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INDEPENDENT

EDITORIAL, NOT

ADVERTORIAL.

BPO

Professional Outsourcing Report

Independent editorial sponsored by:


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The ABC

of BPO...

Welcome to our standalone report on

Business Process Outsourcing (BPO), where

we ask the leading analysts in the field to

share their strategies for success in these

troubled times.

In this introduction and also on page

16, BPO expert John Willmott explores the

role that BPO can play strategically and

operationally to help organisations cope

with the current economic crisis. On page 21

Willmott looks at multisourcing and how this,

too, can best be deployed to help minimise

the impact of renewed economic strife.

Gartner analyst Cathy Tornbohm, meanwhile,

presents her outlook across the supply side

of the BPO market on page 10.

So what is the context of this report?

Sadly, economists’ worst predictions are

coming true. On 16th November 2011, Bank

of England Governor Mervyn King

downgraded the UK’s GDP growth expectations

to one per cent for both 2011 and 2012,

representing a halving of the Bank’s previous

predictions for fiscal 2012. King said that the

UK economy would remain flat until the

middle of next year – surely a conservative

estimate – and that the risk of a double-dip

recession is very real in the wake of spreading

“In such a grim

economic climate,

organisations need

to keep their

costs down, while

also considering

the reputational

risks of

outsourcing jobs.”

Guaranteed free from vendor-influenced content

REPORT

Business Process Outsourcing (BPO) is not a short-term fix in a down economy, warns Chris

Middleton. It is the first step in a potentially long journey that needs careful risk management.

financial contagion in the Eurozone.

Welcome, then, to UK business in the bleak

financial midwinter.

In such a grim domestic climate, organisations

of all sizes need to keep their costs

down – while also considering the reputational

aspects of outsourcing at a time of

rising domestic unemployment, particularly

among the young.

The facts vs. the myths

BPO is regarded by many as a proven way to

cut costs while also refocusing the organisation

on its core competencies. But to do this

successfully, there are strategic checks and

balances that all senior decision-makers

should be aware of. There also needs to be a

realisation that successful BPO is a mediumto

long-term journey, and not (as many

believe) a shortcut to balancing the books.

As the London School of Economics’

Professor Leslie Willcocks warns in our

Outsourcing Health Check feature (page 6 of

the main issue of Professional Outsourcing),

organisations should be wary of making

automatic assumptions about cost-reductions

without first doing their homework and due

diligence. Follow the eight steps in that

Professional Outsourcing Report 5

BPO: AN INTRODUCTION


feature to find out if your organisation is

truly ready to outsource.

The underlying fact is that the organisational

impact of removing any business

function from the enterprise and sending it

out of house should never be overlooked

or underestimated. Some processes may

exist in isolation, but most have complex

connections with the wider organisation

– such as Payroll, HR or Procurement, for

example. These connections, and the

potential impact of severing them, need

to be analysed and measured.

What outsourcers do better

“BPO can be used to help people focus

on higher value-added activities, but really it

ought to be about what you do well versus

what the supplier does better,” says Willmott.

“It’s all about working to joint goals. It helps

to think in terms of business outcomes and

not just SLAs to ensure that you are doing

the right thing and addressing business

effectiveness – and not just addressing the

wrong thing more cost-effectively.”

BPO should not just be about cutting

costs, then. It can help organisations focus

on those other key objectives in tough

times: hanging onto customers, creating

deeper relationships and – lest we forget –

attracting new customers in new markets too.

Accordingly, front-office BPO includes

such areas as Customer Management Services

(CMS). Here, the emphasis is on cost-effective

customer care; support for new market entry;

increasing customer retention and value; and

customer care transformation. Middle-office

BPO services include the outsourcing of

business processes that are unique to

verticals, such as mortgage processing in

retail banking, or revenues and benefits

in local Government.

The public sector is certainly of interest.

A 2010 report by analyst firm Ovum predicted

6 Professional Outsourcing Report

“Outsourcing in

anger to meet a

short-term need

may have negative

long-term implications.

Plus, instant

cost savings may

not exist.”

that BPO would be a major efficiency

driver in the public sector in 2011-12, in the

wake of the Government’s Comprehensive

Spending Review. However, recent Government

announcements suggest that this was

a false assumption: Whitehall has been

rethinking its procurement practices and

– as a broad statement of policy, at least –

plans to rely more on Cloud services and

less on traditional sourcing.

