Much more fascinating than trying to predict what, on earth, is going to happen in global sourcing in 2009, is trying to make some sense of 2008's non-stop chain of events. However, emerging from the rubble has been the maturing of the BPO industry, as several global service providers have striven to consolidate their market positions, anticipating further growth in BPO services in 2009. The premise being that buyers are quickly becoming more accepting of radical change to their global business models that not only drives down operating costs, but also enhances their competitive position.
How has BPO emerged as a vehicle to achieve these goals?
BPO matured as buyers took on a bottom-up approach to adoption. For the first time, we have started to see BPO engagements being adopted in the right way.
Rather than companies hurling their existing mess over the fence to a service provider (or politely dubbed "a transfer-transform strategy"), we've finally started seeing companies focus initially on transitioning the less-complex administrative processes, that can be supported by offshore/nearshore delivery and underpinned by tried-and-tested applications. HRO's comeback has typified how this should work, after 7 years of trying to be too clever, with most recent buyers making their initial forays into a global HRO engagement based on a global payroll delivery model, augmented with an HR systems implementation and supported by regional employee contact centers. This enables incremental HR processes, such as compensation, talent management and workforce management, to be integrated into the payroll hub, within a global model. F&A BPO services have already proven to be workable where buyers adopt the cash-cycle administration processes as an initial step, where offshore arbitrage is immediately available, and technology-enabled workflows can be plugged into the engagement. We are also beginning to see similar strategies with new procurement initiatives where firms are moving administrative support offshore, such as minor negotiations, supplier scorecard prep, market intel and data gathering, before taking on higher value work.
The emergence of the Indian-headquartered providers as competitive global BPO options. The last year has borne witness to a host of global Indian-headquartered service providers continuing to move aggressively into the BPO industry. With the exception of Genpact, all the other Indian-headquartered providers in the BPO industry had previously developed considerable presence in global IT services, namely Cognizant, HCL, Infosys, Wipro, Satyam and TCS. They clearly view BPO as a natural extension to application services, that gives them deeper, more intimate client relationships, additional revenue opportunities, a differentiated solution and a much stronger client "lock-in" opportunity. Moreover, if they fail to develop a BPO story, they run the risk of slipping behind the competition. In fact, several firms entered into ITO engagements this year, where the future promise of expanding into BPO with that supplier proved to be compelling differentiator in the down-selection process. Their general approach has been to start with less-complex engagements where they build client trust and confidence through proving their worth and capability, as opposed to winning these "big bang bake-offs" with their illustrious US-headquartered competitors.
The emergence of workable governance models has been a key ingredient. The major impediments to the success of past BPO engagements have been both the inexperience and resistance of buyers to develop a workable governance structure, in addition to the reactive nature of many suppliers to deliver services only to the letter of the contract. In many cases, companies have failed to restructure governance roles and responsibilities effectively, often creating a negative competitive dynamic with the service provider, and a resistance to change. Simply put, there is no defined curriculum for effective BPO governance; clients need to grasp control over their engagement and work pro-actively with their service partner – and vice-versa. The move towards a bottom-up approach to BPO is helping buyers experience managing their transactional work effectively in a global delivery environment, as opposed to finding fault with their provider providing higher-value services from the offset.
Companies are looking to decrease IT and operations budgets, in addition to expensive business transformation projects. BPO offers a business transformational opportunity for firms, with the investment underpinned by cost-arbitrage and moving onto a global operating model. Moreover, many firms have implemented a new technology platform alongside a BPO initiative, with the incremental cost being absorbed over the course of the agreement. This new-look wave of BPO engagements, with the focus of deploying operational processes and technology as part of the initial scope, is going to provide real opportunities for companies in 2009, looking to find new levels of optimization at a global level.