While multi-tower outsourcing engagements--in which a range of functions such as F&A, HR, IT and contact center are bundled into one contract awarded to a single provider--may seem an effective way to quickly reduce costs due to economies of scale and presumed truncated solutioning phases, the reality is often quite the opposite. Think back to post-September 11 when cost reduction, just like today, was an outsourcing buyer’s primary driver. Then consider the multi-tower deals struck during this timeframe—large utility and insurance company buyers top the list—all of which resulted in missed expectations.
History has proven that multi-tower engagements often miss the mark. Why? First, no single provider excels in all towers. Second, such massive outsourcing agreements are exceptionally complex, and the complexity is exponentially exacerbated by the number of included functions. Third, the needs and requirements of all client stakeholders related to each tower must be accounted for during the pursuit phase, as well as the subsequent solutioning, transition and steady-state delivery phases. Fourth, larger governance teams are required, and the governance function itself becomes highly unwieldy. And finally, industry-specific knowledge is necessary to achieve expected goals, and no provider has expertise in all domains.
Although today’s buyers, similar to those in the early 2000s, are trying to minimize their up-front investment and build as much volume flexibility as possible into deals, all of these issues can far too easily, and more often than not do, lead to client and end-customer dissatisfaction. In some cases, multi-tower deals take five years or more just to break even, and buyers forget to be wary of providers that are willing to “buy deals.” While the pricing may be attractive today, the provider that is making low to no margin will cut corners after the honeymoon period is over. The provider’s senior management will have long forgotten why such a low price was agreed, and require the account team to add on services or look to other more fruitful accounts to make up the difference.
Accordingly, separately inked one- or two-tower BPO deals are most appropriate if the company is on a fast pace to cost reduction. Simplifying the process delivers a better-managed outcome.
There are, of course, other decisions and determinations outsourcing buyers should make before embarking on a single-tower deal to help ensure business objectives and both early and steady-state cost reduction targets are achieved.