In recent years, the number of companies that outsource critical
business processes to outside suppliers has grown significantly
worldwide. The business-process outsourcing (BPO) market has been
estimated to be worth $309 billion in 2012,1 including activities such as
finance and accounting, human resource management, procurement
and legal services, and the overall volume is estimated to be growing at
a rate of around 25% annually.2 Many organizations initiated BPO as
part of an operational effort (for example, to reduce costs or access
skills), but it has evolved into much more. Senior managers today
expect more from BPO service providers than short-term cost savings
and meeting minimum contractual requirements.3 Moreover, they are
skeptical of big-bang improvements.4 Companies want service providers
to innovate constantly. (See “About the Research.”) In relationships that
companies classify as high performing, the service providers perform a
series of innovation projects that deliver substantial long-term
improvements to the client’s operating efficiency, business-process
effectiveness and strategic performance. Consider the following
examples:
business processes to outside suppliers has grown significantly
worldwide. The business-process outsourcing (BPO) market has been
estimated to be worth $309 billion in 2012,1 including activities such as
finance and accounting, human resource management, procurement
and legal services, and the overall volume is estimated to be growing at
a rate of around 25% annually.2 Many organizations initiated BPO as
part of an operational effort (for example, to reduce costs or access
skills), but it has evolved into much more. Senior managers today
expect more from BPO service providers than short-term cost savings
and meeting minimum contractual requirements.3 Moreover, they are
skeptical of big-bang improvements.4 Companies want service providers
to innovate constantly. (See “About the Research.”) In relationships that
companies classify as high performing, the service providers perform a
series of innovation projects that deliver substantial long-term
improvements to the client’s operating efficiency, business-process
effectiveness and strategic performance. Consider the following
examples:
- A BPO provider helped a health care company improve the claims
adjudication process by using analytics to predict claims likely to result
in rework. The predictive tool now intercepts more than 50% of claims
that would have been reworked, saving the client $25 to $50 in
administrative costs per overpaid claim and $6 to $12 per underpaid
claim. - An aerospace manufacturer worked with its BPO provider to add new
key performance indicators and processes to manage third-party
vendors. This allowed the client to improve customer-order fill rates
for new parts from 60% to 85% and turnaround times for delivering
parts to grounded vehicles from 21 hours to 17 hours. - A supermarket chain collaborated successfully with its BPO provider to
implement new forecasting tools, techniques and methods that
improved the client’s stock fill rate from 80% to 95%, reduced
inventory by 27% and reduced error rates by 50%.
These types of innovations are not automatic. Companies and service
providers must work together to foster innovation. Specifically,
companies must motivate providers with incentives, and both parties
must nurture a collaborative culture that produces continuous waves of
innovations within client organizations, something we call “dynamic
innovation.” For example, the supermarket chain cited above worked
with its BPO provider to complete a series of more than 50 continuous
improvement projects over the course of three years to achieve cost
savings, faster product delivery times and higher fulfillment rates. A
static view of BPO innovation would treat each individual innovation as
incremental; a dynamic view looks at how year-on-year programs
accumulate to improve the client’s overall performance.
providers must work together to foster innovation. Specifically,
companies must motivate providers with incentives, and both parties
must nurture a collaborative culture that produces continuous waves of
innovations within client organizations, something we call “dynamic
innovation.” For example, the supermarket chain cited above worked
with its BPO provider to complete a series of more than 50 continuous
improvement projects over the course of three years to achieve cost
savings, faster product delivery times and higher fulfillment rates. A
static view of BPO innovation would treat each individual innovation as
incremental; a dynamic view looks at how year-on-year programs
accumulate to improve the client’s overall performance.
What do BPO professionals mean when they talk about innovation?
Based on interviews with clients and providers, innovation is generally
defined as any activity that improves the client’s performance. For
example, one client defined innovation as “realizing there is a different
and better way of doing something, and combining this with the ability
to deliver.” Our survey of outsourcing professionals found the same
result.5 The most widely accepted definition of innovation by clients,
providers and advisors was “something that improves the customer’s
or costs, regardless of its novelty.”
