There was a suggestion recently (see "Busting the Innovation myth") that innovation in back office operations wasn’t important and it’s all about the "front" office. We would argue that achieving innovation in the global support operations of businesses, is often the only lever most firms can pull to remain competitive in this economy.
In most cases, it’s not enterprises' products and services that have to change, but the speed and efficiency with which they can adapt to the changing environment, that now provides the competitive edge. Here's an overview of the secular changes impacting the very core of today's industries:
Our research delves into the heart of major industries, to understand how sourcing engagement models can enable firms up and down their entire supply chains. Let's take a closer look at a few examples:
Life Sciences and Manufacturing
In the pharmaceutical business, for example, the increase in the use of generics is bringing the issue of cost and speed-to-market into play. In previous times, innovation was focused primarily on research and development of new blockbuster drugs, but with those becoming fewer and further between, combined with the massive M&A activity in the sector, the innovation focus has quickly shiften to the support operations and the supply chain. With generics, there really isn’t much you can do to differentiate by product, but you can compete on price and respond to market demand quicker than your competitors. Driving down production costs across both manufacturing and business operations processes is critical, and having a global support infrastructure to get these products to market, and keep inventory levels optimized is how to stay ahead of the competition.
Core sourcing challenges: BPO providers need to step up their competency delivering managed supply chain processes that encompass master data management processes and other supply chain functions, to help their customers. It's not simply about payroll and payables anymore; life sciences firms need to drive their providers to invest in taking a greater interest in creating new ways to reach their markets faster and more intelligently.
Media and Entertainment
In the media business, the impact of web 2.0, social media etc., hasn't altered the actual "products", but the way in which they are delivered to - and consumed by - the end-customer. For example, the diminishing need for printed media products is shifting the focus to driving out as much cost from the operation as possible so media firms can invest in quality content to remain in business.
Core sourcing challenges: The bottom is getting ripped out of the media business at an alarming pace and media firms have no choice but to eliminate as much cost from their distribution channels as quickly as they can, in order to survive. Many media firms have run out of time to go through gradual transformation; in most cases, they simply have to find providers which can enable rapid lift and shift deals to rip out as much short term cost as possible. Then they have to streamline the operations in the BPO environment as quickly as they can to take advantage of the cost take-out (see Surviving the Aftermath of a Lift and Shift Transition). Being able to grasp - and live - with such rapid change, and find a provider which can work with you to ahieve that is the only way forward. Selecting the wrong provider in this market could be fatal.
In financial services, the appetite to move away from captive-only support models is helping many firms find new levels of cost-elimination, but also new flexible models for improving the delivery of their current services. Banking and insurance services aren't changing that much per se, it's how effectively they are delivered to market that is providing the competitive edge. Deploying more flexible and sophisticated global sourcing models, is the only way to go for most financial services firms today. By staying with jaded and often expensive captive operations, is holding many financial services firms back from being exposed to new ideas, new process flows, and the new energy some BPO providers can bring to the table, based on their experience with many other enterprises.
Core sourcing challenges: The majority of financial services enterprises are busily shopping their captives at present, and only a few will find willing service providers to buy them. Most providers now have the scale they need, and are only interested in specific niche competencies that give them new capability. Many financial service firms are facing the prospect of having to phase out their captive operations in order to move into a blended, or fully-outsourced, operational support environment. They will need to decide whether or not to write-off years of investment in their captive operations, in order to transform their delivery model.
The Bottom-line: We're caught in a relentless pursuit of cost elimination and efficiency
We’ve spent the last few weeks having intense dialog with buyers regarding how the uncertain, but recovering, economy, is impacting their stance on outsourcing, and the common thread is one of speed and urgency. There’s a genuine impetus from business leaders to act on new efficiency drives that were formulated during the recessionary months – and global sourcing strategy is right at the heart of these. The conversations dominating this week’s SSON show in Orlando left us with the phrase “the relentless pursuit of cost elimination and efficiency” firmly etched on our minds.
Our argument with current BPO engagement models is that they have to encompass more than simply a few administrative processes to be truly effective. If your BPO provider is only fulfilling a few standalone functions such as purchasing, or invoice processing, it's going to be very difficult for them to achieve much more than a few dollars shaved off the labor cost, and perhaps some elimination of duplicate tasks and unnecessary process steps.
In order to find that next level of performance, you need to take a broader view of your entire global business operations and find ways to bring your BPO partner into the heart of your critical data management processes, so they can help you source unique and creative ways to be more productive and source new avenues for growth.