Sal’s six stages of sourcing: BPO’s Generations

“We did our BPO deal in 2005 and now we’re reaching our 7 year-itch”, confided a client governance executive last week. “Essentially, it’s operational – it works – but we’re now trying to focus on the what next. How can we find new value and new ways to tie our BPO operation to our company’s growth and renew the enthusiasm and passion of our staff?”.  No single sentence has reinforced how far the BPO has come – from tales of woe and messy delivery in the mid 2000′s – to clients today complaining they’re getting bored?

The BPO industry has been going through such a remarkable evolution since the first major deals were cast barely more than a decade ago, that it’s high time we took stock and considered the phases – or generations - through which our industry has progressed.

Mike Salvino is Group Chief Executive, Business Process Outsourcing, Accenture

And there are few people who have lived and breathed these generational shifts more closely that Accenture’s BPO leader, Mike Salvino (or “Sal” to those who know him).  Having begun his career with Accenture’s ITO business in the late 80′s and 90′s, Mike spent time on the BPO front lines with one of the industry’s first pureplay BPO providers, Exult, before leading the HRO sales organization post their merger with HR services giant Hewitt.  Mike rejoined Accenture in 2006 where he led their F&A business before taking full responsibility for the company’s entire BPO function.

We managed to grab a few moments with Sal to discuss these generational shifts in the BPO industry before he had to run off to coach his kid’s basketball team…

PHIL FERSHT: Mike, when we spoke two years ago, our discussion focused on what you termed third generation BPO, which is a vernacular many others in the industry are now using. But I know your thinking and Accenture’s delivery model, has evolved quite a bit since then and you’re now talking about fourth, fifth and even a sixth generation. Please talk us through this evolution and these new and upcoming generations of BPO.

MIKE SALVINO: Third generation BPO, where some of the providers and their clients are a bit stuck, was focused on global delivery of end-to-end processes using either operational excellence or Six Sigma-type techniques on those processes to achieve what I call “silent running.” For the most part, providers can now do third generation BPO, but it’s a very commodity-based business, it’s very price competitive, and very competitive in terms of differentiating yourself as a provider.

So we set out to define what we at Accenture call fourth generation BPO, which is focused on business outcomes, either helping a client increase its revenue or further decrease its costs. To do this, we applied analytics to all the transactions we were processing in our global delivery network. And by looking at the past to try and predict the future and showing real-world examples to our clients, we were able drive tangible business value. Very few providers are delivering fourth generation BPO.

The fifth generation, which Accenture is into right now, is taking the investments we’ve made in the cloud, in analytics, in social media and in mobility and applying them to BPO to build business platforms. Our best example is what we call our Accenture BPO Navigator, which is built in private clouds and allows our clients not only to see the end-to-end service level performance but also the business results and the business outcomes we’re driving for them on a regular basis. Access to the BPO Navigator is also enabled for mobile devices so they can carry it around with them…it makes a big impact in terms of how they are managing their businesses.

But the whole overarching concept around fifth generation BPO is creating a more flexible and scalable delivery model so our clients can really do what for 10 years they’ve been asking for – to start small and scale fast.

Sixth generation is creating learning communities of clients around these fifth generation business platforms using social media technology to create a force for future innovation and a glue between those clients and providers.

If you look at the colored columns in this graphic, you’ll get a solid idea of our perspective on each of the generations:

PHIL:  Mike, my read on this is that you have clients that have been doing this for a very long time, where you’ve been able to help them evolve along this path as they’ve become more mature, more in control, and have more visibility into how they want to perfect their processes. Do you feel the experienced adopters are going to be the first ones to progress to these fourth, fifth and sixth generations, or do you think there are going to be a lot of clients – new to BPO adoption – coming into play?

MIKE:  I think it’ll be a combination of the two. Our existing book of business is the most intuitive group to move directly into fourth generation in terms of business outcomes because they’ve seen us process their transactions for years and they’re asking the same questions we asked when we developed the concept for the fourth generation BPO…what can you tell us about our business, given that you process our transactions every year?

