What to Expect This Year in the Leading BPO Processes | Article

new in outsourcingHere’s a brief overview of what’s new in each of the major BPO processes.

Human Resources (HR)

Bill Matson, General Manager for IBM HR Business Transformation, believes 2005 will see a lot more activity in the marketplace. “In the last two years, many companies have watched the pioneers. Now there is a clear path that demonstrates what HR outsourcing can do, which others are anxious to follow,” he says.

Glenn Davidson, Chief of Market Strategy and Corporate Development for Accenture HR Services, believes 2005 will be the year the public sector gets serious about outsourcing its HR. He says the growth will take off because “the 2004 election cycle is over and, as an issue, outsourcing was the ‘dog that didn’t hunt.'”

Steve Rolls, Executive Vice President of Convergys, says this year HRO suppliers will start acting to protect what he calls “the knowledge void” as the baby boomers begin to retire. He says the American workplace is facing a “time bomb” because a large majority of its skilled workers are in their fifties. HR suppliers will have to start working on creative solutions to this looming health and work force productivity issue.

John Cardella, Executive Vice President in charge of HR for Ceridian Canada, agrees that succession planning will bubble to the top as a major HR concern this year. This year he predicts buyers will be more concerned about outsourcing their succession planning to HR providers who can help them turn their critical gaps into a competitive advantage.

Kevin Campbell, Market Strategy and Development Leader for Hewitt’s HR business, says the improving economy will force companies to focus more on talent recruitment and retention. “When the economy is soft, talent isn’t going anywhere. But now the market is heating up, top talent typically begins shopping,” he says. Companies this year will have to worry about finding the right talent and offering the right compensation.

Campbell adds this year companies will place a bigger emphasis on retraining the retained HR organization after the initial outsourcing. “We always understood we had to do this. But this year companies will be taking a more aggressive approach on day one,” he says.

This year learning will become an integral part of the HR offering, according to Karen Bowman, President of Employee Care for Convergys. Learning will be integrated into the HR process as an end-to-end concept, she explains. Outsourcing will help buyers turn learning into a business asset, she predicts.

Hap Brakeley, President of Accenture Learning, says this will be the year the chief learning officer will be held accountable for business outcomes. “They have to deliver results fast but often lack the skills and resources needed to get there. So, they are turning to outsourcing providers to make it happen,” he explains. He says learning, in addition to having an impact on business performance and employee satisfaction, can also become a source of revenue for outsourcing buyers.

Brakeley adds that outsourcing buyers will use learning to learn how to do business in emerging markets like China. For example, companies will create brand awareness and build customer relationships before the actual organization moves into that marketplace. “People are reluctant to pour dollars into a new market until they really understand it or have conditioned the market to their brand. Learning is one way to do that relatively inexpensively,” he explains. He sees financial services organizations, manufacturers, ad agencies, and software companies as good candidates.

Brakeley adds that outsourcing buyers will use learning as a literal way to learn how to do business in emerging markets like China. “People are reluctant to power dollars into a new market. Learning is one way to do that inexpensively,” he explains. He sees financial services organizations, manufacturers, ad agencies, and software companies as good candidates.

2005 may be the year outsourcing suppliers can provide personalized learning for individuals. Brakeley says the technology now can create simulations that understand the behaviors that lead to both success and failure. Maybe now the sales team can learn how to deal with an irate customer!

Wellness will be another hot area, Cardella believes. “HR service providers will have to look at wellness more closely because our buyers want wellness data,” he says.

Cardella says HRO will move higher up the value chain this year in Canada. For example, recruitment was a part of the process in many US offerings that will be reaching Canada this year.

He also believes companies in the mid-market sector–having between 1,000-10,000 employees–“will aggressively create a new trend” by outsourcing their HR. “HRO is moving down stream now that it has become a standard business practice. Now smaller organizations are starting to say, “Something’s going on here.” Davidson agrees. “A great deal of market share this year will go to the providers who can address this market first,” he says.

Finally, 2005 will be the year HR suppliers have the technology to integrate the user experience. For the first time suppliers can integrate the self-service technologies on the Web with transactions so “employees and managers don’t have to think like an HR manager to find their information,” according to Arthur Mazor, Principal, Mellon Human Resources & Investor Solutions. For example, the new technology will allow employees to discern their full rewards program, not just their salary. Campbell adds, “This year you will see a tighter link between strategy and implementation.”

Finance and Accounting (F&A)

Scott Laughner, Vice President, Accenture Finance Solutions, says a number of companies have been cautiously exploring outsourcing this year but have been reluctant to make a final decision until 2005 based on concerns about Sarbanes-Oxley compliance and the related policy lockdown period. Since most Fortune 500 companies now better understand the law and have structured programs to address it, Laugher says “the desire to seriously evaluate outsourcing for finance has been rekindled.” This, coupled with an ever-increasing comfort level with finance outsourcing, has “dramatically increased” the number of on-going discussions Accenture is having with many leading CFOs, explains Laughner.

In 2004, IBM Business Consulting Services saw clients who were “window shopping” but not yet ready to make the move, according to Don Shulman, Vice President, Global Finance & Administration Business Transformation Outsourcing. This year he expects to see a “continued acceleration in the market” as the window shoppers move into implementation.

These days most companies have already outsourced their “low risk F&A functions,” Laughner continues. He expects this year they will move up the food chain.

One of those areas is the order-to-cash space. Christine Gattenio, Senior Vice President, Marketing and Sales Development for Equitant, says the buyer list for this comprehensive process will grow this year because the process now has “proof points. Companies now see how this can work.” She says they now understand “the business outcomes achieved go beyond just cost savings.”

