So, why isn’t your outsource partner adopting AI to make your service more efficient?
Everyone is talking about Artificial Intelligence (AI). New companies are popping up daily, and you can’t go far on social media without coming across an article discussing the benefits of generative AI.
From a Business Process Outsourcing perspective, it’s clear that AI technology is significantly improving operational performance and productivity by enabling greater self-service, increasing straight-through processing, and helping human agents perform tasks more effectively. This is making it more cost-effective to deliver services, increasing service capacity, and creating more fulfilling roles for agents.
Whilst the capabilities associated with AI and the speed and cost of compute capacity have certainly improved recently, AI isn’t a new concept. Service providers have been using various forms of AI in front and back-office services for well over a decade!
So, given that AI has been around for so long, why are we only now seeing the benefits, and why are some outsourced contracts lagging behind in terms of adoption? Based on my experience, the main constraint is not the technical challenges of implementing AI, whether regarding access to data models, security concerns, or integration challenges. These can be overcome with the right solutions, mindset, and investment. The real challenge is with how outsourced services are contracted.
Whilst organisations have been encouraged to contract-based outcomes, many still contract on inputs, such as attended or occupied agent hours. These contracts simply don’t incentivise innovation; in fact, they encourage the status quo. To make matters worse, these contracts are often inflexible, spanning multiple years, which makes change both complex and expensive.
To address these issues and support the adoption of AI and the realisation of the subsequent benefits, procurement professionals should consider the following principles when constructing new contracts:
1. Contract on Outcomes, not Inputs
Input-based commercial models typically focus on the number of resources required to perform the work rather than the desired outcomes. In the contact centre world, for instance, outsourcers are regularly paid based on the number of resources required to deliver a service. This often leads to a reluctance to introduce new technologies like AI, which require initial investment and ultimately enable the work to be performed with fewer resources, leading to less revenue for the supplier.
To overcome these challenges, buyers must shift their mindset from a purely people-based input approach to a more holistic view based on the quantity and quality of the outcomes. This incentivises the outsourcer to be more productive over the contract term.
With an outcome-based contract, the supplier is only paid when they achieve specific goals agreed upon with the buyer. This approach can be achieved by adopting unit-based pricing or fixed-price contracts in conjunction with a KPI regime that focuses on key outcomes and does not measure inputs or processes.
2. Contracts need to be flexible and cater for rapid change
AI adoption requires organisations to adapt and iterate continuously to keep pace with new advancements. This means that suppliers need to be agile and able to make changes quickly to drive continuous improvement.
The buyer should incorporate conditions and mechanisms into the contract to facilitate this change and flexibility. This will enable the contract to adapt to changing business needs and the availability of new solutions, as well as to alter the level or type of service as may be required.
3. Contracts should Include Gain Share mechanisms
Through gain share mechanisms, buyers can further encourage suppliers to invest heavily in new technologies, such as AI and cutting-edge process improvements.
Effective gain share mechanisms ensure that suppliers are not merely service providers in the traditional sense but genuine partners with a stake in achieving the buyer’s business outcomes. They are also incentivised to deliver continuous improvements through new technologies and innovative processes, creating a competitive advantage by driving down costs and improving customer experience and service quality.
Gain share clauses foster a collaborative relationship between the buyer and the supplier, driving mutually beneficial business results.
Furthermore, this alignment creates an environment of trust and open communication as both parties work towards common and mutually beneficial aims. This harmony can further fuel innovation by providing a nurturing and receptive environment for creative ideas to thrive, ultimately benefiting both the buyer and the supplier.
In conclusion, investing in technologies like AI can ultimately lead to increased efficiency, productivity, and competitiveness. By embracing innovation and adapting to the changing scope of work, suppliers can still drive sustainable margin growth, but only if the contracts permit them to do so.
By sharing the savings achieved from improved processes and aligning their business model with the buyers’ values and goals, suppliers are motivated to deploy innovative AI solutions that add value to the customer and boost the effectiveness and efficiency of the outsourced services. Ultimately, these innovative outsourcing strategies can lead to cost savings, quality improvements, and a competitive edge for both parties involved.
If you want to learn how Abtran is adopting these commercial approaches and driving innovation for our clients, please contact us here.
