The Awkward Truth: Three Challenges for UK BPOs

The arrival of COVID delivered the proof of the densely inter-connected fabric of business in the UK.

Just as a chain of Christmas tree lights depends on the steady & predictable performance of the preceding bulb in order to perform, individual business performance has been affected by others within its network.

Let’s consider three such Challenges for UK BPOs in a Post-COVID World

Business Process Outsourcing (BPOs) need to adapt. Are they enabled to deal with the obstacles? Can they be “flipped” into opportunities for their colleagues, shareholders, and clients?

1. Delivering a satisfactory commercial performance just got tougher

Systems thinking shows how different, yet complex entities interact and influence each other.

In BPO terms, the impact of COVID on client companies will have significantly impacted their revenue. Challenges in the retail sector were already well documented prior to COVID and have deepened since.

So, if it’s harder to deliver profit targets with private sector campaigns following the onset of COVID, it must be easier to make money with a Public Sector deal, right? Well, not quite…

HM Government will swiftly realise that their campaigns have become a sweeter prospect for BPOs.

There is a recognition of the lower risks involved within the public sector on all sides. This may encourage greater demands from public sector category leads. This will include lower costs from outsourcers and higher services. Adding further erosion to the BPOs profits.

Consider the additional and unforeseen costs incurred by all BPOs as they home shored their workforce. Thousands of advisors. Miles of cables. Ethernet and ISDN ports. Individual security and H&S assessments. And how long will this continue?

To add insult to injury, installation of home connectivity becomes an unrecoverable cost when advisors exit their employer. Conversely, new costs are created in installing new connectivity in the home of the replacement advisor.

Three Challenges for UK BPOs

BPO Estates are designed to support many thousands of advisors and cannot be easily reduced. Many centres are not owned by the BPO. Outsourcers are typically locked into lengthy rental contracts. Paying for floor space that cannot be used is painful for any organisation.

Leases and delays in rent can be negotiated. None of this will be easy and may contribute to reputational risk. Would any client wish to trust the services of an outsourcer when they cannot pay the rent?

The net result of these collective erosions to margin & revenue, when coupled with higher costs, may be supportable in the short term. As the impact of COVID stretches on, how many BPOs can continue in this environment without significant and material changes to the business model?

CFOs can look forward to more sleepless nights as they consider the impact to their liquidity position. Short term liabilities are sure to be increasing as short-term assets remain static or decline following further erosion in campaign returns.

In summary:

  • Private Sector revenue is risky at best in a Post-COVID world.
  • Public Sector margins are going to be tighter on new and current Campaigns, with deals harder to secure as competition for these lower-risk contracts increases.
  • Operating costs are higher today and likely to remain whilst social distancing is required in the workplace.
  • Cash Liquidity may be reduced, adding greater enterprise risk.
  • COVID presents BPOs with an opportunity to reverse all these factors. Hope lies within the radical transformation of their Business Model. Basic economics teaches us that the micro-environment must react in sympathy with changes to the macro-environment for organisations to remain viable.

2. BPOs were already running hot

There is an awkward truth at the heart of the BPO sector. The economics within each client campaign will not support exceptional investment in infrastructure, management, or advisor numbers. BPOs are traditionally a working model of excellence in Lean methodology.

Adopting a Lean approach by direct subscription to the processes famously integrated by Henry Ford helps the BPO Industry stay profitable. This means that BPO organisational models are typically populated with low numbers of management & supervisory cover.

People costs are the highest debit in any operating budget of scale. Keeping advisor & management numbers low. Adopting behaviours/rules/processes to drive higher productivity. Lower waste such as absence, attrition, and recruitment. By doing this the BPO is on the way to meeting its margin target.

Or, to simplify the CODA: Do More with Less

When COVID hit the UK, the scramble was on to move workers out of densely packed contact centres to their homes. Stretched managers had even more loaded on their shoulders to make it happen, and quickly. Add to this the pressure of delivering a seamless service to their clients whilst they did it.

To use a metaphor; BPO Managers had to deliver a heart and lung transplant to a marathon runner…whilst they were still running.

To the credit of the talented and hardworking individuals working in BPOs, the news emanating from most UK outsourcers is that the initial activity was successful.

Now comes the challenge of making it work as a ‘Business as Usual’ practice. Today’s BPO operation is now located across a significantly larger geography, in many more locations. Using an IT architecture network with greater instability risk. Lower levels of direct supervisory control…. but with the same resources to manage.

This is the opportunity for each BPO to conduct an organisational re-framing of their pre-COVID business model, behaviours & practices. Flexibility and adaptability in operational control whilst continuing to operate as close to the prescribed organisational culture are the traits that will secure their futures.

3. Traditional approaches will not work when the operation is in thousands of advisor’s homes

Businesses defer to their documented culture when challenged on how they wish to work. Mission statements. Values statements. Desired outcomes all wheeled out when behavioural queries arise.

Yet culture is ethereal. Non-physical. Difficult to prove. But there’s little doubt it exists in every business and BPO.

BPOs typically use operating culture with a greater practical purpose than in other sectors. This may be because of its desired ability to influence behaviour in an environment with relatively low numbers of managers & supervisors.

Managing large groups of people requires procedural controls to guarantee output.

Four forms of control

Knights and Wilmott theorised four differing forms of control in operating environments in 2012. They are, in turn, subtly embedded in the operating culture of the respective organisation.

In BPOs, the evidence points to control through rules and procedures (CTRP) as being the most prevalent form of control. This provides benefits to the operational behaviours in terms of repeatability, scalability, low costs, and relatively easy maintenance. A common metaphor for CTRP is that of a machine. Outputs precise, controlled, and product orientated.

CTRP works well in contact centres, where large groups of people gather. Deviances from CTRP easily spotted and addressed in such environments.

