How can ITO/BPO help firms compete internationally?

It is difficult to imagine that by outsourcing something like finance, procurement, information technology, or human resources that firms can increase their revenue but it's true. It may be indirect but by improving the businesses focus, by stripping away non-core activities biotech and technology firms can improves their ability to focus on revenue generating activities. This matters all the more if you are competing on the international stage. For readers of Global Watch Magazine, this subject is timely and can achieve real benefits for your organisations.

The term outsourcing gained common acceptance in the 1980s and is still used today to describe a relationship with an outside service provider for work traditionally done in-house. The important distinction between an outsourcing deal and any other business relationship is that in outsourcing, control of the process is determined not by the client, but by the supplier. The client dictates what it wants to gain from the relationship, but it is left to the supplier to set the strategy to accomplish the implementation and delivery.

This method of outsourcing was mainly seen as giving most benefit in the technology departments of organisations. Latterly, with the technology outsourcing (ITO) market becoming more mature certainly in the UK, the US, Germany and Scandinavia, Business process outsourcing, or BPO, has come to the notice of Boards.

BPO is a more comprehensive, or business process oriented, approach. Instead of outsourcing along traditional functional lines, the scope of the services covered by the deal cuts across the organisation in a more holistic way. Generally, BPO contracts are seen as being more inclusive, covering a great deal of process redesign work, redeployment and retraining of the people transitioned to the supplier, and almost always includes the information technology that enables and supports the business process. The goal is to provide an even greater opportunity for generating innovation, speed to market and shareholder value through this more integrated approach.

BPO deals have seen a huge increase in both their size and frequency over the past year. In the HR outsourcing market, 2001 saw an increase of 65 per cent year-on-year. One look in any business or consulting publication gives the same view; outsourcing is going to explode in popularity over the next 24-36 months.

How can technology and biotech organisations focussed on international markets and global growth capitalise on this increase to maximise the benefit to themselves and their shareholders? The answer lies with 'knowledge'. Technology and biotech firms, which make up the majority of readers of this magazine, need to understand who best can provide you with the service that will maximise your ROI.

The best people to speak to initially are not the supplier community themselves. They are keen to tell you that they can provide you with an end-to-end solution, but they are being over-optimistic. You would do much better talking to the people who run either the VC organisations that focus on BPO and your market, like Hibernia Partners and General Atlantic Partners, or to the companies that provide consultancy services into this market, like Gartner, TPI and Morgan Chambers.

Corporations need to bring outsourcing to the fore. With increased competition and in difficult markets for UK exporters, concentrating on core activity becomes ever more vital. Outsourcing deals offer corporations the virtuous cycle of decreasing costs, increasing EBITDA and the subsequent increase in shareholder value.

Guy Kirkwood, who runs a headhunting firm focussed exclusively on the outsourcing market, suggests the next step should be to: "Schedule a meeting with an outsourcing consultancy or VC firm to assess your objectives, scope, costs and the benefits of outsourcing. A preliminary assessment will provide you with useful information, raise questions, stimulate dialogue, and move the process forward."

"As readers of this magazine, and therefore leaders in world-wide growth of British companies, you should realise that now is the time to make that strategic decision, before your international competitors force you into such a decision."

In the October 2002 edition we wrote an education piece for the Department of Trade and Industry's Global Watch Magazine. This acted as an introduction to BPO and was well received by the DTI.

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