A Landmark Transaction
We interrupt our regular BPO programming to discuss a breaking news event. Three weeks ago IBM announced plans to purchase the consulting division of PricewaterhouseCoopers (PwC). This purchase has the potential to become a landmark event in the development of business process outsourcing.
In the past few years a growing number of buyers, now experienced hands in IT outsourcing (ITO), have been interested in expanding their outsourcing experiences into BPO. Many companies are at the stage in their history where they need a significant business transformation to achieve their corporate goals. For example, they may want to revamp their entire back office, including every non-core business process there. Or they may need a different way to handle logistics in the new Internet age. These large-scale transformations require substantial capital investment and seasoned know-how.
Until now it’s been a challenge to find well-funded, credible service providers with a history of BPO performance. The market has been filled with start-ups. But all start-ups have to prove they can perform over time. No long-term player with a time-tested BPO track record existed…until today.
It’s interesting that a key player like IBM has sat on the sidelines while most of its ITO competitors began moving into BPO at a rapid clip. Will IBM use the PwC transaction to enter the BPO space?
Validating the BPO Marketplace
While it’s too early to tell what IBM will do with its new unit, I’m betting the service provider will use PwC’s expertise and market permission to launch itself into the BPO marketplace in a big way. The combination of the financial and transaction stability of IBM with the BPO experience of PwC creates an instantly credible service provider, something the BPO market has sorely lacked.
When that happens, IBM will go far in validating the power of BPO. I predict this transaction will bring BPO into the forefront of corporate change just as IBM’s IT deal with Kodak ushered in the era of ITO acceptance.
This is good news for all BPO service providers because increased acceptance means more buyers. That grows the BPO market for all players. I predict Accenture, ACS, EDS, Exult and Spherion will all do better because of Big Blue’s benchmark transaction. That’s wonderful news for BPO suppliers of every size and stripe.
That’s the good news. Here’s the bad news. This magic transformation will not happen overnight. The BPO market will not grow by Labor Day. This purchase faces its share of challenges:
- Blending an entrepreneurial organization into a more structured one.
IBM faces the normal challenges that come with merging an independent, entrepreneurial consulting group with its stricter corporate structure.
- Ramping up time.
IBM will need time to learn and thoroughly understand the BPO business. It will have to assess PwC’s skills and build its BPO offerings on the strengths PwC brings. It will be a challenge integrating BPO into its current core offerings.
- Creating a good mix between consulting and becoming an actual service provider.
Currently, consulting comprises the majority of PwC’s work. Outsourcing consulting is a very different animal from becoming the supplier that actually does the work.
Each area has different buyers. Consultants sell to process owners; their sole goal is to help the process owners build a better process. Outsourcing service providers sell to buying centers two or three levels above the process owner and often to the CEO. Today, BPO buyers want business transformation that focuses on strategic goals and value creation. They have a larger agenda than just process improvement. These differing goals can produce tensions between the two buying groups.
Historically, IBM has navigated this challenge successfully. In the ITO space, it is both a successful consultant and a results-oriented service provider.
I won’t hazard a guess when IBM will accomplish its integration. But when it does, IBM will be a formidable BPO player.
Lessons from the Outsourcing Journal:
- Growth of the BPO market has been slow – not for lack of buyers, but because of the dearth of seasoned, well-capitalized service providers. IBM’s purchase of PwC creates the market’s first well-capitalized player with a significant BPO history.
- IBM’s entry into the BPO marketplace should create more business for all BPO service providers.
- IBM faces challenges in integrating the two companies. It must merge an entrepreneurial company with its more formal corporate structure and it has to learn the BPO market.