The big headline in BPO: The continuing global economic changes are causing a paradigm shift in the way organizations are doing business, according to Dinanath Kholkar, Head, BFS & INS, BPO Services, Tata Consultancy Services (TCS). “Higher returns on investments, faster turnaround times and the need to reach out to emerging markets are the need of the hour,” he notes.
The outsourcing market is experiencing a radical change from the first generation lift-and-shift paradigm to today’s business process solution model, according to Richard Jeffery, managing director, Active Operations Management International (AOMi). Adds Rahul Kanodia, CEO and vice chairman of Datamatics, “Today it’s no longer just about cost. Buyers want you to produce value from more complex transactions. In fact, BPOs need to scale up to the next level, which is knowledge process outsourcing and business process management, for demonstrating value adds to their customers.”
Here are the nine biggest trends that will affect the BPO world in the next 24 months.
1. The move away from headcount-based contracts
Jeffery says BPO buyers now no longer just want to move a chunk of their back offices. “Buyers are no longer happy with service based on headcount,” he says. Instead, they desire “a more complex platform and technology change.” He says the move away from scope has made the BPO proposition “more sophisticated and multi-layered.”
Kanodia agrees. “Technology and platforms are driving the second generation of BPO,” he observes. This makes taking over a process from end-to-end possible. “Buyers no longer want us to just take on a piece of work,” he continues.
Adds V K Raman, Head, domain services, BPO Services, TCS, the current pressure for effective business operations means buyers “are increasingly looking at providers to not just save on the operational costs, but also to drive business excellence through transformation.”
Shantanu Ghosh, senior vice president and global head for practice solutions and transition for Genpact, adds that BPO 2.0 “will require a higher level of change management because it’s more intrusive.” He admits there are no easy answers when the change “requires a new way of thinking of how to run your business.” Efficacious change management is required because “the pain of change is only worth it if the change has a material impact on the business,” he explains.
2. Buyers want more transparency inside the BPO process
The AOMi executive says today buyers “are more sophisticated in what BPO should look like.” In the first generational model, buyers stipulated head counts and wrote SLAs. “That black box contracting model is increasingly dying,” observes Jeffery. Buyers no longer “take it on trust that their BPO is able to deliver the process. Clients themselves introduced industry standards for operations management which they expect and require their service providers to use,” he says.
Why? Because the buyer is still shouldering the productivity risk under a headcount contract. “Today buyers require operational transparency. They want to know how the provider is matching the headcount to the workload. With visibility the responsibility for productivity transfers from the customer to the service provider,” he reports.
Ten years ago the appeal of labor arbitrage meant “no one cared about seeing inside the operation,” continues Jeffery of AOMi. Today, however, it’s central to a strategic customer-service provider relationship. “This represents a 180-degree change for many Indian BPOs.”
Service providers who fail to adapt will lose business. Jeffery reports some of AOMi’s buyers are bringing the work back home or moving it away from India and Philippines. “They want a provider who either has an outcome-based pricing model or one that can offer a solution offering visibility over capacity and costs under a headcount model,” he explains.
3. Productivity matters
“There’s a lot of pressure on productivity. And you can also improve your costs by improving productivity through process automation,” Kanodia reports.
Jeffery says in the first generation model, Indian BPOs could just add an extra person to get the job done. No more. “Today the productivity of the original team matters,” he says. “You don’t want to add additional people because now it affects your margins.”
He adds that for the first time BPO buyers are asking their service providers “about the how – they assure productivity. Historically, it never would have occurred to them that this was a useful thing to ask.” For example, buyers are now asking for details about team leader and management qualifications in operations management and capacity planning.
Outsourcing buyers locked into long-term contracts with a supplier are requiring a retrofit to achieve this standardization, Jeffery reports. Many Australian banks in particular “are requiring their service providers to standardize their processes for operational management control which aligns with the retained onshore teams.”
Ten years ago there were no standards for operational management practice, recalls Jeffery. Today, there are established international standards “which give clients much greater leverage when specifying and managing on-going performance,” the AOMi executive explains.
4. The rise of the BPO specialist
Today companies don’t want to hire an outsourcer that does everything. Instead, they prefer a BPO specialist, observes Ben Trowbridge, CEO of Alsbridge. The rise of knowledge process outsourcers is a good example.
Trowbridge adds this trend toward specialization does not auger well for second-tier service providers; he predicts they will either be acquired or pushed out because of these market forces. BPO buyers need to monitor this situation closely because they will have decisions to make if someone else acquires their service provider, he warns.
The Alsbridge CEO adds BPO buyers need to be sure the service providers they hire are indeed specialists in the process they claim to be. “Everybody says they are specialists but that’s just not the case,” he warns.
Ghosh notes the time has come “to separate the men from the boys. Service providers have to have a deep domain knowledge of their customers’ business at both the horizontal and process level.” He warns service providers: “You cannot be everything to everybody. Pick your industries and understand them well.”
5. Offshore providers are doing more work onshore
“The conversation is shifting dramatically,” says Ghosh. He says Genpact’s buyers “are reengineering the business model” by doing some work nearshore, some work offshore and some work at home. Just sending work offshore to cut cost is now just a part of the conversation. Ghosh says today buyers want to streamline, integrate, standardize and optimize their business processes, which requires work to happen at home as well as abroad.
6. Regulatory pressure will continue to increase
Trowbridge predicts U.S. auditors will increase their scrutiny of BPO transactions. He suggests enterprises that outsource BPO processes will have to spend more time and money working with their BPO providers to accommodate the auditors.
Kholkar of TCS also sees evolving regulations on the horizon. “These will drive changes in the way many companies do business and necessitate their outsourcing partners to follow suit, he says. In addition, he believes certain industries like banking and insurance will experience increasingly stringent compliance. These will require additional investments to comply, he predicts.
As for service providers, Trowbridge warns them to “be careful what you agree to.”
Trowbridge says closer audits “will certainly not halt BPO adoption, but it will change the dynamics.”
7. Social media is a new biz op for BPO providers
“Social media is an increasingly relevant factor in the end-customer’s decision process,” says Raman of TCS. Increasingly, BPO providers are “capturing the data real-time, conducting analysis and providing critical insights to drive business agility. Managing the customer experience and responding to customer concerns have created a plethora of opportunities” for BPO service providers, he says.
8. Business Process as a Service (BPaaS) is catching on
Jeffery says buyers like the idea of paying as they go. But they also like buying the services behind it. “It’s like buying salesforce.com and the salespeople. Buyers like having the supplier put the different components together,” Jeffery explains.
Managing the customer experience and responding to customer concerns have created “a plethora of opportunities” for BPO service providers, he says. Kholkar of TCS says the “hype about cloud increased the acceptance and popularity of BPaaS models.” The fact that service providers are addressing data security and privacy law issues at a global level also helps.
9. Buyers are getting savvier
“That puts the service providers under pressure,” observes Kanodia of Datamatics.
The Datamatics executive says many of these trends are still nascent. “I predict the market dynamics will force more of them to happen…faster,” he says.