High-value, broad-scale outsourcing across

Government is unlikely in the current climate,

therefore, which means that any deals are

likely to be low-cost, low-value programmes

that are driven by the need to cut costs,

not add value. That is not smart thinking: as

Willcocks’ feature in our main issue explains,

outsourcing ‘in anger’ to meet a short-term

need may have negative long-term implications.

Also, as NelsonHall’s Willmott stresses

in this supplement, instant cost-savings may

be nothing of the sort.

Business platforms emerge

In the back office, support services include

Finance & Accounting (F&A). In that sector,

vendors that have traditionally relied on

labour arbitrage to achieve cost savings are

turning more and more to technology- and

platform-based outsourcing to increase

standardisation, and thereby lower costs

further. HR outsourcing is another core

back-office support service.

These broad, familiar sectors aside,

NelsonHall research finds that the bulk of

BPO value is in industry-specific processes,

and not in some generic improvement that

might result from stripping away non-core

activities. This runs counter to received

wisdom in the industry.

“Improved alignment of operating models

is also important,” says Willmott. “Organisations

with dispersed operations are increasingly

using BPO to align F&A and HR


processes across geographical regions and

business units.” (Cloud-based platforms and

applications are also of increasing interest in

these areas – particularly now that enterprise

giant Oracle has begun to acquire former

Cloud pure-plays.)

A few months ago, NelsonHall carried out

research among 400 buy-side organisations

worldwide to enquire into their existing and

planned usage of BPO this year. The findings

offer a fascinating snapshot of different

sectors of the economy.

Banking on BPO

Take Banking, for example. Two-thirds of

banks interviewed by NelsonHall have been

pursuing cost-reduction schemes in 2011, and

36% of them believe BPO has a major role

to play in helping them to do it. By contrast,

only 26% of banks are pursuing improvements

in customer experience. This may comes as

no surprise to the Banking sector’s increasingly

vocal critics.

Telecoms and Media, on the other hand,

is the sector investing most in improving

customer experience, with 50% of enterprises

pursuing such schemes in 2011, in 28% of

cases supported by BPO. Shift the focus to

opportunities in emerging markets, however,

and Banking again tops the league, with 23%

of companies in the sector carrying out or

planning initiatives – in 72% of cases

facilitated by BPO. [For more on outsourcing

in the Banking sector, turn to page 22 of the

main issue of Professional Outsourcing.]

IT’s support role

Technology is at the core of most types

of BPO, if not a discrete part of it. “The key role

of IT within BPO services has been to support

process improvement and management in

conjunction with client IT applications, rather

than introduce new application software into

processes,” says Willmott. However, the basic

“Broad-scale

Government

outsourcing is

unlikely in the

current climate,

with deals driven

by the need to cut

costs, not add

real value.”

operational support role of IT within BPO

deals is typically being enhanced in three

ways. Vendors are introducing:

• Technology fixes to reduce the impact

of manual process errors.

• Tools that enhance or replace some of

the functionality of clients’ core systems.

• Standalone, platform-based BPO services

(Platform BPO).

However, as Willmott warned in last

issue’s standalone report, Beyond the Cloud

(Autumn 2011), Platform BPO is best regarded

as a component of a broader, smarter BPO

Professional Outsourcing Report 7

BPO: AN INTRODUCTION


strategy, and not as an alternative to it.

‘Technology for technology’s sake’ should

never replace core business operations.

That said, there is general consensus that

having delivered labour arbitrage and process

improvement, the next challenge for the BPO

industry is to ‘leverage’ increased levels of

automation to deliver step gains in benefits

and process outcomes.

The Indian summer: Over?

Some within the BPO industry itself suggest

that this means the traditional Indian

offshoring model has had its day. “You can

look at the early signs that the Indian IT

model is over,” said Krishnan Chatterjee,

head of global strategy and marketing at

HCL Technologies, in a recent interview.

“The question that customers are now

asking is: ‘Are you willing to blend multiple

services into an integrated offering, so we

can talk as business partners?’”

However, no single vendor can yet be

described as a full-service BPO vendor.

