More important than its enormous growth predicted for 2000 is the way outsourcing is changing. Entirely new perspectives on processes, strategies and relationships will be spotlighted as the industry transforms itself this year. Business process outsourcing (BPO) is predicted to be the focal point in 2000, according to Richard Smith, head of BPO across Europe, the Middle East, and Africa for PricewaterhouseCoopers (PwC).
PwC has observed this market growing slowly but surely over the last two to three years. With the usual 12 to18 months for BPO negotiation and transition before deals are made public, it is certain that many deals to be announced in 2000 will have been negotiated in 1999. “My belief,” says Smith, “is that as the market starts to see the success and benefits that are achieved from this form of outsourcing, the market will move fairly rapidly.” He describes some of the new perspectives that highlight BPO as a predominant strategy for increasing competitive advantage.
Perspective on Strategy
The volume of BPO transactions and number of companies that will outsource critical, non-core processes will explode in 2000, according to Smith. New entrances to a marketplace are available via the Internet and, to be more globally competitive, organizations must become more efficient. That fact drives them to BPO as a long-term strategy.
“The area of the market PwC is involved in is the outsourcing of critical back-office functions and end-to-end processes within those functions,” he explains. “Back-office processes can take up to 10-20% of a company’s revenue, and they must be delivered in the most cost-effective manner.”
Perspective on Relationship
Smith differentiates BPO processes from other outsourced processes in that BPO deals with complex, critical processes. That makes it crucial that the relationship between the customer and the supplier be more of a partnership than contractual. “In BPO,” he explains, “it is not possible to operate to just a contractual interface with simple service agreements. This is not something which a BPO provider can do to an organization; it is something which the client and the provider do together.”
He explains that trying BPO often starts on a small scale. As trust in the BPO supplier is built up, the buyer is willing to expand the scope to other process areas. Smith says that a BPO relationship usually flows naturally from an existing relationship between a supplier and a client. “At PwC, we build up a level of trust and develop a potential BPO solution with them over a number of months. When they come to trust us, then we negotiate a contract with them.”†
Perspective on Performance
BPO involves very complex outsourcing deals that cover different service areas with complex service agreements. It calls for a high degree of partnering and flexibility, and Smith says a buyer benefits more with a supplier who has empathy with the culture of its organization.
Most in-house back-office functions are not measured in terms of their service performance or their cost; basically there is no accountability, Smith explains. Typically the staff do not have a customer service mentality, and there is no contract between the accounting (or HR) department and the business users. “The key performance areas, service level agreements, and metrics all need to be benchmarked and established when we move into a BPO contract,” says Smith. “Then we determine what our cost targets are going to be, and we measure against those.” BPO actually improves both service and cost for a client.
Perspective on Speed
Smith says that buyers seek more from a supplier than value from improved service and lowered cost. “They look for us to deliver change faster than they can deliver change themselves,” he says.
When a company tries to downsize and make other changes in an effort to increase efficiency, the people working in back-office functions typically perceive an uncertain future. In self-defense, they resist change. That problem is solved through BPO when the supplier transfers those employees into its organization. As Smith explains, when PwC takes on a client’s employees, they become accountants in an accounting company (or HR experts in an HR company). “Suddenly they have a great future, because we are growing that business, not shrinking it,” he says. “There are increased opportunities for them, so they actually work with us to reengineer the service and delivery. As opposed to having change imposed on them from above, they actually drive change from below, realizing it will benefit their careers.” That phenomenon drives change through much more quickly, and Smith says it is a key factor in true business process outsourcing.
Perspective on the Internet
Besides revolutionizing the way companies do business, the Internet will revolutionize the way outsourcers deliver service to their clients. Smith says the biggest investment PwC is making is in web-enabled solutions.
PwC has adopted a twin strategy in moving its clients to the web. “Our biggest clients have a large investment in ERP solutions,” Smith explains. “For those companies, we promise e-business solutions in specific process areas and, over time, we will replace the legacy solutions with web-based solutions. For clients that haven’t invested in an enterprise-wide ERP system, we can Internet their solutions from day one.”
Perspective on Cooperation
Major alliances between firms like PwC and big technology firms in the area of ASPs are Smith’s prediction for the most significant development in outsourcing for 2000. In an increasingly complex and sophisticated marketplace, no one organization can totally satisfy the market. “Strategic alliances and strategic joint ventures are going to be critical to success,” states Smith. “PwC is going to be in the forefront, and you can expect exciting announcements from us during the first half of 2000.”