Dear Workforce What Are the Early Returns on BPO Deals

By Staff Report

Nov. 12, 2004

Dear History:

Human resources-related BPO has evolved during the last four years, as both buyers of BPO products and service providers have journeyed along their respective learning curves.

BPO as a human resources tool is in its infancy, even four years after a flurry of activity and consolidation in the market. In the past few years, 15 different vendors have won 36 major human resources BPO contracts, or about 2.4 contracts per vendor. Accenture, Convergys and Exult combined for 22 of these deals, leaving the other 12 vendors to average about one contract each. The learning curve of buyers and vendors is critical to setting and meeting expectations. The newness of human resources BPO and the time required to implement the initial phase of a deal means we’re just beginning to get good data on the results of these deals.

All these BPO deals are expected to create business value by reducing or avoiding certain costs or investments, by improving productivity and performance, or both. Since emerging as a viable strategy several years ago, BPO has been saddled with the expectation that it will save companies money in the weak economy. Service-level agreements have focused on reducing costs in human resources processing and administration, reducing vendor-management costs, and minimizing investment in technology design and integration.

By and large, BPO has met those expectations. Companies have not shared specific numbers publicly because of contract terms and data-privacy concerns, but many clients report success in their comprehensive outsourcing of human resources. This isn’t to say that there haven’t been bumps in the road, but they’ve been related mostly to navigating the learning curve rather than questions about BPO as a viable strategy.

Buyers and service providers are shifting expectations beyond costs in 2004, with the focus on aligning human resources performance with business performance. There’s growing interest in linking recruiting with performance management to enable workforce planning/management. Meanwhile, the desire for stronger measurement fuels interest in human resources scorecards and sophisticated decision-support tools that boost the strategic value of workforce management. This will further shift expectations for BPO deals.

Ultimately, BPO deals meet expectations when they’re viewed as a partnership. It’s a cliché but it’s true: BPO is either win-win or lose-lose. The degree to which a deal realizes its intended goals is determined not only by the service provider’s level of delivery, but also by how well workforce-management executives govern the execution of BPO contracts. Some companies have learned this faster than others, but all will get there in the end.

SOURCE: Marc Pramuk, program manager, HR Management & Staffing Services Research,IDC, Framingham, Massachusetts, December 12, 2003.

LEARN MORE:Passing the Bucks.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

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