As IT-enabled services mature, they will

increasingly mirror other industries, such as

Manufacturing, in transforming into a more

industrial model. Cloud Computing will

hasten that process, but we are not there yet.

BPO generally is moving from single-site

to multisite, multishore delivery, with the

leading Indian vendors increasingly acquiring

onshore delivery capabilities to enable them

to target wider-scope contracts.

Differentiating through IP

To enter the BPO market, vendors typically

have to offer advantageous financial terms to

their first clients. They also need to acquire

deep operational expertise in the process,

and to differentiate themselves from their

competitors through process IP and tools.

Suppliers are also using the experience

gained from existing clients to benchmark

8 Professional Outsourcing Report

“Some within the

BPO industry itself

suggest that the

traditional Indian

offshoring model

has had its day.”

processes and identify new ways of driving

better performance. The flipside of this is

the risk of clients being used as test cases,

perhaps with the enticement of low-cost

deals upfront.

NelsonHall’s Willmott says that any

increase in BPO revenues for suppliers is

largely going to be driven by increased

contract scope. Put another way, once a

customer has begun a BPO relationship,

experience suggests that it will extend into

other areas of the enterprise as the relationship

deepens and matures. Certainly, that is

what vendors would like; but it is up to

customers to be aware of that and to

consider in advance whether extending

the relationship would be appropriate.

Buyer beware!

In all, the best-practice advice for BPO

buyers looking to enter the market, or to

extend an existing relationship, is:

• Look for suppliers that have operational

experience in the processes you are looking

to outsource. Study their existing

engagements and also the tools and IP they

have built for competitive advantage.

• Ask them to quantify the benefits they

will give you, and to show you the roadmap

to achieving those benefits.

• Be wary of giving providers too broad

a process scope.

• Get insight into what a ‘good’ process

for any business activity looks like.

• Lay down concrete process improvement

plans that are tangible and measurable.

Remember: a functioning enterprise is

centred on routine business services that

ensure your staff and suppliers get paid, your

data is properly handled, and your organisation

complies with regulations. Do not put

that at risk unless you are sure of what you

are doing – and bear in mind the reputational

risks of cutting internal staff. ■

BPO: AN INTRODUCTION


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Navigating the

BPO market

The BPO market is dynamic, complex and driven by a variety of business and technology needs.

Gartner VP Cathy Tornbohm is your guide. Additional reporting by Chris Middleton.

The BPO market covers over 25 separate

sectors. These include the largest BPO

markets of Customer Management Services

(CMS), Human Resources (HR) and Payment

Systems, along with newer, smaller, fastgrowth

areas such as Knowledge Process

Outsourcing (KPO) – an area which

ranges from legal services to analytics

and clinical trials.

For the foreseeable future, the BPO

market will remain crowded with four main

types of providers:

• Established BPO specialists

Gartner expects these providers to continue

to expand globally and into multiple BPO

offerings. This group typically has the

strength of being focused on specialist areas.

However, these vendors face a challenge if

they try to expand into new sectors, as often

their brands may not stretch to fit them.

• Emerging BPO specialists

New business process service providers

are emerging, specialising in areas such as

KPO or Business Process Utility (ie Cloud

Computing services) – for example,

Mindcrest, MuSigma, Expensify and Integreon.

10 Professional Outsourcing Report

“Cloud- and

platform-based

providers will

begin to automate

business processes

that were not

previously

available

economically

via traditional

BPO means.”

Any new, smaller providers in the outsourcing

market may be targets for potential

acquisition by established players, of course,

but they are often also game-changers as

they reset price points, types of service, and

delivery methods across areas such as Payroll,

Accounts Payable and Expenses.

Also in this market segment, Cloud- and

platform-based providers will begin to

automate some business processes that were

not previously available economically via

traditional BPO. This group of companies

has the advantage of entering the market

‘without baggage’, and so these alternative

delivery models do not cannibalise revenues

as they may do for some longer-established,

more traditional providers.

• Established Multi-Domain providers

Gartner expects to see multiple Cloudrelated

offerings emerging, which will start

to build new leaders in each category of BPO.

Five of the current top 10 providers offer

multiple BPO services – ACS, Accenture, IBM,

HP and Capita. Gartner expects only three of

these to remain in the top 10 outsourcing

players over the next decade, with the

remainder exiting the business.


