Changing Face of Business Process Outsourcing

Business process outsourcing is on the verge of very fascinating times. No business venture in the
modern times is isolated from other related business efforts. Business process outsourcing is no
different. There are some fascinating changes being noted because of the effect of the recession and
global meltdown. If we examine the causes and their effects deeply, we will be able to point out
exactly what we are looking at in the coming years.

As you know, business process outsourcing relies primarily on the first world countries. Lack of cheap
labor in these countries pushes companies to outsource their non-core business work to the third
world countries due to the abundance of cheap, yet skilled labor. Cost cuts are not the only reason
why business process outsourcing happens. There are other factors as well, like convenience for
business firms to focus on other areas, maybe even look at expansions.

The recession has place a huge block on all of these BPO services. Companies are now on the
lookout to cut costs. They are no longer looking at expansions as a sound business proposition in
these trying times. As a result, they are cutting down on work that they may be outsourcing. All of this
is a chain reaction. Business process outsourcing firms in the third world countries are losing out on
vital clients. Business is on the wane and things are at the survival level now.

To keep their heads afloat, the coming months will see lots of mergers in the BPO services wing.
Business process outsourcing firms are looking at partners to join strength and try to pull through
together. Mergers also mean that there will be cut-downs on the employee strength. There will be
layoffs and pink slips. Because the rate of hiring is very low, laid off employees have a tough luck
ahead of them. Similarly, many BPO firms look set to shut shop due to non-availability of business
and clients. BPO solutions need to be at par with the best if they hope to stay in the race. Not just do
they have to deliver at lower cost they also have to go high on the quality.

Gartner, an IT research and advisory firm, has come with some dire predictions for the business
process outsourcing industry. It reports that one-quarter of the BPO services providers that we see
today will not be acting as separate entities by the end of the year 2012. They predict the entry of
dynamic new players in the industry. These new entries will bring with them advanced technology,
superior quality of services and innovations. Gartner has warned BPO investors to exercise caution
when it comes to new acquisitions. They recommend that you look for acquisitions only when you are
backed by hard evidence that the new acquisition will be profitable.

All is not lost, but. BPO firms are looking at ways to combat the negatives. They are waking up to the
thought of having people to work from home. This facility will enable more fringe people to enter the
work force of BPO units.

Changing Face of Business Process Outsourcing

Business process outsourcing is process of assigning some of the non-core business functions to a
third party. Some consider it as salvation for the sinking economy worldwide. There is an increasing
number of companies whose job is to provide effective BPO solutions for various verticals like finance,
telecommunication, healthcare, software etc.

 There are two types of outsourcing solutions; the first is business process outsourcing and the
technology service outsourcing. BPO solutions are further categorized into inbound and outbound call
center services. The inbound BPO services include answering service, customer service, direct mail
response, interactive voice response, inquiry handling, sales lead qualification and others. While the
outbound BPO services include appointment setting, cross selling, up-selling, market research, lead
generation, voice broadcast and others.
 Business process outsourcing is the buzz word in today’s business world. More and more companies
are following this process in order to save their operational costs and increase their quality of service.
It is effective cost strategy and it is all about gaining expertise from BPO service provider. Presently
business process outsourcing has taken various forms as organizations hire BPO service providers to
handle distinct business processes.

 The highly competitive business environment of today has led many companies to reduce costs by
outsourcing the non-core functions. By focusing their efforts on core competencies, the corporate
houses are able to deliver low cost products at a faster time frame. Outsourcing the non-core
strategies enables the organization to respond quickly to the changing market conditions.

 Through effective BPO solutions, you are able to maximize revenue and minimize expenses.
Outsourcing gives a competitive edge to your business as they are specialized to do so. Small
companies outsource their accounting, payroll processing, distribution and many other important
functions. While large companies turn to outsourcing to cut down their costs. Not many companies
understand the benefits of BPO solutions. The flat economy compelled many companies to go for
huge layoffs. At that they looked for cost-effective BPO solutions that would help them to withstand
the period of recession.

 Cost –cutting may not only the BPO solution but certainly this can be the major factor. By outsourcing
the fixed costs are converted into variable costs and helps organizations to avoid large expenditure in
the early stage of the business. Through business process outsourcing, you can make your firm a
viable option for investors since you are able to pump in more capital directly into the operational
activities

An outsourcing firm also helps to reduce your marketing, distribution and research expenses.BPO
solutions provided by an outsourcing firm has gained immense popularity. Organizations have made
significant earnings through this in terms of infrastructure and quality of service. Over the last few
years BPO services have been gaining popularity driven by the fact that many companies have tasted
success due through this business strategy. The major European companies have focused on their
core competencies and are looking for ways to reduce costs while maintaining high level of quality for
their non-core business activities. What the major companies have considered as non-core business
areas are the core areas for an outsourcing firm. Therefore business process outsourcing is quite
popular among corporate today.

Changes in BPO: How Technology Is Changing the Landscape

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
 Standardization
 Global service delivery
 Verticalization
 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:

1. The move to end-to-end solutions
2. The convergence of IT and BPO
3. Process as a service
4. Standardization
5. Global service delivery
6. Verticalization
7. 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.