By Jerry E. Durant
What we call BPO really consists of either business process outsourcing or business service outsourcing. The difference isn’t just semantic, but goes to the heart of how buyer and seller structure their relationships. Those who get it right will have a competitive advantage, whether as customers or providers – especially in an ever more nervous and cost-cutting environment.
Business process outsourcing supports ongoing processes, while business service outsourcing is carried out as a one or series of point-in-time engagements. In business process outsourcing the process –- the “secret sauce” that provides much of the value — is owned by the buyer and only implemented by the provider. In business service outsourcing the process is owned by the provider. This major difference between what is provided, and how it is provided, has major implications for the governance of the outsourcing relationship, and the business opportunities available for the providers.
This split between outsourced process and services is similar to the split in the manufacturing world. In one case, factory commissioned, a food processor might, for example, create a house brand of corn flakes for a super market chain. As long as the manufacturer meets certain standards for quality and price, it is up to them, using their own technologies and resources, to produce the product. Compare this with, for example, a manufacturer charged with creating a sanctioned proprietary/protected product, such as the contract manufacturers who build Apple’s iPad. Here, the manufacturer provides the people, factories and other assets required to produce the product, but are required to follow processes strictly prescribed by the buyer.
Whether the product is cornflakes, a tablet computer or a Web application, understanding who owns what is critical to understanding which party – customer or provider – is responsible for delivering improvements in efficiency and delivery. Remember that for business process outsourcing the methods are owned by the buyer and for business service outsourcing they are owned by the provider. Only by understanding which of the parties owns the potential to add value, ands is responsible for it, can expectations be properly set and value properly measured.
By keeping this distinction mind, buyers can create more detailed and targeted RFPs, including only the most appropriate and critical criteria. Once responses are in, they can more efficiently identify the most appropriate providers. Throughout the engagement, they can provide more detailed and useful feedback to the provider, maximizing their contributions and identifying more quickly when a change in provider is required. By better understanding where they can and cannot provide value, providers can better identify which opportunities to pursue and how. A business services provider, for example, who recognizes they are responsible for a processes might charge a premium for optimizing it, while a business process outsourcer might avoid such efficiencies because they would reduce the number of people required to provide the service, and along with it their revenues.
The early adopters in the customer community will enjoy greater efficiencies more quickly. Providers who implement the BPO/BSO model will create a unique market presence and provide more highly targeted services more cost-effectively than their competitors.
Providers that have delivered both processes and services under the same umbrella may find that they are challenged as they determine which business(es) they are in, and what changes they need to make to maximize their value. Some providers, for example, for example, may find they lack the senior staff required to create sound processes and to improve them. Customers, for their part, will need to be open to process changes from providers who may not have previously offered them. An atmosphere based on insight, trust, stability and sound governance are strong catalysts for acceptance.
Using this understanding of BPO vs. BSO to deliver value is not easy. Optimizing process is a delicate in some ways even a “surgical” task that requires removing enough steps to reduce costs, but not so many that they erode value. Customers, for their part, need to resist the temptation to add functions to meet regulatory or other requirements without eliminating less essential features. Both parties have to carefully evaluate the processes they seek to improve and have an in-depth understanding of both the business issues and how the services will be delivered. But recognizing the difference between BPO and BSO provides an opportunity to drive quantum improvements in processes, and to steal a march on competitors, whether for service customers or providers.
Jerry Durant is founder and chairman emeritus of The International Institute for Outsource Management, a trade organization dedicated to the assessment, development, and guidance of outsource service providers in the ITO, BPO, Call Center and KPO domain areas.