Based on interviews with clients and providers, innovation is generally
defined as any activity that improves the client’s performance. For
example, one client defined innovation as “realizing there is a different
and better way of doing something, and combining this with the ability
to deliver.” Our survey of outsourcing professionals found the same
result.5 The most widely accepted definition of innovation by clients,
providers and advisors was “something that improves the customer’s
or costs, regardless of its novelty.”
One of the most promising lessons from our research is that it is never
too late to start innovating. Many high-performing BPO relationships
did not enact contractual innovation clauses until well after the
relationship had been established. Other high performers did not
include innovation in the original contract, but added incentives for
innovation a few years into the relationship.
too late to start innovating. Many high-performing BPO relationships
did not enact contractual innovation clauses until well after the
relationship had been established. Other high performers did not
include innovation in the original contract, but added incentives for
innovation a few years into the relationship.
Incentivizing Innovation
BPO providers do not need incentives to develop innovations to
improve their own revenue or margins, but they do need them in order
to focus on the client’s performance. We found that both clients and
BPO providers identified several measures such as mandatory
productivity targets, innovation days and gain sharing at the project
level as the most effective incentives for innovation. Other approaches
to incentivizing innovation include making sure that providers know
that they don’t have a lock on the business and introducing special
governance provisions, such as committees dedicated specifically to
innovation.
improve their own revenue or margins, but they do need them in order
to focus on the client’s performance. We found that both clients and
BPO providers identified several measures such as mandatory
productivity targets, innovation days and gain sharing at the project
level as the most effective incentives for innovation. Other approaches
to incentivizing innovation include making sure that providers know
that they don’t have a lock on the business and introducing special
governance provisions, such as committees dedicated specifically to
innovation.
Mandate yearly productivity improvements.
Many BPO relationships are still priced based on resource inputs, such
as the number of full-time equivalent employees required to perform
the services. Although companies like the simplicity and predictability
of FTE pricing, they recognize that input-based pricing can discourage
providers from innovating out of fear that it will mean reduced
revenues. To overcome this disincentive, many BPO clients have
introduced provisions that require service providers to improve the
client’s productivity by 4% to 5% per year. Both clients and providers
have endorsed this approach. For example, a human resources firm
developed several innovations, including a new dashboard that allows
the client to monitor customer satisfaction in ways that allow managers
to identify specific problems. The client explained, “If a measure of
client satisfaction was off the key service indicator, we could actually
dive down and see what part of the business it was coming from.” The
service provider notes that the innovation was prompted by the client’s
demand for continuous improvement and did not result in additional
cost to the client.
as the number of full-time equivalent employees required to perform
the services. Although companies like the simplicity and predictability
of FTE pricing, they recognize that input-based pricing can discourage
providers from innovating out of fear that it will mean reduced
revenues. To overcome this disincentive, many BPO clients have
introduced provisions that require service providers to improve the
client’s productivity by 4% to 5% per year. Both clients and providers
have endorsed this approach. For example, a human resources firm
developed several innovations, including a new dashboard that allows
the client to monitor customer satisfaction in ways that allow managers
to identify specific problems. The client explained, “If a measure of
client satisfaction was off the key service indicator, we could actually
dive down and see what part of the business it was coming from.” The
service provider notes that the innovation was prompted by the client’s
demand for continuous improvement and did not result in additional
cost to the client.
Companies and BPO providers that built business cases for each innovation
project and agreed in advance how the financial compensation would be
allocated reported good results with gain sharing.
Reserve time to drive the innovation agenda.
Innovation objectives can slide down the priority list when people are
focused on operations. But in high-performing BPO relationships,
interest in innovation doesn’t fade; companies and BPO providers
contractually dedicate time each year to drive the innovation agenda.