The new clients want to move into it more quickly. I haven’t spoken with a new client that doesn’t want to try to start small, scale fast, and use the latest and greatest technology, whether regionally or globally.

The sixth generation is a very new concept where we invite people into those communities to do business, exchange insights and to further advance the standardized platforms and processes that actually do the work. And while the fourth and fifth generations are realities today, the sixth generation is what we’re shaping now.

PHIL:  Our new research has shown that, for eighty percent of today’s buyers (see link), standardizing on best practice process flows is now one of their major BPO drivers. So in terms of that, how are you building your future business around this willingness to standardize more and adopt these “pre-packaged” best practices?

MIKE:  So that’s where we partner with our management consulting and with technology experts. You’re exactly right. We’ve seen this movie before in terms of people saying that there’s a product out there that’s all of a sudden going to standardize everything. Are there better products out there? Absolutely. Are people more willing to go to them? Absolutely. Our strategy is clear. We want to own those platforms, especially for the industry-specific areas. We will take our clients to platforms, much like we have taken them into our centers to do the work. The reality is that the platform discussion is no different than the debate we had five years ago about whether service providers do the work at the client’s site or can actually take the work into their own delivery centers.

So now that the work is in our centers, we can get them to a standard platform, but that’s old-type thinking. What I think is different is that once we get them to those platforms, we can we get them to fourth and fifth generation BPO by looking at the transactions. We use our management consulting talent and industry knowledge to determine what those transactions mean, and then be as flexible as we possibly can to enable our clients to start small and scale fast.

PHIL:  This takes me back to the ‘90s when companies were pushing ‘buy this suite of enterprise resource software and you’d have best-in-class processes across all these domains, and we ended up with a situation where companies were buying full-scope licenses for products like SAP, but struggled to standardize their processes to conform with the ERP. Isn’t this happening all over again, where buyers are being sold some type of “productized” workflow, however this time the onus has shifted to the providers to take them through the transformation?  Doesn’t this emphasize the need for buyers to rely heavily on their providers’ consultative transformation capabilities, as opposed to solely this kind of just low-cost, productized approach?

MIKE:  Okay, but if we delivered exactly what you just said, that isn’t good enough. That’s just third-generation BPO. As I said earlier, most of what we’re talking about is industry specific because I don’t believe that clients are going to come off SAP or Oracle for the horizontals. So if all we do is take you to a standard process globally based on a new application, all that does is get you to third generation, with lower cost and more efficient end-to-end processes.

But today, when you sell to the C-suite, they don’t care that we process invoices, port telephone numbers or support wellness programs better than anybody else. What they really want is what the analytics data tells us about how we can have a better impact on their business either by increasing their revenue or further decreasing their costs.

I’m not positive you have to go to a new platform. But I am positive that you have to understand what you’re processing and how that’s going to impact your clients’ business.

PHIL:  This is interesting, when we look at how the ITO industry developed – it kind of got stuck in its own version of “third generation” for a very long time, and arguably, a lot of it still is. But I think there’s a much bigger opportunity in BPO, because of the level of depth and intimacy you have with the clients, and their institutional process that you have to learn over time to help them move to outcome-based delivery situations. So I do think that BPO is more uniquely positioned to move buyers towards these fifth and sixth generations than some of the other outsourcing models in the past.

MIKE:  But don’t you think that’s what people wanted out of BPO when we started this? It’s just taken us 10 years longer than we thought. The significant difference between ITO and BPO is that we could finally get into the business. I know it started with taking transactions that weren’t core, and by the time we got to third generation we were certainly doing non-core. But now, with fourth, fifth and sixth generation BPO, we can finally give the industry what it’s been asking for years. Do you agree?

PHIL:  Yes, I think the clients have got a lot smarter over the last couple of years, and they are demanding much more innovation from their relationships. They’re also realizing they’re more accountable and until they play out the agenda, it’s going to get tough for them. So I do think that the industry has really moved on in terms of the conversation, in terms of what it’s looking to achieve.  In fact, we’ve done more in the last two years than the last ten, and these current economic conditions are driving people to look more long term at their businesses, and really try to be a bit more radical with making some changes to their businesses that need to be made.

