In its day, offshoring created a tectonic change in outsourcing. Today, new trends are bubbling to the surface that will also create a sea change, especially for BPO. Today’s way of doing things may be destined for a dusty museum five years from now.
Suppliers we interviewed predicted the following will alter BPO during the next five years:
- The fusion of IT and BPO into one seamless, end-to-end solution
- Buyer demand for analytics
- The process as a service
- Global service delivery
- Change in process ownership
The new ways of doing things will alter how buyers and suppliers interact. It will certainly change how buyers select their suppliers. And it will change how buyers own their outsourced processes.
Andrew Pery, Chief Marketing Officer for Kofax, predicts the BPO market “will likely outgrow all segments of the IT industry. There is increased competition and increased choice.”
Why is the BPO industry now on the cusp of change? Don Schulman, General Manager, Finance and Administration for IBM, gives two reasons. First, he says “the economy has triggered a broader group of buyers to reconsider BPO as a viable option and has heightened their need for flexible delivery models that can support them during market fluctuations. In an era where companies are challenged to do more with less, buyers are seeking strategic partnerships that enable them to accelerate transformation.”
Second, he says the industry has matured. “It’s no longer about price, cost, and labor arbitrage.” The future will be about enterprise business outcomes, process optimization, and cloud computing. He says these things “have come together and created a significant opportunity for buyers and the industry.”
The emergence of end-to-end solutions
Abid Ali, Vice President and Global Head, BPO Services for Tata Consultancy Services (TCS), says buyers “are looking for IT/BPO synergy.” Instead of the lift-and-shift models offered by pure-play BPO players, he says buyers will want a supplier that can “look at the processes end-to-end and then work hand-in-hand with them through process transformation.”
“Buyers are seeing they can get a single supplier to do both their process and ERP processing in a single platform,” says Mohammed Haque, Vice President & Head of Enterprise Solutions Service practice at Genpact. “We are seeing a lot of convergence.” He says there are two main advantages: a single team manages both IT and BPO and the convergence produces synergies.
For example, today buyers are interested in taking cost out. That could generate savings of 1X. But in the future, “the convergence of process, technology, and analytics may produce savings of 2-3X,” says Navanit Samaiyar, Senior Vice President, Procurement and Supply Chain Services for Genpact. Why? Because of continuous process improvement.
He uses procurement outsourcing as an example. Currently, buyers want the outsourcer to negotiate with their existing vendors to get better prices. But shifting from today’s category sourcing to a source-to-pay cycle with an end-to-end view can drive out additional cost. “The buyer will see more benefits because of the end-to-end optimization. Because the impact will be higher, they will see significantly higher savings. I think the total savings will far exceed the labor arbitrage the buyers are seeing right now,” says Samaiyar.
Samaiyar predicts the overall cost of running an end-to-end BPO operation “may increase” because the supplier will be able to charge buyers a premium for the domain expertise. Even so, the Genpact executive says the numbers add up for the buyer. “I think the total savings will far exceed the labor arbitrage buyers are achieving now,” he says.
V. K. Raman, Head, Domain BPO Services for Tata Consultancy Services, says the increasing cost of governance “will drive buyers to seek providers that reduce the number of process hand-offs through providing end-to-end services.”
End-to-end BPO will change how buyers outsource. Samaiyar says technology decisions today tend to be “a separate, stand-alone CIO discussion” with BPO another separate decision. “In the days to come, as solutions for end-to-end process become more significant than point solutions, technology has to start talking to the process.” He says analytics will be “the single biggest tool to generate ideas of what actions buyers and suppliers need to take to make the process more effective.”
Use of analytics
Advanced analytics offer buyers the opportunity to unlock the value that resides within mountains of data and turn it into actionable information and insight. IBM’s Schulman says that embedded, advanced analytics in specific processes enables buyers “to leverage insights into their suppliers and customers that they’ve never had before, allowing them to better align business decisions to their overall strategies at a much faster pace.” He says that suppliers that embed analytics across all F&A processes and provide actionable insight across multiple clients and industries “can provide visibility and drive to best practices in a way that buyers never could on their own.”
Analytics are currently popular with the financial services industry’s FAO buyers, according to Schulman. He notes that “advanced analytics is rapidly working its way through the marketplace as a whole.”
Platform/process as a service
Ritesh Idnani, Vice President and Head, Global Sales and Marketing for Infosys BPO, says buyers’ expectations of transformation “have gone up quite a lot. Since transformation will become an important element of supplier delivery, it will accelerate the pace of looking at more utility-like platforms in the BPO space.” Idnani says the transformation will require suppliers to “work harder on delivering utility models because technology of the platform plays a big role for suppliers wanting to deliver utility models on a large scale. You can’t do it just finessing the process.”
TCS’s Abid says that process as a service “meets the customer’s need to upscale processes to industry best-in-class norms in preparation for growth. In the current macro-economic environment, customers find it imperative to improve processes without investing in capital-intensive business process reengineering or technology rationalization projects.”
