An outsourcing advisor describes how customers go wrong in managing outsourcing vendors, the proper use of scorecards and the importance of organizing vendor management along tactical, operational and executive lines.
BPO buyer organizations talk the talk when it comes to governance and include it in their contracts, but many are not walking the walk. Thorough BPO vendor management is inconsistent at best, and this puts BPO engagements at risk as poor management of the relationship typically erodes value over time.
That said, there is typically plenty of opportunity for interaction and communication to improve, and buyer organizations should be looking for ways to stabilize and properly execute their vendor management practices as they can provide significant value to both parties in a BPO service delivery relationship.
The Three Layers of BPO Governance
A critical part of BPO vendor management is ensuring that once the structure and cadence of the vendor-buyer relationship has been established, governance then occurs at three layers: tactical, operational, and executive. The tactical layer involves topics and issues which are resolved in daily or weekly meetings and are directly related to executing project tasks and resolving specific concerns affecting daily services activities. The operational layer involves topics and issues which are resolved in weekly or monthly meetings, such as reviews of metrics, reports on service level agreements (SLAs), proposed contract changes, and higher-level productivity and process improvements.
Meanwhile, the executive layer involves topics and issues which are resolved in quarterly or seasonal meetings between high-level executives on the vendor and buyer sides. These include escalated issues that significantly affect performance, trend analysis, and strategic issues such as mergers and acquisitions and/or changes in IT infrastructure which may change the direction of a BPO program. Elements of the executive layer are often overlooked, but highly beneficial to both parties in the relationship, such as helping to align strategic objectives.
In addition, the vendor can showcase other services in its portfolio that may provide value to the buyer, and the buyer can identify specific needs not getting adequately addressed. Both parties can share meaningful feedback and insights that are not talked about on a day-to-day basis, but can provide significant value over time.
Watch the Scorecard
A well-executed and developed vendor scorecard is critical to effective vendor management. But while most BPO buyers keep some kind of scorecard, it often contains the wrong information. A properly developed BPO vendor scorecard covers three categories of metrics: contract compliance, operational performance, and strategic planning.
Contract compliance measures the vendor’s fulfillment of contract obligations such as invoicing, reporting, and change control.
Operational performance, which involves meeting metrics such as SLAs and key performance indicators (KPIs), ideally should align with contract compliance and provide clarity to any performance issues and resulting service level credits.
Strategic planning relates to high-level decisions that set the future course of the BPO relationship.
A challenge for many BPO buyers is that a “green” scorecard is not necessarily indicative of the overall health of the vendor-buyer relationship – buyers may still be unhappy with the services they are getting. For many buyers, this is because they defined metrics that do not necessarily conform with performance aspects that are truly meaningful to the enterprise. For others, this is because metrics such as SLAs and KPIs typically measure quantitative results, such as how many customer calls are handled per agent per shift at a call center. They do not, however, measure qualitative results, such as risk and customer satisfaction.
In addition, too many BPO buyers use their scorecards to measure generic, “industry standard” results. While there is nothing inherently wrong with this, unless a scorecard also measures results specific to a buyer’s situation, it will offer an incomplete picture of what is going on. For example, a buyer organization may routinely pay early in order to receive early payment discounts, and the critical performance measurements should take this factor into consideration.
Communication is Key
To properly measure both quantitative and qualitative results and ensure a healthy vendor-buyer relationship, BPO buyers should actively communicate with their vendors as part of any vendor management program. Too often, organizations don’t actively invest in communicating with their BPO vendors, and see both satisfaction and performance degrade. At a certain point, perception of performance becomes more important than performance itself, and poor performance becomes a self-fulfilling prophecy. It can take a while to gather enough evidence to determine whether a vendor management program is working.
Ideally, the vendor-buyer relationship should grow stronger over time as communication practices improve and vendor performance enhances credibility and trust. That is when you know you have an effective vendor management process in place – when the strength of the interaction increases as the relationship matures.
Dave Borowski is senior associate at outsourcing consultancy Pace Harmon