Why are BPOs pushing Gain Share Models for Digital in the contact center?
Keeping up with changing nature of business due to Covid-19, availability of labor, and the increased adoption of digital technologies is fundamentally changing the way BPOs operate. The pressure is on to profitably deliver services to customers with a next-generation operating model that can sustain high levels of speed, agility, and efficiency. As a result, is a surge in popularity for BPOs to propose outcome-based models, specifically gain share, for digital innovation in the customer journey.
Digital transformation in the contact center can provide an endless cycle of service optimization. The pandemic has sped up the adoption of digital technologies by several years according to a recent McKinsey global survey of executives. It cites that organizations that invested more capital expenditures in digital technology than their peers did during the crisis were twice as likely to report outsize revenue growth.
The impact of this on the BPO sector is that is that brands have raised expectations of their BPO partners. They are now looking for BPOs to not only provide financial and operational benefits, but also to utilize innovation to improve the customer experience.
Offering digital transformation technologies allows differentiation in a competitive marketplace for BPOs, and positions them to become more attractive from a valuation perspective. SEC filings for the two BPOs that made public offerings in 2021 position their technology capabilities at the forefront. Calling themselves a “tech company” and a “digital outsourcer” they name their competitors as consulting services and IT companies along with the more traditional BPO organizations.
BPOs who can accumulate digital use cases can only help their position in the marketplace. According to Deloitte, “more flexible client partnerships and faster adoption of digital tools will define the next generation of BPOs”.
But gaining traction in this area isn’t easy for BPOs as IT service providers are pitching the same solutions. To mitigate cost pressures and accelerate sales of these disruptive technologies BPOs are turning to the promise of reduced risk to the brand with outcome-based models like gain share.
Key considerations of the gain share model
Gain share models promote the opportunity to share in the benefits of continuous improvement, innovation, and program success. Digital technologies for automation, customer insights, call deflection, omnichannel fluidity, and personalization are proposed for streamlining the business and optimization of contact center functions.
In a typical gain share scenario, the BPO designs, builds and deploys the innovation projects /technology on a reduced fee or no fee basis. The brand and the BPO then share in any efficiency and revenue gains. If for some reason the technology doesn’t yield the anticipated gain, then the financial burden is absorbed by the BPO. Proposals may include a percentage commitment to year over year TCO (Total Cost of Ownership), and a qualification regarding agent proficiency before results begin to be calculated.
Gain share models encourage collaboration and creative problem-solving as both parties work toward common business goals. It’s not always easy to get a green light for the initiatives, and gains can be hard to agree on and difficult to measure, but it hasn’t stopped BPOs from presenting the model in their proposals.
Here are some key considerations for BPOs when offering the gain share model:
Perception is sometimes reality
One of the reasons BPOs are increasing pitching gain share models is perceived value. In a typical proposal the BPO will offer an innovation fund of anywhere from $100k to $500k in conjunction with the gain share scenario. The funds are presented at retail, so actual cost to the BPO can be 50% or less of the proposed value. The hit to the BPO program’s EBITDA is small, since the amount of the fund is usually proportional to the size of the call center opportunity. For instance, a $500k innovation fund would have a requirement of a minimum of 500 FTE (Full time Equivalent) award. Clients like skin in the game, and gain share combined with an innovation fund have been a popular way to deliver this.
It’s a sticky engagement for the BPO
Anecdotal evidence indicates that less than 25% of the digital innovation initiatives that BPOs propose in gain share environments make it past the proposal stage. But even if the innovation projects are not executed, the BPO is providing real value through its assessment of the opportunities by mapping contact center challenges and identifying pain points in customer journeys. This also creates a distinct advantage for the incumbent BPO. As they become intimately familiar with the customer’s business and commercial environment, their relationship with the brand becomes stickier. It becomes increasingly difficult for competitors to break in because they don’t have access to the data identifying where the opportunities lie. As a result, their proposals may not meet the brand’s requirements.
Time is money
In many cases BPOs look for quick wins like a knowledgebase chatbot that can cut average handle time, so they get a speedier return on investment. Long drawn-out initiatives like transformation of legacy systems are not favored because of the significant upfront outlay of resources with sometimes difficult to estimate gains.
But largely, the most frustrating part for BPOs is approval time when implementing digital initiatives on a gain share basis. Complicating the scenario are proposals for solutions that need to be supervised and integrated into the wider brand enterprise. Multiple layers of review and approval as well as allocation of project management and IT resources all take time. To help make their guarantee of yearly TCO reduction, BPOs may include a contract clause where delays without reasonable cause will be counted towards their commitment. However, they will stop short of introducing digital initiatives if it is near the end of their contract term, unless the brand has already guaranteed renewal.
Ultimately gain share is a win for the brand and the BPO
A good gain share model incorporates high-trust, high-communication, high-collaboration, and an equitable distribution of risk and reward. If the model is done right, gain share for digital innovations can result in a partnership that provides long terms gains not only for the brand and the BPO but also for the end customer.
Annette Timmins is Vice President of Business Development at iQor, a BPO provider. For over 25 years she has been collaborating with organizations to deliver global outsourced solutions that optimize their customer support operations and help build their brand. Annette can be reached via LinkedIn or via email at firstname.lastname@example.org