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BPO in the Insurance Industry
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Want to learn about trends in BPO in the insurance industry? Please check out my contribution to the Post Online article here (subscription needed to access Post Online).
TUPE: Service Provision Change – Do we need this provision?
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Under the previous 1981 Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) and the EU Acquired Rights Directive (ARD) it was not clear whether the definition of a relevant transfer caught “outsourcing” activities where there was a change of service providers or a contracting in or out of services. The UK and European courts used a number of factors to decide whether there was a “transfer of an undertaking” within the meaning of TUPE 1981, which led to a number of conflicting case law decisions on this point.
TUPE 2006 Regulations sought to address the difficulties in applying TUPE 1981 to outsourcing activities by extending the definition of a relevant transfer to include situations where:
- there was a “service provision change” for outsourced or in-sourced activities, or
Due Diligence in a Cloud Environment
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Want to learn more about the key areas customers should consider as part of their cloud computing due diligence exercise? Read my recent article on the topic here.
Innovation in Outsourcing – Oxymoron?
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Based on a 2011 Gartner study, numerous website and industry blog postings, and almost every executive I’ve spoken with, it seems that innovation continues to be lacking in outsourcing relationships. All companies want it, all providers promise it, and no one is happy with the actual results.
The study offers suggests three key steps for how to “contract” for innovation:
- Define Innovation
Straight-Through Processing in Outsourcing
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What does the ideal outsourcing procurement process look like from the customer’s perspective? It is a process that enables the customer to put in place a deal quickly and efficiently with a minimum of friction and achieves the customer’s business objectives.
How often is this ideal realized? Not often enough.
Why not? There are many causes, but one contributing factor we frequently see is a bifurcation of the procurement process into a “consulting” phase and a “legal” phase.
Outsourcing Price – Don’t Lose the Cost Linkage
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Getting to the right price. If not the primary objective, it’s certainly one of the more important goals of any customer who has ever outsourced a piece of their operation. While striving for the lowest price possible, in order for the transaction – and long term relationship – to be successful, it must be beneficial to both parties. If a customer negotiates a supplier below the point at which they can make money on the service, there will be problems with that relationship. It might take a little while for them to surface, but surface they will.
One of the longstanding precepts of pricing in the sourcing world is to maintain, as closely as possible, a linkage between the underlying cost of providing the service and the price being charged for that service. No customer should begrudge their supplier making a reasonable profit, for without a fair return on their work, it is unlikely the supplier will be there in the future to support the customer. Hence, if the costs of providing the service plus a fair margin are equal, in as many cases as possible, to the price being paid by the customer, then the chances for a long, happy and productive relationship between the customer and supplier are good.
This does not mean that one should strive for a “cost plus” arrangement. On the contrary, that pricing paradigm comes with its own set of challenges. What this does mean is the price should be closely linked to the underlying cost of providing the service. An O/S image support charge is directly attributable to the labor and maybe some productivity tools that are used in the delivery of that server’s support. Conversely, the charge for a gigabyte of data streamed to a tape has no linkage to the underlying cost of providing data backup services.
Thinking Ahead – Outsourcing by Early-Stage Companies
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Change is hard. Big change is harder. And big change in big companies is extremely hard.
So it is not surprising that when it comes to large outsourcings, the amount of change can be a deal-killer. The friction costs of outsourcing can result in hurdles that are just too high to overcome – even for deals that ultimately produce significant savings and that clearly would be in the best interests of the company.
These friction costs of moving forward with an outsourcing transaction go well beyond the obvious “hard” costs of the service provider’s transition charges and cost of severance. The “harder” friction to overcome includes:
Increased Hiring Requirements for Federal Contractors: Mirroring European Laws?
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The U.S. Department of Defense, General Services Administration and the National Aeronautics and Space Administration (NASA) have issued a proposal to amend the Federal Acquisition Regulation (FAR) implementing Executive Order 13495 , which will require government contractors that take over service work from other companies to offer jobs to certain categories of the predecessor’s employees.
The presidential order is intended to aid procurement efficiency and mitigate transition risk by preserving the service continuity of the predecessor’s employees, if the contract is awarded for the same or similar work in the same location. There are many similarities with the long standing protections offered to citizens of the European Union, whose jobs are protected in certain circumstances by the Acquired Rights Directive (ARD). Under the ARD, an employee’s job is safeguarded by requiring a successor contractor to hire the employee from its predecessor on substantially the same terms and conditions (e.g., salary, benefits, years of services) as the employee enjoyed with its predecessor. Notably, the ARD applies to private sector outsourcing transactions, not just to government contracts as is the case under the proposed FAR regulations.
For any company that has sought to outsource its IT or BPO functions on a global basis, the implications of the ARD are impossible to ignore. It requires suppliers to conduct substantial due diligence on the customer’s HR policies and personnel before signing an outsourcing deal, and to make offers to its predecessor’s employees as opposed to using its own employees to perform the services. As a result, the supplier must factor the cost of hiring the new personnel into its solution, and in turn, pass that cost back as a charge to the customer. Although the consequences vary from country to country, ARD non-compliance violations can result in hefty fines for both customers and suppliers as well as potential criminal liability for certain breaches of consultation requirements in countries such as France.
Data Security Protections in Outsourcing Agreements
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A key finding in the Trustwave 2012 Global Security Report is that in 76% of data breach investigations a third party responsible for system support, development and/or maintenance of business environments introduced the security deficiencies. This should concern any company that outsources the processing, storage or transmission of personally identifiable information (PII) to suppliers of IT or business process outsourcing services.
With the average cost of a data breach in excess of $5 million and the associated reputational risk, outsourcing customers should review their contracts to ensure they contain appropriate commitments and accountability from the supplier with respect to data security. Below is a brief outline of some of the key provisions that should be part of an outsourcing agreement.
Supplier Commitments: Suppliers should commit to the following:
Using Cookies in the EU? Are you ready for the 26 May 2012 deadline?
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Starting on 26 May 2012 the UK Information Commissioner’s Office (“ICO”) will begin enforcing sweeping changes to the EU cookie law put in place 12 months ago. By way of reminder, following a change to the EU’s Privacy and Electronic Communications Directive (the “E-Privacy Directive”) back in 2011, the rules on using cookies to track/store information on users are about to change.
Unless an exception applies, the new requirement essentially prohibits the use of cookies absent the consent of the user (unless the cookie is “strictly necessary”). The new rules apply regardless of where the website is based, if European personal data is collected.
In other words, a website operator over which the ICO has jurisdiction, wherever the operator is based in the world, will be unable to argue it was still getting its house in order if the ICO comes knocking.