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1、THE BPO MARKET OUTLOOK Changing competitive dynamics, key players and best practices By Gary Eastwood ii Gary Eastwood Gary Eastwood is an experienced writer and editor in the field of business and technology. Over 10 years, he has contributed to some of the leading publications in the field, such a
2、s Computer Weekly, Computer Business Review and Mobile Enterprise. As well as holding senior positions on a number of technology trade magazines, Gary has worked with organisations such as the UK Department of Trade not restricted to functional support. ? In 2005, India witnessed steady growth acros
3、s the key service categories of finance and accounting, customer interaction and human resource administration. These 16 three segments accounted for an estimated 89 per cent of Indian BPO revenues during the year. ? Choosing the right services provider is critical in offshore outsourcing. A high- q
4、uality facility, extensive industry knowledge, the ability to structure innovative and collaborative deals, scalability and financial muscle are critical. ? The parties involved in an outsourcing relationship belong to distinct cultures, these differences have to be accepted and bridged. BPO best pr
5、actice ? Outsourcing business processes can bring significant benefits to companies looking to cut costs and improve overall business performance. ? There are three underlying strategies on which BPO value propositions are based: the cost reduction argument, the core competency argument and the tran
6、sformation argument. ? Transformation lies at the heart of most BPO. However, the fact that most parts of the vertical BPO market are still relatively immature means that there is still much variety in the transformation elements to be found in individual deals. ? The strategic nature of some vertic
7、al processes has been underestimated, and makes proven vendor capabilities the highest priority for organizations. ? BPO cannot actually be looked at as a mere service offering at all, but should be considered as a continuous journey towards the commoditization of individual business processes. ? Ou
8、tsourcing agreements can be extremely complex depending on the nature of the process being outsourced, the level of skills required, the extent to which the process is outsourced and the desired results. 17 ? The best way to procure BPO and maintain a focus on adding value is to drive the transactio
9、n from a strategic level and facilitate an interactive process with the potential service providers. ? Value-based pricing is becoming increasingly common value-based transactions are structured around strategic outcomes and business profitability. In many cases, performance incentives and gain shar
10、ing are put in place if these objectives are met or exceeded. 18 19 CHAPTER 1 An introduction to Business Process Outsourcing 20 Chapter 1 An introduction to Business Process Outsourcing Summary ? BPO is not just another term for outsourcing, but brings strategic value by creatively examining the pr
11、ocesses that underlie the business function and changing the way they are performed ? BPO vendors claim savings of between 10 and 30 per cent, which can jump to 70 per cent if the outsourced work is off shored. ? As well as additional cost savings, offshore BPO can provide 24-hour work benefits and
12、hence reduces time-to-market. ? The perceived risks surrounding BPO are generally misguided. BPO has matured as an industry in recent years services are now efficient, robust and secure, with best practices having been finely tuned in many areas of BPO, such as human resources, finance and accountin
13、g and CRM (Customer Relationship Management) outsourcing. ? Human resources BPO (known as HRO) is one of the most mature and largest sectors of the market, driven by the need to reduce costs, the desire to improve service levels and quality of delivery. Another driving force is the desire for HR to
14、be more global and strategic in nature. ? Finance and accounting BPO otherwise known as FAO is still an immature market, but is expected to take off in 2006 and 2007. ? Offshore BPO providers claim to offer cost savings of between 3070 per cent, mainly as a result of labor arbitrage. In addition, of
15、fshore BPO can reduce the headcount of organizations as function or process expertise is taken on by the BPO provider. ? The BPO market is the single fastest growing area of the IT services sector. Growing 8 per cent annually, spending on BPO services is expected to grow from $112.1bn in 2005 to $14
16、4bn in 2008, an increase of 40 per cent. ? By 2008, BPO will account for 22 per cent of all IT services revenues. 21 Purpose of this report This report provides a competitive analysis of the business process outsourcing (BPO) market, as well as best practice advice for end-user organisations. It sho
17、uld be of interest to any organisation considering the use of BPO services, and for global BPO service providers and consultants. Introduction to outsourcing The use of IT outsourcing has increased significantly in recent years as organisations have become more comfortable with the concept of handin
18、g off ICT (Information and Communications Technology) responsibilities to third-party services providers. So much so that businesses today are reliant on having a diverse network of specialist IT outsourcing suppliers, for the provision of a growing range of ICT infrastructure and application servic
19、es. The impetus behind IT outsourcing is often the expertise and specialist knowledge that external services providers can bring, which not only provides the client organisation with ICT expertise beyond its own capabilities, but also enables it to concentrate on its core business functions. As the
20、modern enterprise seeks to focus ever more narrowly on its core activities, outsourcing services are increasingly being considered as a business strategy that provides access to best in class processes and cost predictability. At the same time, IT outsourcing avoids the need for expenditure on techn
21、ology and kit that is likely to become obsolete within just a few years, and thus allows organisations to keep pace with ICT technology advances while avoiding the need for costly technology upgrades and even total re-deployments. As a result, outsourcing can improve efficiencies, reduce costs, prov
22、ide expertise and modernity. Organizations of all sizes now have access, through outsourcing, to the 22 kinds of IT systems and expertise that was once only the preserve of the elite. In turn, this has freed up the CIO (Chief Information Officer), which today should not be managing day-to-day operat
23、ions, but becoming a corporate leader and contributing to business strategy. The CIO now has time to focus on the alignment of IT and the business strategy by spending less time on tactical management of IT resources, or on IT fire-fighting. Business process outsourcing The term business process out
24、sourcing (BPO) has evolved over recent years and, each time it evolves further, its definition changes. It is not simply another term for outsourcing in BPO, BPO is not just another term for outsourcing, but brings strategic value by creatively examining the processes that underlie the business func
25、tion and changing the way they are performed., rather than merely applying technology solutions to existing business processes. Therefore, a BPO contract would see a third-party service provider take on the running of an entire business process (rather than just the IT systems that underpin it), suc
26、h as: human resources, finance and accounting, customer relationship management (CRM), procurement, supply management, payment and billing, and financial process management each of which can be managed by the BPO service provider either locally or offshore, depending on the individual requirements o
27、f the customer and the expertise and business model of the provider. The selected processes would then be managed against defined and measurable business metrics. BPO is increasingly in demand as organizations look to cut costs from the bottom line and to focus on their core business functions. As a
28、 result, an increasing number of outsourcing deals are blurring the lines between traditional IT outsourcing projects and BPO deals that see vendors take on the management of their clients business functions. 23 Benefits Outsourcing business processes can bring significant benefits to organizations
29、looking to cut costs and improve overall business performance. Because external providers focus on key processes as their core competency, customers are able to effectively leverage their knowledge and experience for their own benefit. The core benefits can be categorized into five separate areas: ?