Additionally, the competitive dynamics are at a point where I think we’re already seeing three or four players break from the rest of the pack quite aggressively now, and I think in a year’s time we’ll really start to see a mature market. So I do feel that this sixth generation you’re talking about is going to happen sooner than we think. I think it’s already creeping in. Our research clearly demonstrates decision-makers are increasingly going to each other – we’ve got the data to show it. Peer experience is more impactful now than anything else, so I do feel the quicker we can get people to the community concept, giving them the ability to share best practices, worst practices, ideas and get better at this, the better off the industry will be.

MIKE:  Again, the purple column on the chart that represents sixth generation BPO is what people have been asking for over the years. We used to call them user groups. We still do an event every year, and bring our clients together because they want to talk to each other about what’s going on, about what they’re dealing with, about how they’re resolving issues, whether old or new. So to be able to set up that community in an invited, exclusive-type way where you can really conduct  business will be key.

PHIL:  We’re in an interesting age where there seems to be a follow-the-leader scenario going on where someone comes up with a great concept and before you know it, everybody else has jumped on it. And with this concept of “generations” that you initially developed, I remember us going through it a while back and we started seeing competitors of yours coming up with similar messages and stories. What goes on in your mind when you see this …and how are you going to win?

MIKE:  I love the fact that the industry has taken on the generations vernacular, as it’s the best form of flattery. And when the industry wins, Accenture BPO wins, and if we’re moving the industry into the fourth, fifth and sixth generation BPO, then clients, as a whole, will expect more from us and we’ll deliver more value. So it’s a win for clients too.

PHIL:  Mike – thanks for taking the time to discuss your BPO Generations with our readers – we appreciate it, and look forward to sharing your insights.

Mike Salvino (pictured above) is Group Chief Executive, Business Process Outsourcing, for Accenture.  You can read his bio here.

Bookmark the permalink | Leave a trackback: Trackback URL

8 Comments

  1. James Wheeler
    Posted January 15, 2012 at 11:15 am | Permalink

    Excellent interview. Most engagements I deal with are somewhere between two and four with five the desired endstate. Six is nirvana, but I fear some way off,

    James

  2. Len Travis
    Posted January 15, 2012 at 12:36 pm | Permalink

    Phil and Mike,

    This was a very informative discussion and a great description of BPO’s evolution. Thanks for sharing,

    Len Travis

  3. Amanda Hare
    Posted January 15, 2012 at 1:20 pm | Permalink

    Phil,

    I echo the other comments here – a really strong discussion. This provides a strong gauge to assess where we are with our engagements and how far we have to go,

    Amanda Hare

  4. Robert Grossman
    Posted January 16, 2012 at 8:32 am | Permalink

    Interesting theory. It provides an excellent comparison for companies to produce a gap analysis on where their current BPO is against where they want it to be. While most want to be in the 4th or 5th generation, they are more likely somewhere in the 2nd and 3rd,

    Robert Grossman

  5. Posted January 16, 2012 at 6:36 pm | Permalink

    Hi Mike,

    I like your vision. Maybe for Accenture it is a present reality and if so, I congratulate you on the accomplishment. For most of the call center portion of the BPO industry, I assure you, it is a distant vision.

    I have responded to HFS posts before, and I am beginning to feel like I am one of the group the late former Vice President Spiro Agnew referred to as a “nattering nabobs of negativism,” but from our standpoint, the industry is not even close to what you describe here. Many of the BPOs we have worked with are deeply mired in the second generation. Moreover, becoming a third generation provider is not even an objective. A fifth or sixth generation provider? Forget about it.

    We are aware of a company with 6000+ outsourced call center seats at three different BPOs and multiple global locations. There is no standardization of anything across outsourcers or even across locations for one outsourcer. The outsourcers are not interested in continuously improving the client’s outputs. There is not a single output at any of the outsourcers that is continuously improving.