The contractual clauses are different in each relationship, but in each
case they define the innovation agenda for the coming year (specifying,
for example, innovation days or innovation forums). For example, one
service provider holds an innovation forum at least once a quarter with
her clients. “We bring what we see in the market, and the client brings
what they are seeing in their market,” she said. Based on this
interchange, the provider and client figure out what the continuous
improvement agenda for the next quarter should be. Another provider
explained how his company works with clients: “We have our basic
operational plan for any given year, and on top of that we ask: What
additional value in innovation can we bring? We develop an innovation
plan that focuses on at least four to six key value innovations.” From
this process, the partners developed an innovation agenda that
involved moving 40% of the training courses online, including mobile
learning capabilities through smartphones.
focused on operations. But in high-performing BPO relationships,
interest in innovation doesn’t fade; companies and BPO providers
contractually dedicate time each year to drive the innovation agenda.
The contractual clauses are different in each relationship, but in each
case they define the innovation agenda for the coming year (specifying,
for example, innovation days or innovation forums). For example, one
service provider holds an innovation forum at least once a quarter with
her clients. “We bring what we see in the market, and the client brings
what they are seeing in their market,” she said. Based on this
interchange, the provider and client figure out what the continuous
improvement agenda for the next quarter should be. Another provider
explained how his company works with clients: “We have our basic
operational plan for any given year, and on top of that we ask: What
additional value in innovation can we bring? We develop an innovation
plan that focuses on at least four to six key value innovations.” From
this process, the partners developed an innovation agenda that
involved moving 40% of the training courses online, including mobile
learning capabilities through smartphones.
Gain share the benefits from specific innovation projects.
Among the different ways to incentivize innovation, gain
sharing packs the most punch: It promises to improve a
company’s performance while also increasing the service
provider’s revenue. In our innovation survey, 79% of clients,
77% of BPO providers and 78% of outsourcing advisors saw
gain sharing of innovation benefits as the best way to drive
innovation. Surprisingly, however, survey respondents
reported that only 40% of innovations delivered used gain
sharing. Our interviews also found fewer than half the clients
contracting for gain-sharing clauses; even when gain sharing
was included in the contract, only half of the clients took
advantage of the gain-sharing option. Still, 25% of the
interviewees said that gain sharing was responsible for
powerful innovations within their organizations.Gain share the
benefits from specific innovation projects.
It’s worth noting that gain sharing tended to work better in some
settings than others. It was most effective when used at the project
level. Companies and BPO providers that built business cases for each
innovation project and agreed in advance how the financial
compensation would be allocated reported good results with gain
sharing. By contrast, those that contracted based on overall provider
performance on a yearly basis reported poor or mixed results.
settings than others. It was most effective when used at the project
level. Companies and BPO providers that built business cases for each
innovation project and agreed in advance how the financial
compensation would be allocated reported good results with gain
sharing. By contrast, those that contracted based on overall provider
performance on a yearly basis reported poor or mixed results.
One of the best examples we found of project-level gain sharing was at Microsoft,6 which contracts for global financial and accounting
services with Accenture. The two companies agree to a gain-share
allocation in advance for each innovation project. Specifically, they
agree on how much Microsoft’s bill will be reduced and how much
Accenture’s profit margin will increase. Microsoft might offer to double
Accenture’s profit for a particular service if Accenture is able to reduce
its services bill by a certain amount. The overall effect is the creation of
strong incentives for Accenture, as described by the provider’s
executive for the Microsoft relationship: “My client recognizes that I
need to meet my financial commitments as the service provider. That
may sound strange, but there is a realization that, fundamentally, I
have to be incentivized to do some of the things I need to do. The key
message is a spirit of partnership that I don’t think exists in the other
engagements that I’ve come across.”
services with Accenture. The two companies agree to a gain-share
allocation in advance for each innovation project. Specifically, they
agree on how much Microsoft’s bill will be reduced and how much
Accenture’s profit margin will increase. Microsoft might offer to double
Accenture’s profit for a particular service if Accenture is able to reduce
its services bill by a certain amount. The overall effect is the creation of
strong incentives for Accenture, as described by the provider’s
executive for the Microsoft relationship: “My client recognizes that I
need to meet my financial commitments as the service provider. That
may sound strange, but there is a realization that, fundamentally, I
have to be incentivized to do some of the things I need to do. The key
message is a spirit of partnership that I don’t think exists in the other
engagements that I’ve come across.”
