Successfully Governing Business Process Outsourcing Relationships

Abstract

Business Process Outsourcing (BPO) has matured into a powerful organizational lever for achieving a variety of strategic business objectives. But despite BPO’s strategic promise, many organizations are unprepared for the governance of this new way of working. Thus, many outsourcing programs fall short.We suggest that insufficient attention to BPO governance is the main reason BPO relationships fail to deliver value. We present a governance model that increases the odds of BPO success. It is based on the premise that three key requirements of the outsourced process—its interdependence with other processes, its complexity, and its strategic importance to the enterprise—should determine three key BPO governance capabilities—the outsourcing contract, relationship management, and technical capabilities. When this alignment is explicit, the relationship will succeed. We have tested the model using survey data on 137 BPO relationships. We illustrate the model’s premise using the successful experiences of Merrill Lynch and Qatar Airways at governing very different business processes, one transformational and the other transactional.

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