Business Process Outsourcing (BPO) is a natural outgrowth of changes driven by the success of Information Technology (IT) outsourcing and a more sophisticated business environment. It reflects a new way of looking at the outsourcing industry, according to John Harris, corporate vice president responsible for strategy, marketing and sales leadership at EDS.
“If you go back maybe seven years ago, outsourcing used to be synonymous with the management of the technical infrastructure,” said Harris. “Today, outsourcing is more of a method of contracting. It’s becoming part of the philosophy of how you manage your business, and it’s tied very much into what core competencies you have as a company.”
Outsourcing’s high level of acceptance as a contracting methodology will lead, Harris said, not only to a continuation of the general outsourcing trend, but also to an expansion of the functions and business processes companies are willing to allow a vendor to provide.
“The competencies that people are declaring as outsourceable certainly have been expanded, in our world, beyond the information technology components and computer communications and applications,” said Harris. “What is outsourceable has now drifted over to primary business functions and processes of the enterprise.”
A Profound Change
While part of the expanded vision of outsourcing can be attributed to the success of IT outsourcing, Harris said the change is more profound.†
“It’s a philosophical change,” he said. “People today are much more comfortable thinking in terms of what competencies and what processes do I need to own and manage directly and which ones are non-core that I can contract out to someone and achieve a combination of efficiency and effectiveness.”
That comfort level has evolved with the marketplace, according to Harris. He points to the growing sophistication of today’s business environment, including the value chain perspective of people having to manage being more connected to suppliers, distributors and their customers. That sophistication is balanced by a growing competency on the part of the supplier community to meet these needs cost effectively and with a high quality assurance level. Those factors, he said, are supplemented by both the companies’ drive to continue to improve their competitiveness and the need for change to accomplish their goals.
“I think all these have come into play,” said Harris.
As BPO gains wider acceptance in the marketplace, customers contemplating such a move should understand their responsibilities in achieving success.
“Benchmark the current environment so you have a good understanding of what the actual end-to-end process is,” said Harris. “What are the logical cut-off points? What are the actual costs and service levels being delivered within that process? Have a good feel for where it fits into your overall strategy around the subject of core competencies. Be comfortable with whether this is something you want to engage someone from the supplier community to manage for you.”
Before entering a BPO relationship, companies also should understand their goals in such an undertaking.
“Have a clear idea of the benefits you want to gain,” said Harris, “whether it’s improved customer service, improved customer service or lowering the capital intensity of the process. It’s always important to understand your own goals clearly.”
What Lies Ahead…
Harris sees the BPO industry continuing to grow and change, with new players entering the field, offering different types of services. At one end of the spectrum, he said, will be a growing number of niche companies building business around an expertise in a particular process. At the other end will be the larger Tier I companies emphasizing the process management area where higher value service can be delivered, presenting opportunities to engage with customers in multiple ways. However, Harris said even the larger companies will select certain processes that play off their competencies as a supplier.
“Certainly from an
EDS perspective, we want to be able to engage with them around system technology services, process management, consulting and e-business,” said Harris. “From our strategy, this is the part of the spectrum of services that we think are necessary to go to the marketplace.”
The Benefits of BPO
The growth of BPO offers new opportunities for both customers and vendors, according to Harris.
“For customers, it means there are more choices, more options on how to solve a particular business problem or business issue,” he said. “For suppliers, it represents expanded market opportunities, more ways to be perceived as adding value to the client.”
And those opportunities can create win-win situations, according to Harris.
“It is probably good for all parties to have more choices,” he said. “To have different ways to bring value to your company is important.”
Lessons from the Outsourcing Primer:
- BPO reflects a philosophical acceptance of outsourcing as a business management tool.
- Growing sophistication and the need for improved competitiveness are key factors in the growth of BPO.
- The suppplier community has demonstrated the ability to deliver high quality service in a cost-effective manner.
- Customers contemplating BPO should have a clear understanding of both their current environment and their goals.
- BPO vendors will offer a full spectrum of services.