Gartner BPO Findings

Findings from the market show that most

BPO users:

• Emphasise cost first and quality second

as BPO drivers.

• Generally expect cost savings of 20%

in BPO (NelsonHall says up to 30%.)

• Are unable to differentiate well between

ITO and BPO suppliers.

• Are building Shared Services Centres on

an ad hoc basis.

• Are willing to sell Shared Services in a

joint venture.

• BPO is generally undertaken without any

formal methodology.

• Executive buy-in is key to corporate

receptivity.

Source: Gartner

• Emerging Multi-Domain providers

Many of the Indian and/or India-centric BPO

providers have rapidly expanded the types

of BPO that they are supporting. Vendors

include TCS, Infosys, Wipro and Cognizant,

which now all have broad BPO portfolios.

The BPO market overall is characterised

by the following trends:

• Service stickiness. The majority of

existing contracts are renewing with the

incumbent suppliers.

• Delivery models are changing to take

advantage of new tools and technologies,

such as mobility, analytics and the use of

Cloud-based services.

• Commercial models are trying to focus

more on business-outcomes, but this is

proving to be a slow transition.

Over the next 10 years, Gartner expects to

see the supplier market focused on

BPO giant: Incoming IBM CEO Virginia Rometty.

“The BPO sector as

a whole is highly

fragmented, with

fewer mega-deal

opportunities. This

makes it harder for

vendors to grow

organically and

riskier for them to

pursue large deals.”

acquisition and partnerships. The BPO sector

as a whole is highly fragmented, with fewer

mega-deal growth opportunities available

than a few years ago. This makes it harder for

vendors to grow revenue organically, and

riskier for them to pursue large deals.

However, increasing demand from multinational

clients together with the need to sell

more are leading to acquisitions and partnerships

that support the following agendas:

• Mega revenue growth or scale in BPO,

which can either be achieved by vendors

acquiring existing BPO providers or existing

captive Shared Service Centres. Being

acquired, or acquiring for scale, will continue

to be a major trend as players look for

growth and service coverage.

• Global coverage, to be able to support

services like Procurement and HR in multiple

parts of the world, especially in Latin America

and onshore in the US. ➔

Photo: Mathat/Fortune MPW

Professional Outsourcing Report 11

BPO: NAVIGATING THE MARKET


• Vertical industry coverage, as more BPO

providers look to have specialist offerings for

specific sectors, such as Insurance, Healthcare

and Financial Services.

• Complementary BPO services, such as

Analytics, Procurement, and a variety of

Collections services.

• Software or SaaS platforms to extend

platform BPO offerings.

• Partnerships with SaaS specialists and

infrastructure providers.

How to Compare BPO Providers

“Selling BPO

services that

include the underlying

platform is

nothing new: it has

been a feature of

BPO for decades.”

• Site visits

Make site visits early in the process to understand how things will

work, and precisely what the enterprise is buying.

Remember: Long before getting to this stage you should have

identified, examined and costed all internal processes and the impact,

on every part of the business, of moving them.

• Pricing models

Understand which pricing models a provider is willing to support and

would suit the enterprise’s environment and aspirations.

• Cultural fit

Remember that the relationship will last for a minimum of three

to five years – and detailed knowledge of UK regulations and best

practice is fundamental, not optional, in areas such as HR and F&A.

• Global reach

Has the supplier got the right geographical presence?

• Experience in your industry

Select a partner that understands the language and culture of your

marketplace, and which can offer the right specialist services for that

market – for example, in terms of HR.

• Existing relationships

Do you have good existing relationships with this BPO provider? If so,

establish if they really have the requisite skills in other BPO areas,

should you wish to expand the deal.

• Due diligence

Have the finances, business and customer satisfaction records of each

potential provider been properly assessed?

Sources: Gartner/PO

12 Professional Outsourcing Report

Shared Services Centres, which are

aspirations for some service providers,

whether in specialist vertical markets such

as Banking, or in horizontal areas such as HR.

Gartner expects this area to remain hotly

contested, with valuations still high for

ownership of these centres. It will be a tough

market for vendors to grow revenue in.

