Tuesday, October 6, 2009

The Future of BPO and the Single Question that will Determine the Winner

I don’t have a crystal ball and I don’t know who will be the largest and most wildly, yes wildly profitable, Business Process outsourcer in the next five or ten years, but I do know the one question the winner will have answered to get themselves there. Before I tell you, I want to start with a story that captures the current, dismal state of the BPO industry.

A friend of mine, Alan Madison, who used to run Customer Service for H&R Block, was outsourcing a huge chunk of business. He conducted due diligence with some of the biggest brand names in the BPO industry. During the interview, he told them: “I have X million minutes of calls that I have been doing myself with these levels of performance metrics for AHT, C-Sat, Issue Resolution, etc.”

And then he asked a simple question, “If I give you this business, what are you going to do to make me better?”

While this is a completely reasonable question, can’t you just see the sales guy or gal fidgeting in front of the room after it was asked? They were squirming because they had no real answer. In fact, Alan told me each of these leading outsourcing firms…the best of the best…all only gave one answer and it was the same answer from each of them. They all said, “Well, we monitor and coach agents.”

Monitor and coach agents? Huh? Alan monitored and coached his agents when he handled all his own calls. Were they saying that their monitoring and coaching procedures were better than Alan’s? Were they trying to argue their monitoring and coaching process was better than the other outsourcers? Were they trying to do either of these things with a straight-face?

If you have outsourced any of your business, as I have in the past, you know this: there is nothing that differentiates the top tier outsourcers from each other. They all have broad geographic footprints. They all hire agents using assessments designed by industrial psychologists. They all have the latest and greatest technology stacks. And they all, apparently, improve your outputs by monitoring and coaching agents.

Other industries are not so me-too. There are a lot of companies that make cars, for example, but no one makes cars with as much efficiency and quality as Toyota. As good as Toyota is, they don’t do it all by themselves. They rely heavily on outsourcers, who have achieved their own stunning levels of quality and productivity.

The performance of Toyota’s suppliers is no accident. Toyota has completely changed the game for how OEMs work with their suppliers to ensure these kinds of results. And these are the changes that are coming in BPO industry.

To better understand the dramatic shift that is coming, let me give you a little of the history on vendor-supplier relationships. As recently as thirty or so years ago, manufacturing in the United States had a brass-knuckles approach to negotiating with suppliers. They would give pieces of the business to multiple vendors and pit them against each other to get the lowest possible price. They had contracts that spelled out every detail of the relationship. Then when their outsourcers were punch-drunk, they sent procurement in to squeeze out the last drops of margin. Quality and other performance variables often suffered. There was no quarter. It was "Us & Them" in all its glory.

Then Toyota changed the game. They didn’t spread their business out; they concentrated it at one or two suppliers. This was a huge windfall of revenue for these suppliers to spread their fixed cost over and to invest against. Moreover, Toyota didn’t squeeze the last drops of profitability out of the vendors. They asked their suppliers to open their books because they wanted to ensure they were allowing their vendors to make a fair profit. In some cases, they paid them more than they had in the past.

But in exchange for this windfall of revenue and profitability, the bar went up dramatically on expected performance. Smaller, more frequent deliveries, billing changes, and higher quality standards and drastically improved cycle times were now required.

Not only did the bar go up on current period performance, but the expectation was set that quality and productivity would continuously improve: the vendors were expected to experiment and deliver Year-over-Year (YOY) improvements. The gains that the suppliers were required to achieve were shared: Toyota got lower costs, the suppler go higher margins.

Turning to our own industry, the typical client-outsourcer relationship is closer to the old US manufacturing model than it is to the Toyota model. Clients today typically don’t concentrate the business with one or two outsourcers; they don’t ensure they are making a fair profit; they don’t put people permanently on site, teaching them better ways to improve results; and they don’t hold them accountable to hit and continuously improve performance measures.

The way Toyota works with their suppliers are proven best practices for achieving YOY improvements and they are coming soon to a BPO near you. The firms that are going to win and make real money in the new BPO world are going to be the ones who can demonstrably and continuously improve their clients’ output measures.

By this definition, no one is winning today. Outsourcers, unless they are starting from a really terrible place, are not showing dramatic YOY improvements in quality, productivity and customer satisfaction. No one is delivering YOY improvements and I can say with absolute confidence, the current “we monitor and coach agents” approach will never deliver the level of improvements that will soon be required.

The way winning BPOs are going to deliver YOY improvements is the same way the manufacturers did. They are going to move away from the management of the worker and focus on the management of the process.

This is not a theory. The effectiveness of a process focus has been demonstrated on millions of phone calls. As opposed to the folly of coaching each agent one-at-a-time, the agents are given a process to execute using an agent-assisted voice solution. With a single process for the agents to execute, the primary improvement focus is on the process, not on the agent. Any changes that are made instantly improve the performance of all the agents. Through this approach, we have systematically lowered Average Handle Time and After Call Work, improved compliance and cross-sell, and maintained or increased C-Sat.

An outsourcer armed with this kind of process-centric approach would easily be able to produce chart after chart of continuously improving client outputs. This would enable them to capture a new prospect’s initial business and even more of it over time because they would be out performing the other outsourcers the client is using. It would also enable them to increase their margins because the contract would be structured so that any gains the outsourcer achieved would be shared between the client and the outsourcer. A dramatic increase in both revenue and margins…isn’t that how we define winning from a shareholder perspective?

And results like this will be almost axiomatic because the winner will be able to definitively answer the one simple question that no outsourcer can answer today:

“What are you going to do to make me better?”