New HfS Report – Desperately Seeking Innovation in BPO: Enterprises Speak Out

Is that... is that what I think it is?

Innovation is now the critical ingredient for most buyers of Business Process Outsourcing (BPO) services –unequivocally proven by a new HfS Research study of 588 shared services and outsourcing executives, as  revealed in our new report  Desperately Seeking Innovation in Business Process Outsourcing: Enterprises Speak Out.

Most buyers of BPO services are initially delighted when they trim 30% of their costs on one process, and 50% on another, but once those costs disappear from the balance sheet, they are quickly looking at new  initiatives to help them attain new thresholds of productivity or revenue growth:  what HfS Research terms as “innovation”.

Moreover, while half of buyers are dissatisfied with the innovation they are currently achieving from their BPO endeavor, the majority are seeing significant potential to achieve it across certain processes within a two-year time-frame.

Essentially, once they have out-tasked as much of the feasible routine administrative work to service providers, they quickly discover that next tranche of productivity is not nearly as straightforward as documenting standard processes and training an offshore team to replicate them effectively (commonly termed in the BPO industry as “lift and shift”).  Those buyers realize they actually need to introduce new, creative methods to actually change the old way of managing processes to find improvement. This scenario continues to dominate the vast majority of large-scale BPO engagements today.

The answers lie with both BPO buyers and their service providers working together to achieve measurable business outcomes as part of organized and collaborative long-term partnerships.  However, too many enterprise buyers jump into a service provider relationship polarized on the initial cost take-out from the “lift and shift”, and gloss-over the future initiatives they will need to implement in a couple of years, when they seek to find new value through better processes, talent and technology.

We believe buyers need to put the innovation track-record of service providers high up the decision-making tree when they select make selection decisions. As earlier HfS Research has demonstrated, service provision is commoditizing and leveling the playing field, with several BPO service providers today pushing services within a similar price-band, and sufficient track record of successful “operational” delivery.

Most large enterprises have already experienced offshoring and outsourcing varying degrees of their operations for several years, and are smart enough to realize outsourcing provides an opportunity to deliver more than simply cost-savings through lower cost labor.  Consequently, the ability to provide outcome-based solutions that encompass helping BPO buyers achieve innovation, is fast becoming a crucial differentiator.

We’ll be highlighing more snippets from our new report, entitled “Desperately Seeking Innovation in Business Process Outsourcing: Enterprises Speak Out” this week, but if you can’t wait that long: [emember_protected]click here to download your very own freemium copy[/emember_protected] This report dives into the experiences and expectations of today’s enterprise BPO buyers when it comes to achieving innovation, and offers actionable recommendations for devising a strategy to improve their innovation agenda with their BPO endeavor.

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9 Comments

  1. Posted July 26, 2010 at 8:12 am | Permalink

    We must remember that there are destinctly two elements to any service discipline; primary supporting service and potential business opportunity. That latter holds true when you have optimized the service delivery and are now looking for ways to go beyond OR further stretch the optimization opportunity.

    The difficulty is that we can’t simply look at time & cost. We must also consider quality, timeliness, customer acceptance and market readiness. Some of these are not easily quantifiable but a skilled professional will be able to overlook this aspect and make a right decision (on their own or with the support of others).

  2. Posted July 26, 2010 at 9:07 am | Permalink

    Totally agree, Phil. When hosting an expert panel at a recent SIG Summit, there was agreement across the panel and audience that innovation and value is what is now expected from outsourcers. There was intense debate whether what I decribed as “Fourth Generation Outsourcing” actually exists.

    Phase IV outsourcing is when the relationship evolves through Phase I – cost reduction through lift and shift, Phase II – further cost reduction through process improvement, Phase III – process improvement and cost reduction through automation, into Phase IV where the outsourcer can help their client drive new revenues.

    Despite some fairly vocal cynicism, there is no doubt that buyers are looking for innovation and expecting value. There were even a few examples of bona fide Phase IV outsourcing cited.