Vendor shopping sprees

The mid-tier and major players will continue

to grow in this way. For example, since 2009

Teleperformance acquired Metis group

(Turkey); Aegis acquired Actionline

(Argentina); Aon acquired Hewitt; EXL

Service acquired OPI for services in F&A BPO;

Capgemini acquired IBX for a procurement

platform; Cognizant acquired Corelogic and

Accenture acquired Zenta, both for mortgage

processing; Serco acquired Intelenet; and ACS,

now a Xerox company, acquired Xcellerate

HRO and XL World.

In recent years, BPO providers have also

grown by acquiring global or regional Shared

Service Centres, as Infosys did with Philips,

Capgemini with Unilever, TCS with Citigroup,

and Cognizant with UBS. Gartner expects this

trend to continue, although in modified form

as Shared Services Centres increasingly look

to BPO providers to support them in discrete

areas rather than across entire operations.

The rise of Cloud services

As we touched on earlier, another key

development in the BPO market in recent

years has been the rise of Cloud Computing,

increased automation and so-called ‘Platform

BPO’ [see the Professional Outsourcing

report Beyond the Cloud, Autumn 2011].

The BPO market has yet to settle on a

universal term for Cloud-based BPO services;

with the terms Business Process Utility (BPU)

and Business Process as a Service (BPaaS) both

being used, along with Cloud-Based BPO.


Document Management

Includes: Inbound data capture and mailroom

management; laser printing; bureau print and

mail; procurement of marketing-related print,

and printer fleet management.

Key Issues: Customers want to reduce their

reliance on paper documents and work

digitally. Cost effectiveness and greater

efficiency. Avoidance of new capital outlay.

Rapid workflow. Specialist storage and

archiving. Logistics firms are entering the

market. (See The Highlighter, Professional

Outsourcing Autumn 2011.)

• Vendors include: Xerox; HP; IBM; PBMS;

DSTI; Iron Mountain; TNT.

Source: NelsonHall

Gartner expects confusion about the naming

convention to reign for some time – indeed,

such things are part and parcel of the IPdriven

competitive landscape for new

technologies and business models. However,

the principle of moving to automated, highly

replicable, SaaS-like services is firmly

established, and so providers are starting to

build their capabilities in this area.

It is fair to say that selling BPO services

that include the underlying application

platform is nothing new: it has been a feature

of many types of BPO for decades, in areas

such as Payroll and Insurance Claims

Processing, for example.

That said, many types of BPO, such as

comprehensive HR or F&A services (rather

than just the relevant back office functions)

are more likely to have been based on the

clients’ application platforms. BPO providers

no longer want to invest in solutions based

on clients’ platforms – they cannot be sold

onto other customers – and so are

developing their own software-based services

BPO giant: Incoming HP CEO Meg Whitman.

“Buyers should

beware of being

seduced by

technology-heavy

solutions that

require the implicit

abandonment of

their legacy

systems.”

instead. Doing this allows them to automate

and own greater parts of the processing, thus

increasing revenue without any need for

linear headcount growth.

• Editor’s note: The attraction of the model

for vendors is clear, but buyers should

beware of being seduced by technologyheavy

solutions that require the implicit

abandonment of their own legacy systems.

The expense, time, and organisational and

management complexity of doing this will

need to be factored into their in-depth

calculations about the deal, and may also

create both strategic and operational

challenges, not to mention potentially

locking them into a third-party platform.

BPO providers have also been investing in

software and services that surround and

supplement the core application. This is

known as Process Enhancement Technologies

and Services (PETS). The aim is to automate

legacy manual processes. ➔

Photo: Press Association

Professional Outsourcing Report 13

BPO: NAVIGATING THE MARKET


Finance and Accounting

Key Issues: Touches on every aspect of the business. Hard to strip

out without proper study of internal processes. Cost reduction.

Regulatory and compliance knowledge. Cultural affinity. In-house F&A

Shared Services often neglected or under-funded. Faster closing,

standard accounting processes and management data make F&O

attractive to outsource. [See The Highlighter, Professional

Outsourcing, Autumn 2010.]

Market segments include:

• P2P and Multiprocess FAO

Vendors include: Accenture; IBM; Genpact; Capgemini; HP Enterprise

Services; Steria; TCS; Infosys.

• O2C and Collections

Vendors include: Arvato Services; Euler Hermes; Sitel; Convergys;

Teleperformance.

