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Clients in best-in-class BPO relationships understand that they need to incentivize providers to seek innovation. But at the beginning of most BPO deals the usual sticking point is: Who will pay for innovation? Innovations are rarely realized in traditional cost-focused contracts because the provider’s attention is focused on urgent operational issues. Risk-sharing, gain-sharing, strong partnering behaviors and a provider seat at the client’s strategy table are critical components in any outsourcing arrangement that is going to deliver meaningful innovations.

This practice significantly contributes to best-in-class BPO performance. BPO relationships are best launched by assigning a strong pair of leaders (one from the client, one from the provider), focusing on business benefits, and driving strong transformation and change management. Best-in-class BPO performers stay on target by deploying practices that adapt to change and by systematically exploring new opportunities, often with the assistance of new technology, business analytics and other innovations. However, we found that a strong pair of leaders is the single best performance improver. This is because—despite the promise of the latest technology, analytics and innovation practices—most BPO relationships are heavily people-dependent.
Clients that find themselves engaged in BPO relationships whose performance is not yet best-in-class need not despair. The strongest message from our cases is that it is never too late to improve BPO performance.