Learning from failure and strategies for recovery in business process outsourcing

Abstract

Introduction Senior executives continue to express disappointment with outsourcing, and fail to achieve the anticipated benefits despite considerable investments of time and effort. Many organisations have found that outsourcing has increased complexity and costs, and required a wider range of management competencies than initially anticipated. Business process outsourcing (BPO) is one area where organisations have had difficulties and encountered failure. BPO involves transferring responsibility for delivering and managing a business process to an external vendor. Rather than involving the relatively smooth transfer of standard processes with clear interfaces to a vendor, BPO arrangements are often characterised by a high level of complexity and uncertainty. The business processes involved are tightly coupled with other organisational processes, and complexity arises from outsourcing the technological, workflow and human resource elements. The presence of both idiosyncrasies and inefficiencies in the processes transferred makes it difficult for the vendor to achieve anticipated cost savings and performance improvements. Uncertainty and changing requirements from the client further increase the difficulties for the vendor, and often lead to costly contract renegotiations. This chapter considers common causes of failure in BPO and outlines a number of strategies for recovery. The analysis is presented through outlining the experiences of a global software provider in a major BPO arrangement. The company initially outsourced its revenue processing services to three vendors. However, over time the BPO arrangement failed to deliver the desired results.