A decade and a half ago business pundits in the marketing procurement area hailed it as a savior. Business process outsourcing – or contracting the operations and responsibilities of marketing procurement to third-party service providers – promised cost savings that would increase a company’s flexibility. According to these pundits, business process outsourcing provides some advantages that can increase flexibility. It helps transform fixed costs into variable costs. It allows more focus on core competencies. It increases speed in certain processes by removing them from within the organization’s bureaucracy.
Business process outsourcing is not, however, without its downside. As the business environment has changed over the past fifteen years so have many organizations’ views and values of flexibility. This has brought to light issues that work against the advantages of business process outsourcing. Even Wikipedia notes that service issues, unclear contracts, changing requirements and unforeseen charges, coupled with dependance on the business process outsourcer (BPO), actually reduces flexibility.
With that in mind, the only conclusion is BPO is dead and here are six reasons why.
1. It’s Too Expensive
BPOs charge fees for their services and markup what they procure to make a profit. As organizations demand more from their BPOs, those fees and markups increase negating the promise of flexibility-enabling cost savings. As an example, a review of InnerWorkings’ 2014 financials indicate revenue of $1,000,133,000 and gross profit of $229,459,000. This surplus accounts for a 22.9% excess companies paid beyond the actual cost of the printed marketing materials.
Businesses seeking more than the ability to off-load work to someone else can save more without the BPO interfering as a middleman.
2. It Takes Control Away
At first the idea of making supporting operations someone else’s problem sounds inviting. Then something goes wrong that makes an impact on core functions and the control that was given away is sorely missed.
When an organization has control over all of its operations potential issues can be caught before they impact core functions. Just ask any marketing department.
3. It Blocks Transparency
Giving up control also means giving up transparency into details that are critical to planning and budgeting for resources, projects and strategies. Without transparency, efficiency stagnates, reliance on outsiders is compounded and flexibility suffers.
With the help of software built for the operation at hand, organizations ensure transparency, achieve efficiency and become more flexible on their own.
4. It Impacts Quality and Service
While a BPO may not set out to reduce quality, its idea of what constitutes the best quality and level of service probably differs from yours. Giving up control also means giving up your definition of quality and service levels.
Operations responsible for the production of marketing materials critical to an organization’s image are better served when control remains within the organization. Creative cannot communicate clearly its ideas to the marketing manufacturer through a middleman. Its like the children’s game of whisper in my ear and I’ll whisper into someone else’s ear, and guess what was originally said.
5. It Stands Between the Organization and Its Vendors
When an organization uses a middleman like a BPO there is no direct relationship with vendors, resulting in goods and services produced with little interest or knowledge in who will use them or how they will be used.
While vendor relationships require careful monitoring and management, the synergy between organization and vendor is often valuable to the outcome of a project.
6. It Puts the Organization at the Mercy of Another
By using tools built for automated communication, process optimization, establishing accountability, gaining full transparency and instant reporting, an organization can gain flexibility while not being beholden to a third party for results.
Business Process Outsourcing is Dead – Software Tools are Alive
Some think that business process outsourcing is a way to minimize marketing procurement operations in order to focus more resources on core operations. Unfortunately, experience can prove otherwise.
Marketing initiatives can only be optimized when marketing procurement remains in charge, gains full transparency into projects, works with trusted and proven vendors, and has control over the dollars that would better be spent on improved marketing initiatives. By obtaining powerful software tools to support marketing procurement, efficiency improves, costs go down and more market reach can be obtained for the same or less market spend.
Marketing procurement has one goal and that is to produce the best marketing possible within budget. BPOs also have a goal which is to maximize their brokerage fees.