Source: NelsonHall

Procurement

Market drivers: Reduced budgets and increased pressure to reduce

cost of goods. Internal spending controls and compliance. Vendors

have traditionally been better at Purchase-to-Pay than sourcing.

Procurement as a Service is emerging.

Vendors include: IBM; Accenture; Capgemini; Steria; Genpact;

Infosys; TCS.

Source: NelsonHall

PETS are typically comprised of software

and/or services that can be: built in house;

obtained from enterprise suppliers such as

Oracle and SAP (both of which have

aggressive partnership programmes for BPO);

obtained from service companies, such as

electronic invoice providers; or bought from

either SaaS suppliers or established niche

BPO providers.

Knowledge Process Outsourcing

Being able to extend sector-specific offerings

for clients and show greater business value

is a clear trend shaping the BPO supplier

landscape – fortunately for buyers.

Meanwhile, Gartner observes that clients for

14 Professional Outsourcing Report

“Buyers sometimes

come to the table

with demands that

include vague

terms like ‘business

transformation’ in

place of detailed

strategic requirements.”

BPO services are rethinking their end-toend

business processes. It is critical to their

future success that they do this with clean

data – hence the growing importance of

Master Data Management (MDM) techniques

and technologies for cleaning, de-duping

and standardising core employee, client and

supply chain data.

Using BPO to analyse core data within

the enterprise, and social media chatter

outside of it, is a demonstrable benefit

that BPO suppliers can provide or support

– although social media monitoring is

increasingly available from SaaS pure-plays

such as Salesforce.com, NetSuite and

RightNow (recently acquired by Oracle).

The move towards higher-value services that

overlap extensively with consulting services

in all types of BPO is key to BPO providers’

growth, and also to buyers seeing value.

Advanced and novice buyers

A two-tier buyers’ market has emerged where

certain companies have become more sophisticated

than others at buying and deploying

BPO. Vendors need to address repeat and

first-time buyers differently: inexperienced

buyers can easily be confused by undifferentiated

marketing campaigns on suppliers’

websites.

Indeed, it can create a vicious circle:

novice buyers sometimes come to the table

with demands that include vague, marketingstyle

terms like ‘business transformation’ and

‘innovation’ in place of any detailed strategic

requirements, which does little to advance

meaningful discussion.

• Editor’s note: Buyers must take a step back

and assume responsibility for their own BPO

decisions. First-time buyers should acquaint

themselves with the strategies they need to

ensure success [as Professor Leslie Willcocks

explains in the Outsourcing Healthg Check


feature in this quarter’s main issue of

Professional Outsourcing]. In a flatlining

economy, the temptation to rush into BPO

to achieve short-term savings may be great,

but it should be resisted until all the facts

are at the buyer’s disposal. BPO is not a quick

fix, but a medium- to long-term journey

towards process excellence.

Signal vs. noise

Gartner believes that, in order to be

successful and to attract both expert and

novice outsourcing buyers with ‘signal’ (facts)

rather than ‘noise’ (jargon) BPO providers

need to cultivate:

• Excellent process models, which can

help clients calculate their total cost of

process – both the actual and the

‘opportunity’ cost.

• Personal relationships: BPO providers

with strong relationships will continue to win

new work, regardless of the unpredictable

impacts of financial austerity.

• Differentiated knowledge: BPO providers

that have real sector expertise and both

vertical and horizontal skills that set them

apart from their peers will stay ahead of the

curve. This should be the case regardless of

the IP that less expert service providers may

try to package up and sell.

Smart talent: BPO providers that attract

the best and brightest people will continue

to win new business, and should work with

consultancies to supplement skills as

required. It follows, therefore, that the buyer

should look for all these qualities – and more

– when seeking a BPO partner for the first

time, and when extending their use of

outsourcing as part of well-considered

business strategy. ■

• Turn to page 16 for NelsonHall’s key considerations

for outsourcing in a downturn, and

page 21 for advice on Multisourcing.

Human Resources

Key Issues: Local knowledge. Cultural affinity. Standard processes

across regions and business units. Cost reduction. Access to new

technologies. Alternatives available in the Cloud. Significant local

presence advisable. [See The Highlighter, Professional Outsourcing,

Spring 2010.]

