Douglas, Plotkin.

Douglas, Plotkin

Director, META Group Consulting

Business Process Outsourcing is ill-defined and using it successfully requires that the user understands its two separate types. Successful BPO, like any outsourcing, lies in the ability to measure and benchmark what you purchase.

There are two basic tracks in BPO: 1) the more successful processing type, where the items outsourced are static and repeatable, like payroll and check processing and can be "counted"; 2) the more difficult to enable FTE type (similar to Applications Maintenance outsourcing) which usually, and unfortunately, counts the people who perform the work (e.g., HR and F & A). Since change is inevitable in outsourcing (the environment is dynamic), the contract--and its price--must accommodate that change. Counting, and charging for, additional check processing is easy (the user asks the vendor to process more checks and pays for the extra service). But agreeing to pay for more FTEs to perform tasks is difficult. Is additional staff truly warranted, or did the vendor simply replace productive personnel with cheaper, less productive ones? Variability makes FTE-type BPO service delivery difficult to measure and hampers the ability to create a successful and sustainable contract. At present, there is no simple resolution to this issue.

Still, with the labor arbitrage price point so low offshore, it may be a risk worth taking--but only if you can successfully create SLAs and terms and conditions that readily accept change. Otherwise, the next BPO investment will be in aspirin!

Contact: douglas.plotkin@metagroup.com