Leverage the threat of competition to incentivize providers.
Several BPO providers in our study felt pressure to innovate for clients
based on fear of competition. Although the particular contract did not
specify anything about the need to innovate, one service provider noted,
“In my mind, if we don’t innovate, at the time of contract renewal the
client will take this business somewhere else if we can’t prove that we
are delivering value beyond transactions.” Providers see innovations as
a way to differentiate their services in a highly competitive market. As
one said, “It is part of the value added that we bring. We are constantly
challenging ourselves to step up our game to improve all the time and
adding value to the client’s business. In doing so, we are also creating
some offerings that are very different than conventional BPO.”
based on fear of competition. Although the particular contract did not
specify anything about the need to innovate, one service provider noted,
“In my mind, if we don’t innovate, at the time of contract renewal the
client will take this business somewhere else if we can’t prove that we
are delivering value beyond transactions.” Providers see innovations as
a way to differentiate their services in a highly competitive market. As
one said, “It is part of the value added that we bring. We are constantly
challenging ourselves to step up our game to improve all the time and
adding value to the client’s business. In doing so, we are also creating
some offerings that are very different than conventional BPO.”
Use governance to incentivize innovation within organizations.
Large BPO relationships are typically governed by operating
committees focused on day-to-day operations, management
committees focused on monthly invoices and service-level reports and
steering committees comprised of senior executives who meet annually
(unless there is a dispute). However, 60% of BPO clients responding to
our survey said that innovation calls for special governance provisions
beyond these existing committees. Only 42% of providers agreed.
Based on our interviews, we found that the people selected to lead are
more important than the structures erected to govern.
committees focused on day-to-day operations, management
committees focused on monthly invoices and service-level reports and
steering committees comprised of senior executives who meet annually
(unless there is a dispute). However, 60% of BPO clients responding to
our survey said that innovation calls for special governance provisions
beyond these existing committees. Only 42% of providers agreed.
Based on our interviews, we found that the people selected to lead are
more important than the structures erected to govern.
According to our survey and interviews, other types of incentives were
not as effective. The least effective incentives were innovation funds,
benchmarking and gain sharing/pain sharing at the relationship level.
Innovation funds — special accounts set up to fund future innovation
projects — were recommended by just 38% of clients, 30% of providers
and 33% of advisors. These relatively low percentages may reflect the
fact that the funds are often too small to motivate parties.7
Benchmarking of best-in-breed prices and service levels, meantime, is
intended to incentivize providers to increase performance to the level
of competitors. But benchmarks often end up triggering disputes. For
example, when an external benchmark found that the provider’s unit
price was well above the best-in-breed price, the client asked for a
reduced price. The provider claimed the comparison was unfair
because the provider had been asked to maintain the client’s old
technology rather than shifting to a newer, more efficient technology.
Clients who defined gain sharing or pain sharing at the relationship
level claimed that annual performance targets were set too low. One
client explained: “The standards were a bit one-sided and not difficult
to meet. It ensured that each year there was a good bit of gain, and the
gain went to the provider. We lose the notion of pain/gain.” To receive
benefits from gain sharing, “you should be truly delivering something
fairly extraordinary,” the client added.
not as effective. The least effective incentives were innovation funds,
benchmarking and gain sharing/pain sharing at the relationship level.
