Two blasts of insight merged into a perfect storm in my consciousness this week.

HFS reported on a survey that “two thirds of BPO customers want to pay for achieving business outcomes… only a third for butts-on-seats”.

SSON presented a fascinating set of research results in their 2022 Outsourcing Report that showed that “80% of organizations believe that “Captive” beats “Outsourcing” in terms of benefits of a sourcing model”. Why is that?

Bizarrely, these same organizations are increasing their shift to outsourcing over the next 2-3 years as part of their target operating model’

Why is THAT?

HFS suggest that today’s current “effort-based” BPO services model is failing, with the majority of leaders prefrring an outcome based approach. 

This is not a surprise, although defining the “outcomes” and “what good looks like”, sufficient for a contract and for delivery of a service, is far harder than it sounds.

In the current dominant model, “butts on seats”, the provider has little to zero incentive to become more effort-efficient. 

Any outsourcing pricing structure – input or effort based (e.g., FTE-based), output-based (e.g., price per transaction processed), or outcome-based (e.g., gain sharing, pay-for-performance, innovation fund) has its pros and cons.

From my own discussions it is clear that organizations want a more “value based” approach to outsourcing, although this may itself lead to a greater division of outsourced services amongst specialists.

We definitely need a better conversation on how to create a model based on, and paid on, value delivery.

One challenge is that some early effort based pricing is often required to understand baseline performance, but this can damage the power balance for the customer in any subsequent negotiation.

Maybe we need to START with smaller value based engagements?

Horses for courses, even?

The HFS article by Phil Fersht and Saurabh Gupta is well worth a read here . .

The SSON webcast with Naomi Secor and Tom Bangemann is equally thought provoking with detailed survey results, and you can access it here . .

Thanks for reading . . .