A review of the latest trends in telecommunications-related outsourcing suggests that mid-sized telecom providers and IT firms that outsource service offerings stand to gain significant market share in the coming months as they continue carving out niches in an exploding market.
A quick parse reveals a growing number of providers that either target a specific area or bundle newly-developed services into a suite of offerings to firms in need of better (and cheaper) connectivity, customer care/support, supply chain management, and back-office services.
Fortune 500 suppliers comprised the lion’s share of the first wave of telecom outsourcing due to their ability to fund expensive technology R&D. And their customers were primarily corporations who could afford the prohibitive expense of outsourcing on such a massive scale.
But as the second wave of providers built upon the early technological advances, thereby lowering the price, raising the quality of offerings, and heightening the ability to service emerging niches, numerous research initiatives reveal outsourcing telecom services to small- and medium-sized businesses (SMBs) is turning into a tremendous growth area.
This past summer, research firm IDC said the overall telecom sector will lead all other verticals in outsourcing engagements, predicting a 10.7 percent compound annual growth rate (CAGR) by 2010. And a cumulative body of several pieces of recent research reveals three areas of activity.
Trend 1: Wireless and the Supply Chain
Greater implementation of RFID (radio frequency identification) supply chain technology is an emerging telecom trend. Utilizing sophisticated wireless communication technology and global positioning software, RFID’s ability to affordably and continuously track and manage both transport vehicles and the cargo they carry while in transit is having a profound affect on virtually all supply chain processes.
“I think RFID would take first prize when it comes to hot [outsourcing] topics,” says Noha Tohamy, principal supply chain analyst for Forrester Research. She and other industry analysts expect such outsourcing to grow exponentially as suppliers better define and package solution components such as reader integration, middleware, business process management, and functional support applications.
“This market is just emerging, and competition is still rather scarce,” says Lora Cecere, an analyst at AMR Research. “There’s not a lot of money for supply-chain planning right now. IT resources are tight. But in spite of that tight money, I still notice a lot of interest in outsourcing RFID for supply chain management.”
During the early phases, companies such as HP, IBM, SAP, Sun Microsystems, and Phillips dominated the embyronic market. They were not anxious to develop outsourcing partnerships based on their proprietary knowledge of this embryonic but potential-laden market. Instead, these dominant players encouraged more traditional vendor relationships.
But as the second wave of technology developers such as Savi, Intelleflex, and WFI emerged, they opened up outsourcing opportunities to eager buyers who previously had few chances for such relationships due to the proprietary behavior of the corporate firms that developed the market. These smaller, second-tier firms use their unique positioning and nimble practices to gain market share in a burgeoning area of outsourcing opportunity.
Now, in light of this aggressive competition, the legacy players are migrating toward outsourcing partnerships. Not coincidentally, IBM announced in June 2005 its entrance into the RFID outsourcing market after years as an equipment seller.
Federal mandates and the needs of large retailers such as WalMart are driving the evolution of RFID, according to Eric DeMarco, President and CEO of WFI, an RFID outsourcer. He adds that the federal government, especially the Department of Defense, has embraced RFID as a buyer from these suppliers as well.
Trend 2: VoIP: It’s For Small Businesses Now
The small business market for VoIP (Voice over Internet Protocol) is strengthening, according to a recent report by Nemertes. The market research firm cites the growing introduction of numerous IP-PBX business telephone exchange systems specifically tailored for small businesses, with more expected during the next 12 months.
While VoIP adoption for small businesses still trails implementation at the larger companies, a profound 75 percent of the small businesses responding to the study said they were currently or planning on doing so.
When asked what their primary goal was for implementing VoIP, all small business respondents named cost savings; almost half said improved communications capabilities; and over a third cited improved productivity. Many offered more than one of the above reasons as their inspiration.
“They have to be convinced of the business and application benefits,” says Robin Gareiss, principal research officer for Nemertes. “Still,” she adds, “companies are migrating to VoIP just to future-proof their networks–making them capable of absorbing newer technology that has yet to reach the market.”
Nemertes suggests at least part of the reason why small businesses are moderately lagging behind enterprises in their adoption of VoIP is the lack of focus by the major PBX vendors. However, with the recent introduction of systems by Avaya, ShoreTel, Nortel and Cisco Systems Inc., this may change. These products are developed for businesses with fewer than 30 stations but include many features and the functionality offered to larger customers at a fraction of the price, thereby opening up small business markets to these smaller product outsourcers either directly or as part of a service bundle.
Tim Houlne, CEO of Working Solutions, a service bureau that outsources remote home-based customer service agents to its clients, says his firm recently migrated to a VoIP PBX system for the central office, which also links to its outlying agent management hubs.
“We’re also working to develop applications that will eventually lead to full migration to VoIP when a better quality of service is available in our agent’s homes,” he says. “We are beginning to see that with some of the Internet service providers and telcos. So complete migration shouldn’t be too far down the road.”
Houlne cites the primary goal as cost savings but adds, “a strong secondary goal is fully integrated, centralized communications capabilities throughout our network, which encompasses home-based agents in all 48 contiguous states.”
Trend 3: More BPO to Streamline Workflows and Tighten Expenses
The summer’s 2005 IDC research further predicts exponential growth of telecom BPO. Jason Spaulding, analyst for vertical industry research at IDC, says the predicted increased adoption of BPO services within telecom comes as little surprise. He cites competitive forces that are inspiring them to shed business processes like customer care and other back-office functions. “The industry is in a lot of turmoil right now and telecom providers are becoming more comfortable with BPO.”
“Support and training services, as well as project-based services, will become more embedded in these deals as they become larger and more encompassing,” he adds.
The Yankee Group predicted this past spring that the next two years will mark a landmark period for large-scale human resources business process outsourcing (HR BPO) contracts in the telecom industry. “These businesses are in dire need of new strategies to strip operating costs, develop innovative competitive strategies, and transform their culture in a consolidating and increasingly competitive environment,” says Phil Fersht, Research Vice President of Yankee’s Multi-Discipline BPO practice.
Billing and spend management are other areas that appeal to BPO providers and telecom buyers, according to a recent study by the Aberdeen Group. It states that few enterprises have an easy, comprehensive way to determine the exact history of their telecom services spending because purchases are still widely decentralized and poorly controlled at most companies.
“Few enterprises know what they spend on which products or with which suppliers,” says Tim Manahan, Senior Vice President at Aberdeen. “As a result, supply managers and business executives have historically developed strategies and made decisions based on intuition rather than fact.”
In response, nearly two-thirds (65 percent) of the 115 companies that Aberdeen surveyed say their emphasis on telecom cost-management has increased within the past two years.
Both Manahan and Aberdeen Research Director Christa Degnan say the best-in-class telecom companies are beginning to harness these sophisticated, integrated technologies and methodologies–mostly through BPO relationships. The results are positive, as more than 70 percent report better spending practices under these efficient management processes.