Innovation funds — special accounts set up to fund future innovation
projects — were recommended by just 38% of clients, 30% of providers
and 33% of advisors. These relatively low percentages may reflect the
fact that the funds are often too small to motivate parties.7
Benchmarking of best-in-breed prices and service levels, meantime, is
intended to incentivize providers to increase performance to the level
of competitors. But benchmarks often end up triggering disputes. For
example, when an external benchmark found that the provider’s unit
price was well above the best-in-breed price, the client asked for a
reduced price. The provider claimed the comparison was unfair
because the provider had been asked to maintain the client’s old
technology rather than shifting to a newer, more efficient technology.
Clients who defined gain sharing or pain sharing at the relationship
level claimed that annual performance targets were set too low. One
client explained: “The standards were a bit one-sided and not difficult
to meet. It ensured that each year there was a good bit of gain, and the
gain went to the provider. We lose the notion of pain/gain.” To receive
benefits from gain sharing, “you should be truly delivering something
fairly extraordinary,” the client added.
Delivering Innovation
While partners may incentivize innovation by using mechanisms such
as productivity targets, allocating innovation days and agreeing to gain
share on innovation projects, innovation won’t happen unless clients
and providers implement a more comprehensive process. The process should combine acculturation across different organizations, an
engaging method for generating ideas, adequate funding and a system
for managing change.
as productivity targets, allocating innovation days and agreeing to gain
share on innovation projects, innovation won’t happen unless clients
and providers implement a more comprehensive process. The process should combine acculturation across different organizations, an
engaging method for generating ideas, adequate funding and a system
for managing change.
Acculturation
In BPO, relationships extend beyond the client and provider teams in
charge of the account. In many instances, multiple organizations and
parts of organizations take part, including the client’s centralized
business services organization that “owns” the BPO relationship, the
client’s decentralized business units that receive BPO services, the
provider’s centralized organization that sells BPO services and allocates
resources to accounts and the provider’s globally dispersed service
delivery centers, which may operate remotely in other countries.
What’s more, each organization tends to want different things. The
client’s centralized business services organization often wants tight
cost controls, high productivity and process standardization. The
client’s decentralized user communities chafe at controls — they want
responsive, flexible and customized services. The provider’s centralized
culture is looking to generate growth, while the globally dispersed
delivery teams want to please both their supervisors and customers,
which can leave them caught between conflicting cultures. Merged
cultures often end up borrowing aspects of both the client’s and the
provider’s cultures. In several BPO relationships we studied, the
partners went so far as to brand the provider’s delivery centers with the
client’s company colors, logos and office layouts. For their part, clients
recognized the special holidays and festivals in the provider’s culture.
charge of the account. In many instances, multiple organizations and
parts of organizations take part, including the client’s centralized
business services organization that “owns” the BPO relationship, the
client’s decentralized business units that receive BPO services, the
provider’s centralized organization that sells BPO services and allocates
resources to accounts and the provider’s globally dispersed service
delivery centers, which may operate remotely in other countries.
What’s more, each organization tends to want different things. The
client’s centralized business services organization often wants tight
cost controls, high productivity and process standardization. The
client’s decentralized user communities chafe at controls — they want
responsive, flexible and customized services. The provider’s centralized
culture is looking to generate growth, while the globally dispersed
delivery teams want to please both their supervisors and customers,
which can leave them caught between conflicting cultures. Merged
cultures often end up borrowing aspects of both the client’s and the
provider’s cultures. In several BPO relationships we studied, the
partners went so far as to brand the provider’s delivery centers with the
client’s company colors, logos and office layouts. For their part, clients
recognized the special holidays and festivals in the provider’s culture.
