There is more to BPO than cutting costs

Business process outsourcing (BPO) continues to be a valuable instrument for CFOs to achieve a variety of different targets. Partner in Deloitte’s service line CFO Services, Dorthe Keilberg, explains the newest trends and opportunities related to BPO.

BPO is a rather old business model. Why is it still relevant for Danish and Nordic CFOs in 2017?
“Some businesses use it to cut costs while others use the BPO provider to acquire skills and technological advances or to simplify their business by outsourcing activities that are not part of the core business, e.g., paying bills and posting invoices. Those issues continue to be high on the CFOs agenda.”

Which signals in the current market point to an increased use of BPO?
“First, the rate of change continues to increase, forcing CFOs to acquire new knowledge and skills faster than they can build it internally. Second, as many parts of the world experience an economic upswing, CFOs can use BPO to sling their business into the highest gear possible. That enables them to gain the most from the economic growth. Last, cutting costs is always near the top on the CFOs agenda.”

What are the three most significant advantages of BPO?
”Besides cost reduction, the BPO setup delivers a way for CFOs to structure their business, e.g., within bookkeeping where the BPO providers’ standardised templates and efficient workflow make it possible to avoid time-consuming and thus flawed processes. Finally, BPO providers offer access to a level of automation-related technologies that far exceeds what businesses usually have. E.g., if a company is looking to implement a self-service portal, they may be doing it for the first time while a BPO provider has done it fifty times over the last six months – that experience may result in a noticeable advantage.”

What kind of services are most relevant to outsource?
“It used to be mainly repetitive tasks, but now we are experiencing a change. BPO providers are offering a variety of knowledge-based services within master data management, supply chain management and engineering. Even within advanced predictive analytics, BPO providers have started to offer high-level services within product modelling, channelling optimisation as well as social media listening. This gives businesses the opportunity to drill down in all kinds of data to create real value and make quantum leaps overnight, roughly speaking.”

Sceptics would say that there are no or only very few good examples of Danish companies having success with BPO, which disqualifies the business model. Are they mistaken?
“It requires structure and maturity to be a BPO customer, and sometimes Danish companies tend to have a somewhat blue-eyed approach to it. Sure, it is a partnership, but it is also business. And when negotiations start, you better be ready as the BPO providers bring out their big guns to get the best deal possible. As most Danish companies are used to one-off investments when acquiring machinery or other companies, they lack experience in entering into partnerships for the future, and so the contracts might be written in an unfavourable way, or the negotiations have worn down the parties before the partnership even gets started.”

So the lack of experience is the reason for failed BPO projects?
“Yes, but not the only reason. It is also a known scenario that the lack of structure in a given company makes it near impossible for the BPO provider to deliver good service. For example, if a company’s subsidiaries all have their own specific way of handling a certain task with quirky handmade solutions in different languages. When the structure is a mess to begin with, of course the relationship gets strained.”

How do you overcome the language barriers as a Danish or Nordic company?
“Even though the large BPO providers are located in India or the Far East, they often have offices in Europe that serve as front desks. They offer knowledge of local compliance requirements in a number of countries and they also have native speakers, e.g., in Poland where you can meet Danish-, Swedish-, Norwegian- or Finnish-speaking employees.”

Experts have predicted that robotics and intelligent technologies will let Western companies automate many repetitive internal tasks – how does that correlate with BPO?
“Digital shoring is a hot topic, but for automation to be really effective, you must have an efficient structure in place as well as the right skills internally. That takes time. Companies usually have to try out different models with a lot of trial and errors to reach the necessary maturity. While most BPO providers have invested heavily in robotics and related technologies already, they have the experience and knowhow to deploy them fast and efficiently.”

Is it not problematic to leave your digitalisation process in the hands of others?
“Yes, you need to be careful when you do that. Therefore, I am advising every company to make sure contractually that they own all the technological improvements themselves. If not, the BPO providers can take it all with them when the partnership ends. Some of the less traditional BPO providers are by default establishing the partnership that way so their customer remains in control."

Three tips for businesses considering BPO

  1. Be deeply involved in the new technologies and algorithms implemented in your business. If possible, get an employee stationed at the BPO provider to be right in the centre of the development. Make sure that you own the technology after the partnership ends.
  2. Get an adviser – others or Deloitte. The partnership has to be the right one for you and it is essential to be on point with scope, partner selection, contracts and vendor management.
  3. Have a flexible and agile partnership where you can draw more or less on the BPO provider as your business model develops. Few are able to predict what their own needs are in a year, so flexibility is important.