BPO Marriages | Article
IT, BPO Suppliers Will Form Alliances
The deck is stacked for the emergence of a new type of outsourcing supplier.
The coming months will bring a flurry of alliances between business process outsourcing (BPO) suppliers, who have superior process expertise but limited IT infrastructure and outsourcing experience, and more traditional IT outsourcing suppliers, who lack that process expertise. These new alliances will rapidly expand the reach and breadth of their BPO offerings in a manner that neither supplier could support on its own in the near term. The logic and synergy of these alliances is depicted in the chart below.
Looking at the chart, the value each player brings to the table is clear and compelling. The end product exceeds the sum of the parts. To use a card game analogy, four of a kind beats two pairs every time.
Why is the stage set for this change? Because that’s what outsourcing customers want in today’s connected and competitive world. Forty years ago, buyers sampled a new game called outsourcing. The complexity of managing IT, the accelerating rate of technological change in that world, and the risk involved in making strategic capital decisions about hardware and software compelled many players to throw up their hands and try this new way of doing business. Over the years, the initial trickle of players turned into a flood.
IT Outsourcing Success Encourages BPO Outsourcing
The successes they experienced outsourcing their IT departments not only made them comfortable with the decision to outsource, but also taught them outsourcing is a good business decision. Then new challenges arrived. For example, today their employees, feeling comfortable with the Internet, want to access benefit information on the company Web site. Now the company is feeling just as overwhelmed about automating the Human Resources (HR) process as they did about managing their IT functions in the past. It’s the natural “next step” to try to replicate outsourcing’s success in these other non-core areas.
So, they decide to move past IT and outsource a business process like HR. Currently, BPO buyers usually only have two choices when selecting a BPO provider. They can choose a traditional IT outsourcing supplier who clearly has the technical infrastructure to take over their applications. These suppliers also have years of outsourcing experience. But they lack process expertise in areas like HR because their specialty has traditionally been IT.
Or, they can select an HR BPO provider who is an HR expert. These suppliers have the applications and the experience to bring HR to the Web. But most have neither the technical infrastructure nor the business model to support outsourcing on a broad scale.
BPO buyers want a supplier who has both. With their potential survival and future growth on the line, they want an outsourcing supplier who is the best at every aspect of BPO. In our consulting at Everest, we see many buyers going through the process of determining which non-core processes to outsource and then prioritizing the order in which they outsource them. This is the kind of supplier they seek.
Alert and aggressive suppliers will face this issue head on by forging alliances to create the kind of supplier service offerings that buyers now expect in the BPO marketplace. I believe we will see a flurry of activity in the marketplace in the next six months as suppliers scramble to forge alliances. Their goal: to create a full range of service offerings in the BPO space.
These new suppliers will struggle for supremacy in the market. Although many players will enter this market in the months ahead, I believe three players will dominate this space in the long run. They will emerge as the leaders offering both process expertise and the requisite infrastructure across the full range of BPO service offerings.
The Timing is Right for Alliances
The timing is right for the IT suppliers. IT was the outsourcing pioneer. Forty years later, the IT market is still lucrative. But it is a relatively mature market with little room for the explosive growth rates of the past. On the other hand, the market for business process outsourcing (BPO) is relatively new and still forming. It is a rapidly growing market. IT providers who join forces with BPO suppliers will position themselves for continued double digit growth rates for many years – if not decades. A marriage with one of the big IT players – CSC, EDS, or IBM, or even one of the second or third tier players – will help a BPO provider grow faster.
Moreover, the IT suppliers see the handwriting on the wall. The increasing popularity of BPO outsourcing is shrinking their IT market share. In the good old days, IT outsourcing included applications and platforms across the entire enterprise. But a company outsourcing its HR now requires the supplier to use HR applications. Today, BPO outsourcing buyers will include the IT part of the process in their outsourcing contracts. In this example, the applications fueling the HR process belong to the BPO supplier, not the IT supplier. This decision shrinks the total IT outsourcing pie.
BPO suppliers are motivated, too. They would prefer not to make significant capital investments in the required infrastructure or take the time to develop their own applications.
So the right match will happen. Wedding announcements to arrive shortly.
Lessons from the Outsourcing Primer:
- The BPO market will soon see a new type of outsourcing supplier who has process expertise, the IT infrastructure to support the process and broad outsourcing experience.
- The major IT players will forge alliances with BPO providers to create this new breed of supplier.
- IT suppliers will benefit because they will be able to tap into the growing BPO market. BPO suppliers will benefit because they have neither the capital nor the time to create the IT infrastructure required.
- These alliances should happen quickly. The next six months is a good possibility.
Category: Articles, IT infrastructure & applications
