. Most often the root cause being related to wrong assumptions during the solutioning process, which were difficult to identify and to repair. Instead of endless fire-fighting, wouldn’t you wish to reduce this non-value disputes and focus on the value add for your customers?
Of course, you do, especially if this brings significant financial benefits for the company too. And again, this is another reason why external “CX Engineers” can help in the solutioning phase to make the future partnership less “escalation” focused, and more value add to the customer, your business, the OSP and all of this whilst improving performance and decreasing your costs.
About the Author and COPC Inc.
The article was certainly not short, but I hope relevant and informative. The information herein is simplified and by far not exhaustive. Throughout my 13+ years in the CX and outsourcing industry, I've come across thousands of outsourcing solutions, and each solution was different. That said, your solution is certainly different too, but is it performing well?
If you see potential for improvement of your outsourcing partnership, or if you are planning to issue an RFI/RFQ/RFP and consider assistance, please reach out to us. We are truly passionate “CX Engineers” and have already partnered with global well known companies to create the awareness of proven CX Best Practices based on the COPC family of Standards, whilst proving to drive significant ROI! We know the CX Industry and Outsourced Providers (OSPs) landscape better than any other organization:
Our consultants have an average of 17+ years' experience of assessing and working with CSP and OSP organizations and clearly know how to get the best performance and consistency across locations, at a competitive price point. We have supported CSPs and OSPs in creating global successful outsourced operations that have truly driven performance improvement whilst reducing costs, and isn’t this exactly your goal?
For additional information please visit Strategic Sourcing | COPC Inc. or reach out directly to my colleagues or myself, we are here to help you improve your CX outsourcing solution.
Contact Center Allrounder very well experienced in Performance and Workforce Management with a technical skill to support Customer Experience and Operations
2yVery true Wojciech, thank you for this comprehensive and informative article. Working 15+ years in customer services on both sides I experienced, how crucial the relationship is - especially the beginning. I am looking forward reading your next one.
Director Vendor Management & Performance Improvement practice EMEA at COPC Inc. Global leaders in CX, improving Service Journeys for leading brands across the world!
2yA lot of great insights! If you want to improve your vendor relationships and vendor performance, we have the tools and methods to drive the High Performance you want and your customers deserve... Get in touch and we'll help you out.