The trend to outsource non-core business processes is "irreversible," says John Barnsley, global leader for Business Process Outsourcing for PricewaterhouseCoopers (PwC), and is steadily moving to include multiple activities.
Barnsley attributes an overall increase in acceptance of BPO as an important strategic tool to the rapid transformation in technology. Constant change, accelerated by the Internet, has altered companies' risk equations. "So, outsourcing to a vendor who remains ahead of the technology curve is less risky than doing nothing," says Barnsley. "And outsourcing is all about reducing risk and building value."
Last year two large multinational corporations, BP and Nortel, signed multi-process, global contracts with PwC.† These extensive contracts (the Nortel contract covers 11 countries and five different processes) demonstrate that successful companies are firmly embracing large-scale business process outsourcing, points out Barnsley.
When a company adopts BPO, it is "moving up the value chain" in order to free up resources to concentrate on its core, strategic missions. That often means expanding the scope of the agreement for BPO vendors. For example, PwC took over finance and accounting processes for one client. As the client grew more comfortable with outsourcing, it added more processes to the contract, and now PwC handles that client's human resources and applications processes as well.
The BPO boundaries are expanding. Buyers are realizing that processes they once thought were strategic are not really strategic to their core businesses at all. "We're finding more and more business functions our clients want to outsource," says Barnsley.
PwC, which is a globally integrated provider, is "e-tizing" its BPO activities -- Web-enabling the processes as much as possible. As an example, in the Global 1000 marketplace, human resources (HR) and procurement will both be done in an e-enabled environment, in the executive's view.
The European Forecast
Barnsley, who is based in London, says Europe has had "ebbs and flows" in the speed of acceptance of outsourcing. The need for scale in order to generate process efficiencies is one reason Europe is turning to outsourcing. Smaller nations in Europe are finding that they can pool work with larger countries in order to achieve the benefits provided by large-scale transaction operations.
Barnsley also says many processes lend themselves to a multi-territory solution. Real estate process management is one. For example, PwC manages Australia's foreign-owned properties, including embassies, high commissions, and consulates, in 50 countries. And HR is another. "People point out the differences in human resources activities, but I see a lot of similarities, like recruitment and training," says Barnsley.
Another trend is towards moving some of the processes offshore. Buyers are becoming comfortable with the idea that a vendor "can accomplish a process in a remote territory." With full employment in the U.S. and Europe, PwC is turning to countries like India, the Philippines, and other countries for transaction processing.
BSPs Amalgamate Process and Applications
The PwC executive sees "a huge trend" toward business service providers (BSPs), a hybrid vendor that provides BPO using an application service provider (ASP) business model. The BSP will select, integrate, and manage the business process applications. "The client only cares about the quality of the output. They don't care how they get it as long as it's on time and world class," says Barnsley.
It's the integration of computer applications with the process that will fuel the rise of the BSP. Clients, he observes, don't make a distinction between a business process and its application. "If you're taking responsibility for the process, clients expect you to look after the application, too," says Barnsley.
Barnsley has noticed a blurring of boundaries between and among processes. He sees companies moving rapidly to integrate similar procedures in order to generate production efficiencies. In a seamless operating environment, these processes become† "just 'global-back-office-dot-com,'" he says.
The growing interrelationship among processes is the result of a long, slow change from the days when technology first entered the corporation. In the beginning, the CIO and the CFO only interacted at the top levels of the corporation. Each had his own fiefdom. In such an organization, "it's hard to integrate systems and processes at the grass roots level where things happen," he explains.
However, to make a business process more efficient, the IT department has to change the computer application. But that, in turn, often changes the business process.† So "there has to be an interaction between the two," notes the PwC executive, "and the benefits are leveraged when a service provider is responsible for both.."
The Coming ASP Shakeout
Barnsley says a lot of small- and mid-sized companies are looking at the application service provider (ASP) market as an efficient way to cut enterprise resource planning (ERP) implementation costs. And he notes that in the last year the ASP model has become relevant to big companies, too. "I think ASPs will become the norm for new applications for big companies," he says. Then vendors like PwC will develop BPO service offerings around these applications.
But Barnsley adds that most ASPs are still "territorial," operating within national boundaries instead of on a global basis. He predicts there will be a "huge shakeout" in the ASP world because many "were started with too little capital." With the current meltdown in technology stock prices, they have little recourse to more resources.
"In the end, BPO vendors have to have a world vision so they can keep ahead of the curve. This is a very exciting time," concludes Barnsley.
Lessons from the Outsourcing Primer:
- Big multinational corporations are embracing BPO, especially multi-process BPO.
- Rapid changes in technology have altered the risk/reward equation. Now it is less risky to outsource technology than to go it alone.
- Companies continually add more processes to a vendor's list. Processes they once deemed strategic are no longer so.
- BSPs will become a force in the marketplace since they combine BPO outsourcing with the ASP business model.
- ASPs will face a shakeout in the coming year, with the best-managed and best-financed ones coming out on top.