    Collectively, the outsourcers’ prime objective seems to be to not be last. In this regard, their behavior is more like the guy who stops to put on his sneakers while he and his friends are running from a bear. “What are you doing?” one friend asks, “Sneakers won’t help you out run a bear!” To which he replied, “I don’t have to outrun the bear…I just have to outrun one of you.” Being the fastest/best is not worth it, but coming in last dramatically increases the probability of being eaten/fired.

    Here is another example of the Dark Ages many BPOS are living in. We have technology which allows clients to standardize call center processes and drive continuous improvement of all the major metrics call center leaders care about…AHT, FCR, Compliance, cross-sell, etc. The good news is that outsourcers see the power of our approach…so much so…here comes the bad news…that they have told us they won’t offer it to existing clients because they realize it will reduce AHT, decrease repeat calls, and lower the time needed to train agents. Even though that is exactly what their clients want, they don’t want those outcomes because they realize results like that would lower their revenue since they are paid, one way or another, for cheeks in seats. Our counter arguments about short-term revenue vs client satisfaction, share of wallet, profitability and word-of-mouth are met with the-conversation-is-over stares.

    Mike, keep lighting the way and Phil, keep banging the drum. Let’s hope the bright light and noise wakes up the BPOs that are still sleeping and reminds clients that they don’t have to tolerate decades old values and results from their providers.

  6. Posted January 17, 2012 at 5:15 pm | Permalink

    Thanks for recapping and projecting a bit of BPO history, BPO today and BPO tomorrow. The summations are highly accurate. What are the hidden challenges are the tranformational points and the realization that goals are combinational and not singular. As I pointed out several months ago, BPO is a beast and tends to be a bit over saturated with the variety of types & forms. Truly it needs to be more appropriately partitioned to achieve some of the end goals that you mention.

    If taken from a buying perspective it’s about doing a job in which a certain outcome/expectation is realized. Sounds a bit simplistic but when attempting to run a business you really don’t have the luxury of having an excessive amount of time to do exhaustive analysis. This is where companies are today… safe acquisition, transitioning, ongoing operations and continual evaluation.

  7. Warren McDonald
    Posted January 18, 2012 at 12:47 pm | Permalink

    Fantastic interview. I have to disagree with Dennis’ points about most of the industry being stuck in the second generation. I think he has been overly exposed to call center outsourcing, which is overly dependent on bodies and low-cost. When you look at functions such as finance, procurement and HR, where companies are looking for better process flows and better technology, there has been a definitive shift towards the third and fourth stages. Most of the leading providers today are pushing clients towards standard processes and better platform adoption as part of the BPO, as they know they will never develop any economies of scale for their businesses,

    Warren McDonald

  8. Posted January 30, 2012 at 5:11 am | Permalink

    Where does the Zappo’s example fit in with the above? They have turned call center and customer relations practices on its head, yet what they do is not called “best practice”. If a firm RFP’d some BPO’s, it would be unlikely that any of them would propose what Zappo’s does. Yet isn’t this the innovation element that needs to be added in Gen 4 above?

5 Trackbacks

  1. [...] Sal's six stages of sourcing: BPO's Generations MIKE SALVINO: Third generation BPO, where some of the providers and their clients are a bit stuck, was focused on global delivery of end-to-end processes using either operational excellence or Six Sigma-type techniques on those processes to achieve … Read more on Horses for Sources [...]

  2. By Are you ready for Generation 6 BPO? on January 23, 2012 at 4:23 pm

    [...] you enjoyed our recent interview with Mike Salvino, you better get that Twitter following cranked up [...]

  3. [...] HfS Research had interviewed Accenture BPO Growth Platform CEO, Mike Salvino and shared his framework for the generations of BPO.  That framework ended with a future 6th Generation which is built [...]

  4. [...] HfS Research had interviewed Accenture BPO Growth Platform CEO, Mike Salvino and shared his framework for the generations of BPO.  That framework ended with a future 6th Generation which is built [...]

  5. By Moving mountains with Mike, part 1 on March 13, 2014 at 3:23 pm

    [...] on “BPO Generations,” has really become written into BPO industry lore since you articulated it three years’ ago. You were one of the first to map out the stages the industry needs to go through to be successful [...]

Post a Comment

Your email is never published nor shared.