In the context of dynamic innovation, the culture must be transparent
so that even remotely located provider employees understand how
their work contributes to the client’s performance. One provider
explained: “When someone is sitting in a place miles away, it is really
important for that person to understand the impact of what he or she is
doing to the client organization. As soon as you are able, get that
culture in offshore delivery locations, or even onshore delivery
locations, so they can relate to what kind of impact they are bringing to
the client. I think it makes a huge difference in performance.” The
culture must also encourage, welcome and reward innovation ideas.
so that even remotely located provider employees understand how
their work contributes to the client’s performance. One provider
explained: “When someone is sitting in a place miles away, it is really
important for that person to understand the impact of what he or she is
doing to the client organization. As soon as you are able, get that
culture in offshore delivery locations, or even onshore delivery
locations, so they can relate to what kind of impact they are bringing to
the client. I think it makes a huge difference in performance.” The
culture must also encourage, welcome and reward innovation ideas.
Idea Generation
We asked innovation survey respondents to identify the primary source
for innovation ideas. Clients, service providers and advisors all agreed
that the majority of innovation ideas were either jointly developed
between clients and providers (as described by the innovation days
practice above and in our previous work on collaborative innovation8)
or by providers generating innovation ideas on their own.
for innovation ideas. Clients, service providers and advisors all agreed
that the majority of innovation ideas were either jointly developed
between clients and providers (as described by the innovation days
practice above and in our previous work on collaborative innovation8)
or by providers generating innovation ideas on their own.
In high-performing BPO relationships, leaders actively encourage all
levels in the provider organization to challenge the status quo, to
question assumptions and to identify innovations that will improve the
client’s performance. For example, one executive and the employees of
his remotely located BPO have monthly meetings to air ideas9 and
reward continuous improvement and innovation. The provider’s
employees are encouraged to identify problems and challenge the
client. “We absolutely want [them] to point some of those things out,”
the executive said. “We have tried to make that positive. It’s generated
lots of good ideas that we’ve been able to put into practice.” The
provider’s employees know that their ideas will be heard, vetted and
recognized.10
levels in the provider organization to challenge the status quo, to
question assumptions and to identify innovations that will improve the
client’s performance. For example, one executive and the employees of
his remotely located BPO have monthly meetings to air ideas9 and
reward continuous improvement and innovation. The provider’s
employees are encouraged to identify problems and challenge the
client. “We absolutely want [them] to point some of those things out,”
the executive said. “We have tried to make that positive. It’s generated
lots of good ideas that we’ve been able to put into practice.” The
provider’s employees know that their ideas will be heard, vetted and
recognized.10
Services providers can be well positioned to see opportunities for
innovation. Those that deliver services on a regular basis can track
ideas across a global client network and spot BPO trends quickly. For
example, an electronic design company was impressed with its BPO
provider’s ability to innovate based on its purchasing expertise. In
addition to being able to use its knowledge of the supply chain and
category expertise to save money, the provider has the ability to attract
and retain top talent better than the company could on its own.
innovation. Those that deliver services on a regular basis can track
ideas across a global client network and spot BPO trends quickly. For
example, an electronic design company was impressed with its BPO
provider’s ability to innovate based on its purchasing expertise. In
addition to being able to use its knowledge of the supply chain and
category expertise to save money, the provider has the ability to attract
and retain top talent better than the company could on its own.
Funding Support
As we learned from the gain-sharing incentive, BPO innovations are
most successful when they are funded as projects, each with a sound
business case. But who foots the bill for process innovations? In our
innovation survey, we found that 44% of the innovations were jointly
funded, 36% were provider funded and 20% were funded by the client.
Removing advisors from the data, we compared responses about
funding to responses about the source of the idea. We found that
stakeholders who propose innovations usually help fund their
implementation. (See “Who Funds Innovation Ideas.”) This suggests
that people tend to pitch innovation ideas that they themselves stand
to benefit by and are therefore willing to finance the projects in whole
or in part.
most successful when they are funded as projects, each with a sound
business case. But who foots the bill for process innovations? In our
innovation survey, we found that 44% of the innovations were jointly
funded, 36% were provider funded and 20% were funded by the client.