Thousands of contact centre advisors and back office staff are working from home with little or no managerial ‘eyes’ on behaviour. How can the operation be evidentially controlled? How can Data Security be guaranteed? How can BPOs ensure the operating culture is consistent in each household?

Academic theory suggests that BPOs that relied more on CTRP will be struggling to guarantee the sustainability if they cannot control the environment. This is because CTRP requires advisors to engage less with process and procedure. Multiple and repeated individual challenges work counter to the success of CTRP.

A further problem is individual Cognitive Dissonance. Simply put, individual advisors decode rules and procedures differently. Dissonance is likely to increase if homeworking is prolonged.

BPOs that continue to insist on following CTRP will struggle on with greater MI, providing the illusion of control. Incidentally, greater MI is likely to add to the workload of the (already stretched) management groups.

The opportunity here is to consider a different approach for a different environment.

Control through culture

Control through culture (CTC) is one such option to consider. CTC was advanced by Knights & Wilmott as an option for organisations to free themselves from process-centred control, and deliver close, collegiate, and collaborative systems of working. The metaphor for CTC is one of a family.

Opportunities to challenge and demonstrably change process and performance encouraged and prescribed. Activities designed to encourage group working, engagement, and meaningful work beyond repetitive tasks.

Commentaries on LinkedIn suggest that organisations who already had themes of CTC embedded within their operational culture prior to the arrival of COVID will perform better in the new home-shoring operating model. Academic theory would appear to support this notion in this instance.

The challenge remains for all BPOs to revisit their operating culture. It may already be clear to individual BPO owners & clients if their way of doing business is evidentially aligned with CTRP or CTC.

Break on through to the other side

The Business Services sector has performed wonders. Successfully delivering hundreds of campaigns safely from the homes of advisors with little disruption to the client or customer experience.

We can be confident that no one foresaw the exceptional demands of COVID when the respective procurement teams sat down to discuss business continuity clauses. Yet, talented BPO Leaders crisply delivered on the herculean task of relocating thousands of advisors.

There is a rich seam of leadership talent in BPOs, many of whom do not have the luxury of specialisation. ‘Generalist Excellence’ across multiple & diverse fields is an unreasonable yet expected norm for BPO management. This quality is externally recognised. BPO Market Capitalisations are valued far in excess of typical assets and future orders.

Human capital is always of great value, and is proven in this case.

But what happens next?

The sector faced challenges before COVID. The sizeable failures of Interserve and Carillion remain fresh in the memory. Many of the remaining outsourcers were battling hard to rebuild their balance sheets following years of declining returns.

COVID has given outsourcers permission to overhaul their business model. This will be welcomed by some. For others, it may expose further unpleasant gaps in their performance & behaviours.

The challenge now is to find a way of supporting a new way of working. In time, we may come to look at accommodating thousands of advisors in one site as a primitive and unsophisticated approach.

BPO clients will also be revisiting their business models. Clients that relied on offshoring, for example, may be less inclined to do so in the future. The frustration and loss of control is evident as foreign governments make decisions on how a client’s functions are managed outside of the UK.

The public sector will need to deliver a higher return for taxpayers for a United Kingdom in need of rebuilding. They will grapple with the seemingly incompatible duality of reducing the total spend on services, whilst increasing the output and value.

This remains a unique moment in time. Broadening the opportunity to tackle some of the ‘Awkward Truths’ expressed in this article may deliver further positive differentiation between BPOs. Those who dare to ‘unpick’ organisational models will see genuine value returned to shareholders, clients, and colleagues.

Good news, bad news and the prize that awaits

The good news is that the future is already here. Some BPOs are already changing. They will work through the challenges presented by COVID and emerge stronger as a result. They will have sustainable operations that do not excessively rely on rules & procedures. Financed by an improved commercial performance that delivers greater insulation to external changes. Investing in resources that ensure management teams will not have to repeat the superhuman miracles performed this time round.

The bad news is that transforming business models relies on the individual BPOs ability and desire to change. Transformation can be painful and protracted. It requires genuine engagement from disparate groups within, and without, the organisations’ direct network. Sadly, this may mean not all BPOs will survive. Challenges on the balance sheet may force consolidation in the sector, or see others leave the market entirely.

The prize that awaits is surely attractive to all. A flexible & adaptable BPO sector that is truly organised for the 21st Century. Freed from the shackles of outdated concepts such as Fordism. With super-charged balance sheets allowing for investments in additional resources to resist future unforeseen challenges. Colleagues, clients, customers, and shareholders enjoying richer experiences in unison.

‘Kodak Moments’

Some may argue that transformation of business models at the required scale and speed cannot be easily afforded. Sadly, history is littered with commercial failures in a rapidly changing environment. Hello, Kodak.

My personal experience of the talented people leading some of the UKs largest BPOs gives me faith in the sector. Looking ahead, many questions remain:

  • Just how many BPOs will break on through to the other side?
  • What shape will the industry be in?
  • Who will be the winners and losers?
  • How will clients, colleagues, customers, and shareholders change their behaviours too?

I am hopeful there will not be many ‘Kodak Moments’ in the future of any BPO.

About our guest blogger

In a thirty-year career in the UK & Internationally, David Earlam has enjoyed a range of Executive & Board roles. This includes tenures as a Director for leading UK BPO companies, latterly as Vice President of Client Operations for Teleperformance. Conversely, David has been a client of a number of BPOs when outsourcing functions within Telecommunications & Finance.

This dual perspective has provided David with a unique insight into BPO behaviour. David has completed a number of academic papers on the diverse behaviours of BPOs on behalf of The Open University, where he continues his research in his spare time.

David is currently looking for his next challenge and can be reached by contacting Matt Lazenby here.