  3. Terry Hartmann
    Posted July 26, 2010 at 10:11 am | Permalink

    I agree with Ms. Chapman, with the proposed modification of Phase IV to include significant cost savings in the business beyond the cost of the work outsourced (or consolidated in the case of captives). This would include, for example, dramatic travel cost reduction by a pro-active review of the T&E experiences of the operations served by the provider. It could also incorporate broader labor / overtime savings that’s visible by the Payroll provider, but not a priority or focus of the multiple operating units. The improvements to Working Capital from better DSO or DPO management are other, more traditional examples. These should be considered in the Phase IV category for an outsourcer. From a captive, shared services perspective, I would consider these to be “Level 3″ performance, after the impact of Consolidation / Standardization, followed by Optimization & Automation of processes.
    My two cents. Terry Hartmann

  4. Prasanth Nair
    Posted July 26, 2010 at 11:43 am | Permalink

    Phil, the most critical point that you mentioned here is about ‘both the BPO buyers and their service providers working together.’
    Although most buyers & suppliers aspire for innovation at the beginning of the outsourcing contract, it often gets pushed down the priority ladder once the cost base of the service decrease post outsourcing/ global shared service centre deployment.

    To ensure that this is followed through, outcome based rewards (read pricing) needs to, at least be a part of the commercial deal structure. Equally important will be the joint governance mechanism to drive this forward.

    Enterprises having business services function (GBS/SBS) structures seem to be more adept in driving process innovation, specifically due to their ability to focus on the latter.

  5. Posted July 26, 2010 at 12:14 pm | Permalink

    Is anyone surprised by this? The buying community is under constant G&A pressure and the provider community lives with the “what have you done for me lately” reality. Now we have just quantified it. Process management, labor arbitrage,etc have all run their course. Technology is the last frontier and getting humans out of as much process as possible. It doesn’t sound pretty but it is the way many processes have been going and what “innovation” really means.

  6. Posted July 26, 2010 at 12:26 pm | Permalink

    @Elliot,

    Most BPO deals are still negotiated on price with a “nod and a wink” that innovation “will of course be coming down the road”. This data emphasizes that clients are largely underwhelmed with their current endeavors, but can see clear potential to drive value in several specfic areas. What’s more, buyers are increasingly admitting the blame lies on their doorstep, and not solely with their provider.

    I actually anticipated a higher degree of dissatisfaction than what we saw in this study, and it’s refreshing to see a greater realization among buyers as to what they need to do, in order seize the initiative. Once buyers step up to the plate, the onus moves back to the providers to deliver the talent and technology necessary to help drive an innovation roadmap with their clients,

    PF

  7. Vinod Senapati
    Posted July 26, 2010 at 12:49 pm | Permalink

    I agree with Prashant. Buyers and suppliers come together, execute the outsouring project but in the project plan you would never find a innovation plan. The transition period fades the innovation ideas from the minds. Innovation comes for a cost and perhaps that cost needs to reflect during the stages of contract finalisation. Technology plays a important role in elevating innovation in the project and hence choice of the right technology to be implemented becomes paramount. Buyers are the masters of their domain and suppliers with their service delivery expertise should be ready bond with buyers to glean innovative ideas into great business benefits.

  8. Posted July 28, 2010 at 6:14 am | Permalink

    Insightful research Phil. It is a fact that once costs savings and efficiency improvements have been realized, clients start to look for “what next”. One of the answers to this question lies in integrating analytics into client operations – the more the insights the greater the business value. For a large travel client for whom we have been delivering several business processes for over five years has now started to use our analytics capability and are seeing a direct impact to their reservation volumes not to mention new product innovations.

  9. Posted October 1, 2010 at 3:53 am | Permalink

    Making a track record of providers is a good way of protecting clients’ interests as a collective; it would be good though to standardize what constitutes great performance, etc.

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