Making the Case

By Mark Cioni

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Organizations too often fail to develop a solid business case for BPO initiatives, instead focusing on shorter-term cost reductions that are seemingly easy to achieve.

This approach, while pragmatic, ignores the larger context of investment decisions and decreases the chances of realizing the full range of business benefits from BPO. A solid business case need not be onerous or time consuming, but it must be rigorous enough to help the organization make an informed decision about candidate BPO initiatives relative to other potential investments.

That means the business case must, minimally encompass:

Results - Outcomes, measures and value define the results and benefits an organization wants to achieve, while key performance indicators reflect business effectiveness and health. The business case must show whether the anticipated results from a BPO initiative will affect performance in a meaningful way.

Look for opportunities to cascade value. For example, outsourcing to a blended contact center offering voice, email and instant chat channels can reduce the cost-per-contact as well as provide a 24x7 service profile for customers.

Remember that results can contain both quantitative as well as subjective value, which, although difficult to pin down, can be just as important to the business case as hard numbers; especially when marketing and selling the case internally.

By all means, get candidate BPO providers to help identify potential value, just ensure that the business case reflects alignment with business objectives.

Constraints - The boundaries within which the organization must operate are important inputs to the business case. Organizations generally must observe broad constraints, such as regulatory compliance or reporting requirements, as well as those specific to industry, location and other situational parameters.

The business case for BPO must identify these constraints, and incorporate their impact into the results, costs, time and risk elements of the case.

A simple example could be a utility whose rate-case is contingent upon reducing outage response and restoration times, which the organization plans to accomplish via outsourcing a portion of their mobile dispatch needs. The business case for BPO might need to consider these metrics as a constraint relative to value (favorable rate case), time (deadline to achieve better performance) and risk (probability and impacts of not achieving better performance within deadline).

Costs - Most organizations can identify and quantify the major costs of a BPO initiative—be they incurred per-transaction, by service level or via hybrid models—but they often overlook costs that might not be immediately obvious.

Examples I’ve seen in developing BPO business cases include hardware/software acquisition and maintenance, internal training, and customer support spikes due to process or provider changes, to name just a few.

Organizations can also forget the time and resource costs of ensuring BPO success, such as internal and external communication and change management, focused provider management and BPO program management.

Finally, ensure that the right financial principles and methods are applied to assessing cost and payback relative to constraints. Time - This is another aspect that often has broad ramifications for the rest of the business case.

Constraints and risk are primary areas of interdependence, such as meeting deadlines for business performance or regulatory compliance and the associated impact of non-performance or non-compliance. However, organizations can often miss the favorable aspects of time when developing their business case.

A potential BPO initiative’s ability to accelerate benefits can have a significant effect on the business case. For example, I have seen organizations provide early retirement to highly-skilled staff, develop a captive subsidiary for those who wanted to continue their roles, and then outsource these skills to that organization. This positively affects operational costs, increasing revenue and reducing risk.

Although situational, this example should make organizations think about ways to creatively sell and leverage BPO.

Risk - Risk is very often the differentiator whether to implement a potential BPO initiative—which provider to choose, how to structure and manage the relationship and many other downstream aspects.

Identifying risk elements, their probability of occurrence and their associated impacts relative to other aspects of the business case is an obvious place to start. There are many good sources for risk management theory and application, but it’s also an area where I’ve seen organizations become too involved in analysis, leading to indecisiveness and even negatively affecting potential benefits.

It’s important to focus on identifying those factors and resources that can either reduce risk and/or enable success, then manage them appropriately because predicting all of them might be unrealistic. Each organization’s tolerance for risk is different but I think Pareto is our friend, and assuming the business case team is competent we should aim to move forward at an 80% level of certainty and course-correct as we go.

So, we have a business case. Now, what’s next? I’ll save the details for future columns, but a solid business case should help an organization make an informed, holistic business decision about a potential BPO investment, as opposed to over-focusing on the cost savings, a new technological capability or other singular factors. It should also become the compass for managing the realization of the anticipated benefits.

Mark Cioni, president of MV Cioni Associates, has been helping global businesses improve their decisions, operations and performance for over 25 years. He can be reached at mark@mvcioni.com.