Market segments include:

• Multiprocess HRO

Vendors include: IBM; Accenture; NorthgateArinso; Infosys; TCS.

• Recruitment Process Outsourcing

Vendors include: Alexander Mann; Manpower; Hays; Adecco;

PeopleScout. [See The Highlighter, this issue.]

• Learning Services

Vendors include: Raytheon Professional Services; IBM; Accenture;

ACS; KnowledgePool.

• Payroll Services

Vendors include: ADP; Paychex; NorthgateArinso; HP Enterprise

Services; Logica.

• Benefits Administration

Vendors include: Hewitt Associates; Ceridian; Towers Watson.

Sources: NelsonHall/PO

Customer Management Services

Key Issues: Need to reduce costs and identify new up-selling

opportunities. Suppliers moving beyond voice to one-to-one,

multichannel customer experiences, including chat and self-service.

The Arab Spring has revealed the risk of offshore sustainability.

UK customers resistant to perception of non-UK call centres.

[See The Highlighter, Professional Outsourcing, Summer 2010.]

• Vendors include: BSS; Convergys; NIIT; Gem; Inkfish; Sitel; TeleTech;

KenCall; Raya.

Knowledge Process Outsourcing

Includes secondary research; editing; data cleansing and modelling

and some legal services.

Key Issues: Converting low-value, mass data into high-value business

information. Risk of de-skilling your own enterprise. Cultural affinity

and language skills essential. Trust, data protection, transparency,

regulation and security. Ability of vendor to build good relationships.

• Vendors include: EvalueServe; eClerx; Infosys; TCS; Genpact; Wipro.

[See Professional Outsourcing, Spring 2010.]

Sources: NelsonHall/PO

Professional Outsourcing Report 15

BPO: NAVIGATING THE MARKET


BPO strategies

for a downturn

John Willmott, founder and CEO of specialist BPO analysts NelsonHall, sets out key outsourcing

strategies for today’s economic crises that were tried and tested in the 2008-09 downturn.

In some ways Q4 2011 resembles Q4

2008. However, the credit crunch in

2008 took many people by surprise. The

Eurozone sovereign debt crisis has been

building slowly since then and so organisations

are typically better prepared for a

slowdown, or a fully fledged downturn,

than they were in 2008.

So how did organisations use BPO in 2008

and how might BPO apply to this period of

renewed economic uncertainty? In 2008

and 2009, the credit crunch had a negative

impact on BPO activity in the short term,

but a positive one in the medium term.

The reason was, although BPO was seen

as a useful tool for achieving cost reductions,

it took time – at least one year – to deliver

meaningful savings; organisations needed cost

reductions that would impact on their next

quarter, not the next year.

In the short-term, therefore, business

leaders did whatever was necessary for

survival. In particular they:

• Cut the number of employees and,

where necessary, closed offices, retail outlets

and production facilities.

• Cancelled existing projects and some

ongoing systems integration projects.

16 Professional Outsourcing Report

“Organisations

should approach

BPO holistically

and in terms of

their wider

business strategy,

and not as an easy

route to shortterm

cost savings.”

• Renegotiated contract terms with

vendors, including their BPO suppliers,

both to reduce contracted volumes and

to improve pricing.

In terms of the BPO industry, this led in

the short term to a combination of reduced

revenue from existing contracts and a

significant reduction in new contracts. Since

then, the level of BPO activity has been rising

– largely as a medium-term savings driver –

though not as quickly as in the boom years

earlier in the century.

Learning from past mistakes

So what were the lessons learned in 2008 and

2009 and how should organisations approach

BPO in today’s stagnant economy? First,

NelsonHall research found that there is

typically a mismatch between organisations’

business goals and their drivers for using BPO.

Overall, their goals in a downturn tend to be:

• Cost reduction. Businesses need to

create operating efficiencies and the ability

to move to a variable cost base. They also

need improved ability to handle volume

fluctuations (particularly in established

markets in mature economies).

• Improved and consistent business


processes and information throughout the

organisation, supported by standardised

processes across divisions and/or regions

(often with a global perspective).

• Enhanced customer experience,

including increased cross-selling and upselling.

In a downturn, new clients are hard

to find, and so organisations need to put

greater emphasis on retaining and

maximising revenue from existing customers.

