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Next Gen BPO: Partnered Virtual Captive

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DQI Bureau
New Update

There has been an incremental growth across the gamut of business domains, and processes considered outsourcing-friendly. Relatively less tried functions like outsourced research are being outsourced and off-shored in the recent times.

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Next-gen Business Virtualization

We believe that in this decade, we will see a list of processes considered core shrinking in a sustained manner, as fewer processes are retained in-house to enable the true enterprise agility. This business virtualization will accelerate, and drive the next gen BPO to top off cost variable-ization the driver of first wave BPOand the effort to realize the enhanced value from outsourcingthe holy grail BPO 2.0.

Rise of the Virtual Captive

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Organizations with evolved vendor management, and expertise have leveraged BPO by creating a network of dependable partners in different geographies with specific strengths, and deliverables. There have been many permutations explored for the basic BPO models that have served outsourcers business goals, eg, lower costs or enhancing focus on core priorities. The agenda in the third party partnering discussions werestability, price, contract flexibility, control, and need for accelerated innovations. Recent surveys indicate that there is a little likelihood of change in these key relationship parameters. However their relative importance is rapidly changing, with clients expecting highest flexibility with least loss of control.

The BPO scenario that evolved over the last 10 years indicate:

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  • More organizations off-shoring for the first time to third party BPO providers
  • Organizations moving from small local outsourced partners to third party BPO companies for better value
  • Outsourcers that move from third party companies to create their own captives
  • Those who dismantled captives, and moved work to the third party service providers

The dynamics of virtual captive partnering has been coming up in discussions especially those between outsourcers, and providers in the existing relationships. The partnered virtual captive model that seems to be emerging is an outsourcing engagement that designs benefits from the fiscal, and operational disciplines of third party arrangements into contracts, while fully retaining the advantages of control, and operational proximity from a captive arrangement.

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Business Triggers

When should one explore creating a partnered virtual captive? The most common business triggers are:

  • When the scale of engagement in a third party relationship has crossed a critical mass in the level of engagement, and number of seats
  • An existing captive facility has started becoming a drain on cash, and the cost of transaction is 25% costlier than market rates available for similar work
  • There is a limited visibility to economies of scale in a captive, or they are taking very long to click into place
  • Movement of business processes from an in-house set up is requiring specific, and customized attention to information security, database management, and branding and intellectual property retention
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How Does it Work?

To make the partnered virtual captive work, it is important to focus on who does what with partnership being the key. Contracted service levels can be as tightly managed as in a third party environment, and the third party arrangements can be converted to virtual captives. Transparency of costs and compliance must be ensured, and a well structured governance model should be set up. The client enterprise remains responsible for:

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  • Developing and sharing its market strategy, and business objectives linking it to the partnered captives overall business goals
  • Articulation of service levels and expectations
  • Interviewing for key positions
  • Articulating expectations around the site selection
  • Branding (recommendation)

The partner providing the virtual captive solution is responsible for:

  • Costs transparency
  • Sharing domain, and operational expertise with the clients organization
  • Identification and recruitment of talent
  • Providing site selection expertise
  • Technology and infrastructure management
  • Navigating through local compliance aspects
  • Providing transition support that facilitates transformation
  • Staff payroll, though employees are virtual employees of the enterprise
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Our experience is that, one of the most critical success factors in making this model work is to retain transitional responsibilities with the provider.

A clear way of breaking responsibility down to the next level of detail, and assigning it is via a detailed RACI matrix (R=responsible, A=acccountable, C=consulted, I=informed). This brings in partnering the best practices right from the start, a crucial requirement to make the virtual captive relationship successful with transparency.

Tenets of Partnered Vision

Our practitioners guide to creating a clear joint vision suggests that the following organizational design elements for a partnered virtual captive should be used to be successful:

  • Maintain the onshore executive leadership commitment, and visibility in a sustained way

Solution: Create a service management organization led by a senior executive, who oversees the off-shore operations from the executive managements perspective

  • Align with the clients organizational culture and understand its business pain points, and drivers closely

Solution: Implement joint incentives to encourage and reward performance, especially for the off-shore operation

  • Address the enterprises control sentiment

Solution: Conduct a risk review prior to establishing the virtual captiveintegrate regulatory compliance, and risk management protocols with off-shored operation. Set up formal controls for physical security, data security, transaction procedures, and business continuity planning

  • Need for performance tracking

Solution: Use SLAs between onshore and off-shore operations. Monitoring productivity for the virtual captive should be connected to the enterprises overall performance management system.

  • How will it attract and retain talent?

Solution: Develop a knowledge transfer plan to minimize extra work, and a training program to support contract management, partner performance, and cultural awareness issues. Keep communications to employees and contractors honest, consistent and transparent

  • Provide for confirmed and committed transformational capabilities

Solution: Implement the gain sharing model right from the contract. Make costs transparent to ensure that the benefits are split as per the contract

  • Address the providers need for scale

Solution: Jointly evaluate shortlisted sites against predefined requirement criteria. Prepare an upfront business plan for the unit, and review it annually at a budgeting, and planning level

Conclusion

While the virtual captive model will evolve even more as it encounters business problems, and resolves the challenges of 2 organizations working together, its success will always depend on the maturity, and the partnership. Its combination of flexibility and control, blended with the finer control on costs, and full access to global expertise and best practices is creating a win-win value proposition that is demanding a closer evaluation.

Milind Godbole

The author is president,

APAC, Aditya Birla Minacs

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