Continuous improvement in outsourcing: savings past year one

Key takeaways

Continuous improvement in outsourcing is the practice of steadily lowering cost and raising quality after the initial handover. Year one savings come mostly from the rate. Savings after that have to come from the process: fewer steps, less rework, more automation. They do not happen unless the contract asks for them and someone reviews them every quarter.

• Year 1 savings come from rate, later savings from process.
• Ask for two costed improvement ideas every quarter.
• Track cost per task every month, not just the invoice.
• Without a named owner, improvement stops at go-live.

What is continuous improvement in outsourcing?

Continuous improvement is a method of making small, regular changes to a process so that it gets better over time. In outsourcing it means the provider and client keep working on cost, quality and speed after the service is stable, instead of running it unchanged for the life of the contract.

• How BPO can help businesses reduce operational costs
• A simple BPO governance model

Why do savings stall after year one?

Savings stall because the easy gain has been taken and nobody is responsible for the next one. The provider is delivering what was specified. The client has moved on to other things. Meanwhile annual price increases and small additions to scope start to erode the original saving.

• The rate saving is taken once and does not repeat.
• The provider is paid for stability, not change.
• Nobody in-house owns the process any more.
• Indexation and scope creep push cost back up.

• Labour arbitrage: how much of the BPO saving is wage rates?
• Indexation clauses: how outsourcing prices rise each year
• Scope creep in outsourcing: how extra work erodes savings

What should improvement look like in numbers?

Take an illustrative process that cost £3.00 per task in-house and £2.00 after handover. If nothing more is done and the price rises 4% a year, cost per task is about £2.16 by year three. If the team instead removes steps and errors worth 5% a year, cost per task falls to about £1.95 over the same period even with the price rise.

The gap between those two paths, 21p per task, is the value of continuous improvement. On 50,000 tasks a year it is £10,500.

• Run-rate savings vs one-off savings: count them correctly
• Work out your cost per task before you outsource

Where do later savings come from?

Later savings come from the work itself. A team that has run a process for a year knows where time is lost.

• Removing steps that add nothing.
• Fixing the causes of the commonest errors.
• Reducing avoidable customer contact.
• Automating stable, rule-based steps.
• Simplifying exceptions into rules.

• The eight wastes of lean in an office, and how to cut them
• Right first time rate: the quality number that cuts cost
• Straight-through processing: cut the touches per task
• Exception handling: the few cases that drive most cost

How do you build it into the contract?

Build it in with a light obligation and a regular forum. Heavy productivity clauses are hard to enforce in a small contract. A short, specific commitment is easier to hold to.

• 1. Require two costed improvement proposals per quarter.
• 2. Review them at a quarterly business review.
• 3. Agree how any saving is shared.
• 4. Report cost per task and error reasons monthly.
• 5. Name an owner on each side.

• The quarterly business review with your outsourcing provider
• Gainshare in outsourcing: pay a provider to cut your costs
• BPO contract terms to check before signing

What is your part in it?

Your part is to respond. Many improvements need a decision only the client can make: dropping a report, changing an approval rule, fixing a form on the website. Providers stop proposing when proposals go unanswered. Give each idea a yes, a no or a date within two weeks.

• The weekly operations review that keeps a lean team on track

What does this look like in practice?

A pattern we see in the second year of an arrangement: the service is steady, the monthly call has become a formality and cost per task has not moved since month four. Asking one question at each review, what would you change if this were your business, usually restarts the flow of ideas.

• See client work
• BPO Solutions for UK businesses

Continuous improvement checklist

Check these once the service is stable.

• Cost per task is tracked monthly.
• Error reasons are logged and ranked.
• The provider proposes improvements quarterly.
• Each proposal gets a decision within two weeks.
• Savings are measured against the baseline.
• An owner is named on each side.

• Cost reduction KPIs: the numbers that prove savings are real
• Process standardisation: one best way, lower cost per task

Next step

Tell us how long your current arrangement has run and whether cost per task has changed since the start. We will suggest where the next saving is likely to be.