Who will emerge as winners in the race for BPO supremacy?
Today's international Business Process Outsourcing (BPO) market
is where the IT Outsourcing market was nine or ten years ago. The
promise for new entrants to this market is 10-15% compound growth
over the next ten years. Commentators believe that because BPO can
encompass all mid and back-office functions, the growth curve will
be even steeper. Morgan Chambers (www.morganchambers.com), in a
study carried out last year, concluded that 56% of the FTSE 100
outsourced processes to some extent and that BPO is an agenda item
on almost every executive board meeting.
Optimism about the market needs to be tempered with reality. There
are opportunities to generate profitable annuity businesses and the
barriers to entry for those organizations with access to large
corporates may be lower, but the market is immature and few of
those operating in it have gained the experience necessary for
sustainable, profitable BPO operations.
Poor understanding of client needs and unrealistic expectations
means some bad deals are being done, especially where the only
motivation is cost saving. BPO is about business process
transformation so that it becomes more efficient and as a result
will cost less; not the other way round. Both parties need to set
and measure performance against objectives that include efficiency,
but also impact operational flexibility, risk transfer and other
benefits.
Clients have the right to ask suppliers to innovate. But if both
have not clearly documented where they want to end up, they will
get solutions that meet the supplier's needs, not theirs. BPO is
not an IT deal; neither is it pure financial engineering. The best
deals are likely to be hybrid transactions that link operations to
the direction of the client's business. Dealing with all the issues
around People, Process and Technology is essential.
Most clients do not have the skills that make BPO firm successful
or the drive to develop or acquire them. Nor is there on the
supplier side a large pool of experienced BPO providers at this
stage of the market?s development.
Emerging organizations succeed in the developing BPO market because
of an ability to move the business from a transactional model, to
one that has strategic importance to clients and future partners.
They recruit credible, consultative and commercially minded
individuals who drive the business forward, internally as well as
externally. Successful companies know that deals will take between
12 and 18 months to develop even profits may not be generated for
up to three to four years in a seven to ten year deal.
Ultimately, risk analysis, determined management and luck all play
their part. Timing is key as we estimate that by 2004/2005 IBM,
EDS, CSC and other 'big' players will be ready to participate in
this market. This gives the early adopters a window of 18 months to
two years to establish BPO concepts, sell the first deals and
become the incumbent player in their chosen sectors.