30、 Lower costs because BPO providers focus purely on the processes that they provide, they are able to offer a lower cost to organizations than they might otherwise be able to get themselves. For many of the processes outsourced such as contact centers, the startup costs are significant, and for many
31、companies hard to justify given the alternative of a BPO service. Similarly, the BPO provider will often guarantee that it is using the most appropriate and up-to-date technology, allowing the organization to avoid issues such as sourcing and upgrading. ? Improve service because outsourcing contract
32、s are constructed using SLAs, a predefined level of service is guaranteed to the customer. In most situations, this level is higher than the organization itself could provide internally. For applications such as customer interaction, this is critical as poor communication with customers can affect r
33、evenues. For other processes such as human resources, the organization receives specialist staff and the provider ensures that existing staff are managed properly, thereby leading to better internal efficiencies. ? Gain access to expert skills as organizations in all verticals are faced with increas
34、ing regulation, the demand for appropriately skilled staff is growing. Often, it is difficult for companies to ensure that they have an adequate level of knowledge within their internal staff to guarantee performance. Using a BPO provider for select processes, however, provides them with staff who a
35、re experts in specific areas. With this extra knowledge, companies are able to relieve the pressure of issues such as regulation. Similarly, external experts can help companies optimize and streamline internal processes through the application of best practices methodology. 24 ? Focus on core activi
36、ties by outsourcing non-critical elements of their business, companies are able to pay more attention to their core competencies. In this way, they can effectively forget about managing lines of business such as HR or finance and accounting. This frees up considerable resources to try and gain as mu
37、ch market share and revenues as possible, while at the same time maintaining or improving the level of services within their business. In addition to the above advantages, outsourcing offers other benefits such as provider alternatives, transfer of risk to vendor, elimination of internal policies, e
38、limination of recruitment, training and staff retention in non-core functions, and scalability (faster scale-up or scale-down capability). Risks The perceived risks of outsourcing can act as a big inhibitor for BPO. However, it is important to note that these risks are perceived rather than real. BP
39、O has matured as an industry in recent years services are now efficient, robust and secure, with best practices having been finely tuned in many areas of BPO, such as human resources, finance and accounting and CRM outsourcing. Some of these perceived risks are described below: ? Loss of control Com
40、panies are reluctant to relinquish control over the operation of their processes. ? Financial instability of providers If a provider encounters financial difficulties in the near- to mid-future, the buyer may be forced to search for an alternative services provider, which could put the operation of
41、the business process at risk. ? Loss of expertise Customers may lose the expertise and knowledge of carrying out the outsourced processes over time. ? Culture of provider The factors surrounding financial stability of BPO services providers, and the quality and type of BPO service they offer means t
42、hat choice of service provider not just in terms of technology and services, but also type of relationship and cultural fit with the buyer is a critical decision. 25 Introduction to horizontal BPO Customer relationship management (CRM) BPO Customer relationship management (CRM) BPO began life as a w
43、ay to significantly reduce labor costs for low-value or transaction-based activities, such as helpdesk calls and bill payments, but it is now emerging as a way to deal with more sophisticated, value-added activities, such as consulting and implementation, training and support, customer care and anal
44、ytics. The outsourcing of customer related processes has received extensive press coverage given the number of companies using low-cost regions such as India for call centers. As the importance of customer relationships has grown within the mindsets of organizations, the question of how to provide t
45、he best service at the lowest cost has often been asked. For many, outsourcing of customer relationship processes is a sensible solution. Companies have the option of establishing call centers that are staffed by people, or setting up automated systems that guide customers through a series of prompt
46、s. For many, the cost of having call centers within their own region is extensive, given that the cost of providing premises, managing technology, training and recruiting staff can each be individually significant yet are all required. BPO providers, however, are able to focus their skills purely on
47、 providing call center technology and customer care capabilities. As such the processes they provide support for are optimized and run at a lower cost than the customer could ever hope to achieve without significant financial investment and time. At the same time, organizations are drowning in infor
48、mation held in their CRM systems, without the knowledge or resources to use it in a meaningful way. BPO providers can provide the technology and expertise to bridge that gap. The functions provided by CRM BPO include, support (such as billing queries and order taking), marketing (such as outbound co
49、ntact center communications via email or telemarketing), sales (inbound and outbound), technical support (such as helpdesk) and customer analytics. 26 Human resources BPO (HRO) By definition, human resources (HR) BPO commonly known as HRO is the integrated delivery and operation of a number of HR processes performed on a long- term contract basis by a single service provider. Most HRO contracts cover services such as payroll, employee benefits, recruitment and selection, training and development and compliance. However,