Removing advisors from the data, we compared responses about
funding to responses about the source of the idea. We found that
stakeholders who propose innovations usually help fund their
implementation. (See “Who Funds Innovation Ideas.”) This suggests
that people tend to pitch innovation ideas that they themselves stand
to benefit by and are therefore willing to finance the projects in whole
or in part.
View ExhibitChange Management
Clients from high-performing BPO relationships understand that they cannot be passive recipients of innovation. They must aggressively manage the change
that innovation brings to their organizations. In other words, provider
incentives lay the foundation for dynamic innovation, but the execution
of dynamic innovation requires strong commitment to change
management in order to transition individuals, teams and
organizational units from the current state to the desired future state.
Innovations must be accepted by two groups of clients — the client’s
centralized business services organization responsible for the BPO
relationship and the globally dispersed end users. Sometimes the client
leaders resist innovation ideas because they lack the energy or
resources to lead the change management effort required or because
they have other priorities. One client told us, “For some of the
provider’s ideas they’ve brought to us, we’ve said, ‘Thanks for telling us,
but actually we’re not prepared to make the change.’” If the client
leaders are excited about innovation and the leaders are respected
within their own organizations, they are usually successful in their
change management efforts. On the other hand, if the client often
rejects ideas, the risk is that the provider will stop investing time and
resources in identifying innovations. A provider in a high-performing
BPO relationship says of his client lead: “He knows the business very
well. He knows how relationships work, and he’s politically savvy.”
that innovation brings to their organizations. In other words, provider
incentives lay the foundation for dynamic innovation, but the execution
of dynamic innovation requires strong commitment to change
management in order to transition individuals, teams and
organizational units from the current state to the desired future state.
Innovations must be accepted by two groups of clients — the client’s
centralized business services organization responsible for the BPO
relationship and the globally dispersed end users. Sometimes the client
leaders resist innovation ideas because they lack the energy or
resources to lead the change management effort required or because
they have other priorities. One client told us, “For some of the
provider’s ideas they’ve brought to us, we’ve said, ‘Thanks for telling us,
but actually we’re not prepared to make the change.’” If the client
leaders are excited about innovation and the leaders are respected
within their own organizations, they are usually successful in their
change management efforts. On the other hand, if the client often
rejects ideas, the risk is that the provider will stop investing time and
resources in identifying innovations. A provider in a high-performing
BPO relationship says of his client lead: “He knows the business very
well. He knows how relationships work, and he’s politically savvy.”
Having the Right Team
Many BPO relationships need to work on incentivizing, contracting for
and delivering innovation. We found that the most significant factor in
BPO innovation is whether the right people are in place to drive the
dynamic innovation process. An effective leadership pair — one person
from the client organization and another person from the provider
organization — goes a long way toward invigorating the innovation
process. Selecting the proper leaders is critical. In the high-performing
BPO relationships we looked at, the leaders were experienced and
capable and had high levels of credibility, clout and power within their
own organizations. Effective leadership pairs enjoyed working together,
which some research participants described as “chemistry.” They
displayed the following behaviors:
and delivering innovation. We found that the most significant factor in
BPO innovation is whether the right people are in place to drive the
dynamic innovation process. An effective leadership pair — one person
from the client organization and another person from the provider
organization — goes a long way toward invigorating the innovation
process. Selecting the proper leaders is critical. In the high-performing
BPO relationships we looked at, the leaders were experienced and
capable and had high levels of credibility, clout and power within their
own organizations. Effective leadership pairs enjoyed working together,
which some research participants described as “chemistry.” They
displayed the following behaviors:
- A focus on the future: The leadership pair focused on where they
wanted the BPO relationship to go, not where the relationship was or
where it had been. - A focus on client outcomes: The leadership pair always did what
was best for the client organization and then settled a commercially
equitable agreement. - A spirit of togetherness: The leadership pair often disagreed
behind closed doors, but they presented a united front to
stakeholders in their respective organizations. - Transparency: The leadership pair was open and honest about all
operational issues. - Orientation toward problem solving: The leadership pair
sought to diagnose and fix problems; they did not seek to assign
blame. - Orientation toward action: The leadership pair was not afraid to
expend their powers; leaders acted swiftly to remove or work around
obstructions to innovation stemming from people, processes or
contracts.