Companies seeking greater competitive advantage are finding the integrated execution of order-to-cash offers significant strategic, tactical, and financial benefits. “In the end, buyers see BPO as a lever to making them a better, stronger company,” says Gattenio.

Shared services organizations will face stiff competition in 2005, in Gattenio’s view, because BPO value propositions offer companies the opportunity to take the solution to the next level. The Shared Services and Business Process Outsourcing Association in conjunction with Accenture published a study last year entitled, “Shared Services–the Evolution of Higher Performance Results.” That study reported existing shared service centers only achieved about half the planned improvements; in addition, the timeline is longer than originally expected. She says companies considering the establishment of shared services today are now considering “turning directly to a BPO provider that has a proven track record for delivering contracted business outcomes. Outsourcing not only offers a more rapid path to achieving the value proposition but also reduces the risk of failure by working with process management experts that offer strong change management skills wrapped around a turnkey solution.”

Siva Namasivayam, Chief Revenue Officer/BPO for MphasiS, says in 2004 companies “experimented” with offshoring their high volume, rules-based accounting processes like accounts receivable (AR) and accounts payable (AP). This year he predicts offshoring these processes will go from “a pilot to a big migration.” Why? Companies now not only feel comfortable sending this work to India but also do not consider these transactions as part of their core intellectual property. Also, he predicts this year there will be “more clarity” about what processes need to be in place for a successful offshoring venture, which further increases the comfort level.

Namasivayam says the small-to-medium sized businesses are “aggressively looking to offshore their AP and AR.” MphasiS is also seeing “a lot of interest” from US CPA firms. He says suppliers have been doing tax returns for these firms for years. Now he says these firms want to expand their scope to include other accounting functions. Namasivayam welcomes this move because it “produces a year-round revenue stream instead of a seasonal one.”

The Indian executive says last year “a lot” of Indian providers opened their doors to do this transactional work. He anticipates a consolidation will start this year. He also predicts large, India-based suppliers in this space will acquire niche F&A service providers in the US “to gain the required domain expertise.”

Customer Relationship Management (CRM)

Michael Whitacre, Outsourcing Sales Leader of Acxiom, believes 2005 will be the year CRM “becomes a legitimate BPO tower like human resources and finance and accounting.” Part of this new acceptance: Whitacre says CRM buyers now want to base their outsourcing on business outcomes. Buyers are asking more frequently, “How do we get more customers? How do we keep the ones we want to keep? And how do we sell them more stuff?” He says CRM providers now have the technology to be able to answer those questions.

Rolls of Convergys adds knowledge management issues, “which have always been the elusive Holy Grail in CRM,” also will gain a foothold this year. He says buyers want to be able to use their extensive databases to eliminate the need for their customers to call a customer service representative because they have a problem. “They want a way to find out upstream what’s causing the problem,” he explains.

This year Jim Boyce, Senior Vice President of Client Business Development for Convergys, believes outsourcing buyers in organizations will move up the command chain. He predicts the CEO and the CFO will replace a procurement officer or a vice president of customer care as the buying decision-makers of CRM outsourcing. He welcomes their business acumen in the decision-making process. “They bring a real balance between near-term financials and brand equity. They want what’s best for the brand–and that’s not necessarily what’s cheapest,” the Convergys executive says.

Boyce believes the financial basis of CRM deals will change this year. He says buyers wanted guaranteed savings–a fixed total cost of ownership, not a per hour price. In return, suppliers will receive a gain-sharing piece. “These kinds of deals will increase in 2005 because this year the return on investment for the customer is terrific,” he says.

Procurement and Global Trade

Len Sherman, President, Accenture Procurement Solutions, says the procurement-to-pay outsourcing cycle will be a hot market trend in 2005. He believes buyers want providers who are able to add the front end sourcing to the service delivery procurement process–the strategic component of determining who to buy from and at what price.

Sherman also calls 2005 “the year of compliance management,” the perennial challenge in procurement departments. He expects new technologies and processes will be able to better measure compliance.

He also expects a consolidation in the technology platform. “The market will coalesce around a couple of standards,” he says.

Jim Wilson, Vice President of Consulting for Vastera, says the increased regulatory environment that surrounds the anti-terrorism and security of the supply efforts will color developments in global trade in 2005. He predicts the US government will continue to impose new regulations, making it even more crucial to outsource this to a supplier who can keep up.

He sees an increase in contract manufacturing this year. The increasing regulations also fall to the contract manufacturers. “If you are an importer, you own the responsibility and the liability,” he explains.

Offshoring is creating another opportunity for global trade outsourcers. US export laws forbid the transfer of certain types of technology without a license. US laws also require some non-US citizens to become licensed if they must use this restricted technology. This creates unforeseen challenges when companies send work to India or China, Wilson points out. “The US government considers intellectual property an export,” he notes. So applications and development work falls under this aegis.

This year Wilson says exporters will have to worry about the US encryption laws. The government requires all manufacturers that use encryption software to classify the encrypted product and apply for the appropriate authorizations and licenses. The US government just clarified this rule in late December. The problem: today encryption software is in many products! (Automobiles, wireless phones, video games, TiVo recorders, iPods, BlackBerries, etc.) So the rules have suddenly become more far-reaching.

Finally, commercial companies want to cash in on the current increase in military spending in the US. “It’s a new business opportunity for them,” says Wilson. However, once they adapt their goods to military use, they potentially fall under International Traffic in Arms Regulations.

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