While multi-tower outsourcing engagements – in which a range of functions such as F&A, HR, IT and contact center are bundled into one contract awarded to a single provider – may seem an effective way to quickly reduce costs due to economies of scale and presumed truncated solutioning phases, the reality is often quite the opposite. Think back to post-September 11 when cost reduction, just like today, was an outsourcing buyer's primary driver. Then consider the multi-tower deals struck during this timeframe – large utility and insurance company buyers top the list – all of which resulted in missed expectations.
History has proven that multi-tower engagements often miss the mark. Why?
Although today's buyers, similar to those in the early 2000s, are trying to minimize their up-front investment and build as much volume flexibility as possible into deals, all of these issues can far too easily, and more often than not do, lead to client and end-customer dissatisfaction. In some cases, multi-tower deals take five years or more just to break even, and buyers forget to be wary of providers that are willing to ‘buy deals.’ While the pricing may be attractive today, the provider that is making low to no margin will cut corners after the honeymoon period is over. The provider's senior management will have long forgotten why such a low price was agreed, and require the account team to add on services or look to other more fruitful accounts to make up the difference.
Accordingly, separately inked one- or two-tower BPO deals are most appropriate if the company is on a fast pace to cost reduction. Simplifying the process delivers a bettermanaged outcome.
There are, of course, other decisions and determinations outsourcing buyers should make before embarking on a single-tower deal to help ensure business objectives and both early – and steady-state cost reduction targets are achieved.
With so much at stake when transferring process delivery responsibility to a third party, the relationship between an outsourcing buyer and provider must transcend that of a typical customer/vendor. Rather, the relationship must be a true partnership with a high sense of trust. Considerations buyers must factor into the provider selection and due diligence process include
In this economic crisis, let's learn from our post- September 11 mistakes by thinking beyond the near-term to rush to achieve savings. Will a massive multi-tower engagement continue to meet expectations when the savings have narrowed over time? Does your provider or your contract allow for added business value such as implementing forecasting tools or analyzing growth and market share to enable strategic decision making?
Consider the very different needs among all the internal customers in your organization. Does your contract have so much complexity that change will be difficult for those unforeseen problems that will arise? And they will arise – regardless of size or scope. Does the provider's culture allow for the kind of flexibility needed to address these unforeseen problems, or will it be a change order environment full of nickels and dimes?
Remember that just because a provider has a wide range of capabilities doesn't make it an expert at all of them. Choose wisely. 5- and 7-year contracts aren't easily changed or terminated should one of the in-scope service towers fail. Talk to references early, and talk to sourcing advisors to learn about which clients remained happy after the pursuit process. You'll be well-served by conducting extensive due diligence.
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