Perhaps as a consequence of these behaviors, both leaders in these
pairs displayed an optimal level of trust.11 Each felt secure and
confident in the other person’s good will, intentions and competency.
pairs displayed an optimal level of trust.11 Each felt secure and
confident in the other person’s good will, intentions and competency.
In several cases, we found client-provider pairs in which both parties
were experienced leaders but the combination simply did not work.
Changing one of the leaders (or both, if necessary) can improve
performance.12 For example, the client leader in one high-performing
BPO relationship based in Europe told us that he had requested that
the provider assign a different account manager when he could not
work effectively with the original person; the provider granted the
request. The client leader contrasted the two account managers: The
first account manager “was a more senior guy with the attitude, ‘Well,
I’ve done it, I’ve got the T-shirt, I know what I’m doing, I don’t know
why you’re panicking, leave me alone to get on with it.’ He may have
been a very good chap, but I couldn’t work with him.” The second
account manager “was actually more junior but was somebody with
whom we could work.”
were experienced leaders but the combination simply did not work.
Changing one of the leaders (or both, if necessary) can improve
performance.12 For example, the client leader in one high-performing
BPO relationship based in Europe told us that he had requested that
the provider assign a different account manager when he could not
work effectively with the original person; the provider granted the
request. The client leader contrasted the two account managers: The
first account manager “was a more senior guy with the attitude, ‘Well,
I’ve done it, I’ve got the T-shirt, I know what I’m doing, I don’t know
why you’re panicking, leave me alone to get on with it.’ He may have
been a very good chap, but I couldn’t work with him.” The second
account manager “was actually more junior but was somebody with
whom we could work.”
BPO relationships that were performing poorly at first were
transformed into good or even great BPO performers under new
leadership pairs. The leaders were able to foster dynamic innovation by
creating strong incentives. Even when contracts did not initially
include innovation incentives, we found that several high-performance
organizations added incentives after the BPO relationships stabilized.
For example, one company required its BPO to demonstrate
productivity gains year-on-year. However, the provider had no
incentive to go beyond those levels. To maintain pressure, the client
recently negotiated for a gain-sharing model in which the provider was
rewarded for anything that went beyond the required percent of
productivity. The client also stands to benefit. As the client explained,
“We made it a joint-productivity gain initiative, so there is also reward
and recognition for our own people when we go beyond the threshold.”
transformed into good or even great BPO performers under new
leadership pairs. The leaders were able to foster dynamic innovation by
creating strong incentives. Even when contracts did not initially
include innovation incentives, we found that several high-performance
organizations added incentives after the BPO relationships stabilized.
For example, one company required its BPO to demonstrate
productivity gains year-on-year. However, the provider had no
incentive to go beyond those levels. To maintain pressure, the client
recently negotiated for a gain-sharing model in which the provider was
rewarded for anything that went beyond the required percent of
productivity. The client also stands to benefit. As the client explained,
“We made it a joint-productivity gain initiative, so there is also reward
and recognition for our own people when we go beyond the threshold.”
Effective innovators recognize that creating incentives can only take
you so far. Delivering innovations requires participants to break habits,
change their ways of doing things and mandate innovation. There’s a
saying that if you always do what you always did, you will always get
what you always got. Rather than being hemmed in by traditional
modes of operation, companies and service providers have an
opportunity to unlock value by working together to achieve dynamic
innovations.
you so far. Delivering innovations requires participants to break habits,
change their ways of doing things and mandate innovation. There’s a
saying that if you always do what you always did, you will always get
what you always got. Rather than being hemmed in by traditional
modes of operation, companies and service providers have an
opportunity to unlock value by working together to achieve dynamic
innovations.
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