Our new "Technology in BPO" study will soon reveal (stay tuned) that this industry is on the brink of a significant, radical overhaul to its very core value proposition. Quite simply, when we look at the current performance of BPO engagements today, the results are more than depressing, but the encouraging news is that half of today's clients are not expecting to settle for this status quo:
Where BPO is performing well (green). The positive news for the BPO industry is that providers are proving effective at delivering the principal two table-stakes of BPO: (1) delivering the standard basic operations, and (2) meeting the pre-agreed contractual cost reduction targets for clients on more that six out of every ten engagements.
Where BPO performance is average (amber). Encouragingly, half of BPO buyers are pleased with the efforts their providers' leaders are making collaborating well with their own leadership, a recent trend we have observed where senior provider executives are getting more hands-on with their clients, as opposed to disappearing from sight the moment the contract ink is dry. This is positive news for buyers which need to discuss how evolve their BPO value beyond very basic service provision and gain senior buy-in. In addition, it is reassuring that more than half of buyers are pleased with the specific industry process knowledge their providers are bringing to the table – an area that has proved much more disappointing in past studies.
Where BPO is struggling (red). The areas in the red box give serious cause for concern regarding the potential of the vast majority of today’s BPO engagements. When you consider that many of the leading BPO providers today are significant IT services firms, it is staggering that over half of buyers are dissatisfied with the technology solutions and automation being incorporated into their engagements. Not only that, among the areas where providers can easily impress with a little investment is in providing talent that can be more proactive with their clients, and also deliver more than simply operational support. The picture becomes even more depressing with the fact that barely four out of ten BPO buyers can attest to some positive performance with new ideas and initiatives and some analytical insight from their providers.
Simply put, the majority of providers need to step up significantly, if they can fulfill their clients’ ambitions of moving to a broader transformational environment where they are benefitting from process and technology transformations. On the flip side, HfS research last year (see link) examined the talent issues in sourcing, revealing that many buyers simply do not have the right talent mixes on their outsourcing governance teams to work effectively with their providers to take advantage of their analytics capabilities, jointly plan and develop new initiatives, or work collaboratively on problem-solving or outcome-based gainshare initiatives.
And now the good news: Half the industry expects to break out of the old world of "lift and shift"... and fast!
Some buyers and their providers will embrace what needs to be done to evolve this business beyond being a mere wage-reducing staff augmentation service, while others will persist in slogging away with a model that is now proven, beyond any doubt, that the only real benefits are from the supply and purchase of cheaper labor.
BPO creates a new normal for businesses... and the winners will be those which can break from the status quo. Sadly, once enterprises offload labor costs, they don't ever want them back, so a new normal will quickly occur where the most enterprises' leaderships will start to demand further efficiencies - and smart governance leaders today know they will be out of job before long if they are simply going to persist in overseeing a stagnating offshore-based operation. What's more, expectations are moving a lot faster in today's environment, where function leaders don't have the luxury of ten year programs anymore - leadership expects to see tangible results in much shorter timeframes.
Smart enterprise leaders know they have to change how they add value to their firms. You only have to look at the growing number of unemployed CIOs to understand what happens when functions become overly operational and limited value and innovation is being achieved. It's the same for CFOs, CPOs, supply chain heads and other function leaders - they are all under pressure to drive out costs, while delivering ongoing improvements to data quality and having greater alignment with front-office activities. This is why 49% of today's BPO buyers expect to have moved to a "wide-scale transformation of business processes enabled by new technology tools/platforms” in just two years:
The Bottom-line: BPO will only fail those enterprises which settle for "mediocre"
Providers can only deliver what their clients demand of them - and pay for. Simply put, 49% of enterprise buyers have only ventured as far as doing basic labor arbitrage, and are clearly failing to find much (if any) value beyond those wage savings. Most providers are not delivering that value, but, in most circumstances, this is because their customers have not got their act together to set out a value-based agenda and work with their provider to have them help achieve it. Providers will not seek to deliver value until their clients demand it, are prepared to invest in it - and will kick them out if if they then fail to deliver it.
BPO is the start of a new phase of change for more enterprises... it's persisting with the change agenda which dictates the pace of new value creation. These 49% of "lift and shift" engagements have been set up for short-term cost gains, not long term improvements and innovations. However, all is not lost, because moving into a "lift and shift" BPO environment isn't necessarily leaving the buyer and provider in a bad situation. They have achieved goal number one with most outsourcing: they got the bloated costs off the books and are in a better place to effect change.
In essence, BPO isn't failing, it's simply milked as much as it can from the very first phase of efficiency gains... the removal of bloated costs from years of onshore staff hiring. As one major BPO enterprise adopter, now in a very mature state, declared, "We were mired in expensive shared services and politics. The situation had reached the point where we were unable to drive any changes, efficiencies or innovations. Every decision to change a process, procedure or policy would require a committee meeting of people who had no desire or incentive to do anything differently. BPO saved us - it drove the shock through the system we needed to change our ways, and created a new starting point for creating a much more effective, scalable operations infrastructure."
So, folks, this isn't the end, or the beginning of the end... moreover, its the start of a new beginning.. for at least half of today's BPO buyers.
HfS will shortly release its new report, entitled "BPO on the Brink", that analyzes, in full, the results of this groundbreaking study that covered 189 experienced buyers of BPO services and their practices with regards to achieving business outcomes, deriving value beyond cost and adopting enabling technologies to improve processes and performance.