IBM’s Schulman says the optimal solution is “business process as a service,” noting that “having process optimization embedded into the technology platform greatly enhances the value suppliers can deliver to clients.” The business process as a service model “drives cost reduction, increases standardization, and includes embedded analytics, enabling best practice adoption in a seamless end-to-end solution.” Schulman notes that while the market is advancing slowly, buyers are beginning to recognize that there’s a tradeoff in the shift from custom solutions to standardization, understanding that the platform approach not only meets but in many cases exceeds their individual requirements.
Idnani predicts the platform market share, which is quite small now, “will continue to grow and grow at a rapid pace. It will become an important part of anyone’s outsourcing journey and conversation.”
One reason the market share will grow is its ease of use. Ed Anderson, Chief Strategy Officer at CompuCom, says buyers are frustrated with today’s “large, monolithic, inflexible tools with multi-million-dollar upgrades.” He says they want the “same kind of ease of use of software in the enterprise environment that they have when buying a DVD from Amazon. Why should software be in the way of solving everyday business problems?” Adds John Douglas, CompuCom CIO, “People are expecting a consumer-oriented approach.”
CompuCom itself recently selected a SaaS tool as one of its client solutions. “The learning curve is almost nil, and the users can configure it themselves. It’s been very successful,” he reports.
Verticalization and globalization
TCS’s Abid says today most of the processes buyers have outsourced are horizontal processes. However, he believes the economic environment “has changed the world.” He says the recession has been a catalyst for buyers’ interest in outsourcing some of their core processes in new vertical solutions. For example, he says in the pharma area TCS is doing core processes like clinical drug management to take drugs to market.
Raman suggests BPO buyers select suppliers that have global delivery capabilities. “As the cost and talent paradigms shift, the providers will be able to switch delivery locations while still maintaining the same relationship with clients. The buyers won’t have to switch providers,” he notes.
Global delivery models are important to companies that have footprints in, say, 50 countries and outsource their HR processes, points out Sue Marks, Pinstripe CEO. She says in recruitment process outsourcing “it’s extremely important for buyers to select a provider with capabilities or partners across the globe because it is important to understand local nuances.” Today, she says RPO providers aren’t providing global services. But they will within the next five years, she predicts.
New supplier selection criteria
Schulman says industry consolidation will alter the BPO sales cycle. He says that tomorrow’s service level agreements and statements of work will become greatly simplified because the outsourcers will have already built relationships with buyers in the BPO market.
In addition, the offerings will become more standardized. The convergence of these two “will dramatically reduce the sales cycle. People will just plug in, which will reduce the cumbersome effort involved in today’s contracts and negotiations” He says this will enable buyers to become more agile, extending scope and broadening reach across the company.
As an example, IBM has two buyers that are consumer products companies. When one sold a division to the other, “the staff just had to move to different floors” Schulman says. While he admits this happens infrequently today, it will become more common in the future. “The changing face of BPO will make outsourcing relationships “more fluid.”
Idnani says buyers that are looking to outsource now should select a partner that “can take them from a normal outsourcing to an outsourced platform.” Buyers already in the negotiation stages or in an existing relationship that recognize their partner may not gain the capabilities to play in the new BPO world by the time the buyer will want these services should “create flexibility so they can change over to a platform without too much exit costs.” Put governance mechanisms and contractual clauses in place that allow the buyer to move to a platform over a period of time, he suggests.
TCS’s Abid believes in the future buyers will require their suppliers “to have more skin in the game.”
Changes in process ownership
According to IBM’s Schulman, there is a new level of sophistication taking place in the marketplace, moving beyond cost savings and toward more strategic investment in the outsourcing relationship itself.
He says that there is an emerging trend in buyers’ increased focus on their “ownership” of end-to-end processes and on enterprise business outcomes which drive their businesses to perform better than if the focus were purely labor arbitrage. This means they are “becoming intimately involved on a regular basis through effective governance and a joint approach to achieving strategic objectives.” Buyers now recognize “they can expect the same kind of strategic support that they would have had if they had kept the process in house — enabling their outsourcing partners to accelerate their transformation agendas through joint investment in the relationship model.”
Idnani adds buyers of the future will have to have a much higher level of trust because they will have only one throat to choke. Buyers and suppliers “have to create better chemistry than in the past because now they must rely on each other to ensure the relationship delivers value. That will be difficult,” he acknowledges.
Advice for buyers
Pery suggests buyers “have to be more careful in negotiating the new BPO deals.” He suggests a phased implementation can mitigate risk. “Buyers can hedge their bets this way and, as a result, have flexibility to negotiate the best possible terms.
Welcome to the brave new world of BPO.
Lessons from the Outsourcing Journal:
- Several things are changing BPO:
- The move to end-to-end solutions
- The convergence of IT and BPO
- Process as a service
- Global service delivery
- Change in process “ownership”
- Buyers already in a standard outsourced relationship should put mechanisms in place to exit the relationship if their suppliers can’t deliver the new BPO capabilities.
- Buyers and suppliers will have to develop closer partnerships because they will have to rely on each other more than ever before to ensure the relationship delivers value.