Q: What is the typical time frame for a BPO contract?
TL: When presented with a five month time line to a Business Process Outsourcing (BPO) contract, and a further three months to the first offshore go-live, a recent client complained that it was too long, noting that he could close an acquisition quicker than that! This is a common reaction from business leaders. Many question why these deals need to take so long. But in fact, five to eight months is pretty short. Twelve months or more is common for many deals, particularly those that follow an over-engineered, adversarial procurement process.
Q: What are the main areas that really drive the time requirement?
TL: There are several areas that drive the time requirement. The first and most obvious areas are scoping and baselining current services. This is essential. You can’t safely outsource what you don’t understand. The resources, costs, process flows and service levels should be understood and documented. The time taken to do this will depend on the current state of documentation and the complexity and standardization of the process – but it typically takes several months to complete. The more accurate (and provable) information you can give the providers the better their proposals will be. And provider due diligence really should take place pre-contract. If you leave this to post-contract verification it shifts the risk substantially to the client.
Q: What about site visits - are these really necessary or just a waste of time?
TL: You really can’t outsource (and especially offshore) to providers without personally checking their facilities, people and processes. The ability to work together is critical, and that can only be judged by meeting the delivery staff in their environment. Trips to multiple offshore sites take time and effort.
Q: Contract negotiation is sometimes seen as a stumbling block. What are your views on this?
TL: It’s rare for a BPO contract to be negotiated and signed in less than three months, and the three months can only start when the preferred provider is selected.
Q: Why is this so long?
TL: Partly it’s the commercial nature of the relationship, which is often described as “partnering” but is contractually customer-provider. And it’s a long-term relationship, so unlike in an acquisition or divestment, the parties have to live together afterwards, so it’s not helpful just to go for win-lose on key term. Furthermore, win-win takes longer to negotiate. Many outsourcing deals spend months stuck on the minutiae of detailed commercial terms – focusing on what really matters in terms of risk for both sides can help loosen the log jam. So the terms and conditions can be difficult to negotiate, but at the same time the heart of the contract is actually in the services schedules, and they take time to document because they involve agreeing both what the service is, what it will be, and what the client has to do as its part. Of course it is possible to proceed without defining the service schedules, and many do – but this is highly risky and a common cause of failed deals. If it’s not documented it’s highly unlikely that both parties will have the same understanding of what it is that is due to be delivered!
Q: What else should be factored in to the timeframes?
TL: There are three factors that should be considered. They include:
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Telecommunications Lead Times
This impacts time to first go-live, and it is a critical-path item which is difficult to accelerate. Establishing adequate telecommunication links to, say, India generally takes 2-3 months, and is in the hands of third party providers.
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Knowledge Transfer
Again this impacts the time to go-live. It generally takes 3 months to learn enough about a moderately complex process to be able to take it offshore. That’s around a month for the supplier to confirm/document processes and procedures, a month or so for work-shadowing, followed by a month of knowledge transfer and training off-shore.
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Staff Communication & Consultation
In Europe, for example, the law requires proper consultation during the outsourcing process. This varies from country to country but in the UK where 100 or more staff is involved, this typically means a period of 3 months before a deal is done, or at least before an irrevocable decision is made. Organizations have their own internal policies of course, but the elapsed time cannot realistically be compressed.
This should give a flavor of what takes time – a combination of work needed to define services that typically haven’t been closely defined before, together with the complexities and lead-times associated with commercial, technical and people issues. And of course, these tasks aren’t all sequential, but the combination of factors show why deals take months, not weeks, and why there is little that can be done to safely compress most of these tasks.
Q: Which factor in your experience extends the timeline more than anything else?
TL: Ironically in our experience it is often delays in the client organization making decisions – typically when it comes to selecting a preferred provider and then again on agreeing the final contract. And that is something which clients could control. |
