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Smart BPO and IT outsourcing strategy improves the whole business

With a smart IT outsourcing strategy and creative BPO, CIOs can improve the whole business.

Continuing with the topic of IT outsourcing and business process outsourcing (BPO), which I wrote about a couple weeks ago, I wanted to share a few more lessons from the BPO/ITO World Forum, this time on best practices.

Scot PetersenScot Petersen,
Editorial Director

What's interesting is that, like the soccer metaphor that was used to describe a successful BPO and IT outsourcing strategy, the best practices shared by Accenture Executive Director Barbara Duganier can be applied to many different aspects of IT strategy.

The purpose of Accenture's "high-performance BPO" research study was to figure out how to better measure BPO and ITO initiatives. The days of determining success or failure based on cost savings are over, Duganier said. Now, successful BPO/ITO agreements must be measured in terms of value to the businesses (buy side and sell side), in terms of the strength, respect and flexibility of relationship(s) with IT outsourcing strategy partner(s), and the level to which each side is able to increase innovation and grow their business due to the existence of the partnership.

The methodology was to find high-performing companies through extensive surveys and interviews of businesses that could show at least a level of minimum success in meeting service agreements and savings, but at the same time demonstrate they have been able to "capture value beyond cost savings: attain top-quartile results in self-reported attainment of value beyond cost," the report on high-performance BPO says.

Then the study broke down the client/service provider relationship in to key areas, such as if there is an end-to-end approach, a collaborative relationship, a focus on business outcomes, and domain expertise and analysis, among others. From these areas, a picture of the high-performing company began to emerge.

BPO excels when the parties seek to collaborate, standardize, automate, share intelligence, and develop domain expertise.

For instance, 89% of high-performing BPO/ITO relationships seek to drive toward process excellence, compared with 63% of "typical" relationships. Sixty-two percent of high performers emphasize the importance of consolidation and standardization, while only 45% of non-high-performers do. The importance of gaining competitive advantage through the BPO relationship was important to 56% of high performers, and to only 28% of the typical. Analytics about the relationship is important to 48% of high performers vs. 25% of the others. Finally, 56% of high performers agreed sharing technology and expertise is critical to success, while 34% of others felt this way.

There are a total of eight functional areas, but the picture gets pretty clear: Those companies who are trying to gain value beyond cost savings, and have processes in place to do so, are the high performers. Those who just want to get by with the minimum effort with respect to an external relationship were not necessarily "losers," but are leaving money and opportunity on the table -- for not only making the business more efficient, but enabling it to accelerate its growth.

Recent data from a Center for CIO Leadership research study sheds more light on this dichotomy: While 90% of CIOs "report they can understand and communicate how different relationships and functional groups interact to support customer needs," only 61% "have a clear and effective governance process for engaging in high-performing external partners (for outsourcing, co-development and other collaborative activities ...)."

There is a fractal dimension to business IT strategies: They seem to have self-similar patterns where if the end goal is to drive a sustainably profitable business, then the steps to solve each problem resemble those of every other IT problem. BPO excels when the parties seek to collaborate, standardize, automate, share intelligence and develop domain expertise. Is this not the same way to approach a cloud computing problem, a business analytics problem, a competitive advantage problem, a risk management problem or an agility problem?

You don't have to rewrite the IT outsourcing strategy rule book every time a new problem or challenge presents itself. The important thing is to learn about the best strategies, put your strategic plan together and execute it.

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Have you recognized ROI from BPO and IT outsourcing arrangements?