Pure Players Investing in BPO | Article

Wallet with some bills sticking outThe new millennium saw the dawn of the pure play BPO players, says Chris Kirk, CEO of LeapSource, one of those new pure play providers. LeapSource, based in Phoenix, Arizona, specializes in finance and accounting.

Until the pure play providers arrived, companies who wanted to outsource a business process had to select one of the Big 5 accounting firms, recalls Kirk, who launched a BPO practice for Arthur Andersen (AA) before becoming the founding CEO of LeapSource. BPO, however, was just one of many client offerings at AA. Pure play providers, however, have no sibling rivalry; that’s all they do.

At the Big 5 firms, Kirk says 50 to 60 service lines vie for management dollars. Kirk says the outsourcing practice tends to receive “very low investment.” In fact, during her tenure at AA, “we got no investment.” At LeapSource the company is using its venture capital infusion to invest heavily in its technology and people “so we can improve our quality and delivery.”

That investment has paid off. Last year BPO providers attracted the very large clients. Bigger companies are making the strategic decision that it is not cost effective to do the non-core processes like back office in-house.

Interest in outsourcing to BPO providers is burgeoning because companies are continually looking for ways to improve their business processes. “The next inevitable step is to leverage that process,” Kirk says, adding that outsourcing is the only way to obtain that leverage.

The market’s increased interest in BPO outsourcing allowed LeapSource to triple its contract growth last year, announces the CEO.

Outsourcing Leaps to the Forefront

Finance and accounting and human resources (HR) are currently the two “hottest” areas of BPO, observes Kirk. With the high cost of capital, companies in today’s highly competitive world can only afford to invest dollars in their core competencies. “Companies don’t make their money paying their bills. So they’re not going to spend $20 million on a new finance and accounting system,” explains Kirk. The high cost of capital and the increasing demands of technology “are bringing outsourcing to the forefront,” she says.

Kirk believes the outsourcing world will witness a compaction of services this year. She likens outsourcing to a layer cake. The bottom layer sitting on the serving plate is the hardware. The next layer up is the software. The third layer is hosting. This is the ASP arena.

The icing is BPO, which adds process and people. Kirk predicts companies in the hosting space will move up into the BPO layer because it is a way to augment their thin margins. Adding value to the process improves the vendor’s profits.

Kirk says she plans on spending time this year educating companies about outsourcing. “Outsourcing is still a new phenomenon,” she reports.

Lessons from the Outsourcing Primer:

  • Finance and accounting and HR are the two hottest areas of BPO outsourcing.
  • Pure play providers are able to make significant capital investments in their core processes.
  • Service compaction will happen this year as ASPs move into the BPO space to augment their thin margins.
  • Today’s high cost of capital is making outsourcing attractive to buyers.

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