Support for organisational expansion in

emerging economies (often the main source

of short- to medium-term growth).

• Certainty of achievement, quickly, with

minimal investment and at a fair price.

Unhelpful views of BPO

Unfortunately, organisations still tend to

think of BPO overwhelmingly in terms of

cost reduction, particularly in tough

economic times. As most organisations

know, while cost reduction may be a

necessary condition for business survival,

it is not in itself a condition for business

success. As a result, it is important that

organisations incorporate a more balanced

mix of the objectives listed above into their

planned use of BPO.

In short, organisations should approach

BPO holistically, and in terms of their wider

business strategy, and not as an easy route

to short-term cost-savings.

It is important to bear in mind that BPO is

first and foremost about process excellence.

The industry arose not with offshore labour

arbitrage, as is often suggested, but onshore

with the use of process improvement

techniques, such as lean six sigma, to address

inefficient processes. Both of these ‘value

levers’ remain critical in delivering process

excellence at a much reduced process cost,

but the value levers for getting the best out

of BPO have matured considerably since

2008 and 2009, as have vendors’ abilities.

Signs of the downturn: Workers protest against

outsourcing in offshore hotspot, the Philippines.

Professional Outsourcing Report 17

BPO: STRATEGIES FOR A DOWNTURN


The important questions to ask when

evaluating BPO sourcing options are: Can

the provider deliver process excellence?

Can the client organisation afford the time

and money to do this? And: Is there any

certainty of success?

The excellence debate frequently comes

down to evaluating the customer organisation’s

process IP versus the vendor’s. At this

point, it is wise to ignore any temptation to

believe that new technology alone will cure

all process ills. Technology is an important

enabler, but BPO is about taking the process

perspective of the personnel using the

technology. A vendor with strong process

IP should not only be able to understand

how an organisation is trying to develop

that process operationally within its own

industry, but also:

• Be able to offer a view of where the

organisation stands in terms of process

excellence relative to its peers.

• Be able to substantiate this view by

identifying the process levers that need

to be pulled to achieve process excellence

– and quantify the change in business

outcomes (rather than SLAs) that would

result from implementing those changes.

18 Professional Outsourcing Report

“The excellence

debate frequently

comes down to

evaluating the

customer’s process

IP against the

vendor’s. But it

is wise to ignore

any temptation

to believe that

technology is a

cure-all.”

• Provide a roadmap with costs and

timescales for implementing the process

changes.

In addition, the provider should have

technology tools for process and agent

management, along with tools that address

the weak points in existing client technologies,

such as legacy ERP systems.

Tackling legacy issues

The organisation’s existing core systems will

typically remain in place, and in the current

climate it may not have the money to replace

them. Therefore, they almost certainly need

to be supplemented with additional tools to

fix process shortcomings, to provide support

for new capabilities, and to supply improved

process and business information.

In particular, new wraparound technology

increasingly has a role to play in providing an

end-to-end view of processes. In many areas,

typically including campaign management

and supply chain management, processes

and process ownership are highly fragmented.

Any outsourcing programme will typically

cover only a subset of processes, with the

majority continuing to be run in-house.

This has traditionally led to frustration

among in-house process owners, as well as

between client and outsourcing supplier,

since a primary root cause of any operational

issue frequently lies outside the control of

the process owner. Mechanisms for addressing

service integration issues should be identified

up front and built into any contract.

Insight into the business

The good news is that software for providing

end-to-end insight, covering both client and

vendor processes, is available, often in the

form of Software as a Service (SaaS). However,

while technology tools can be the differentiator

between vendors, it is important to

reiterate how unwise it is to be seduced by


technology. A vendor’s overall ability to

deliver process excellence ‘on the shop-floor’

should be the main criterion for choosing one

company over another.

View the technology as an enabler to

achieve this goal rather than as an end in

itself, and judge process excellence by its

impact on business KPIs. Those KPIs should

provide an holistic business perspective.

Can you afford it?

The next big question – and arguably the

biggest inhibitor of BPO at present – is:

Can the organisation afford the time and

money to achieve process excellence? BPO

is a journey that may take years; it cannot

be accomplished in a single, cash-saving

quarter. In other words, it is not a matter

of achieving instant cost savings, no matter

what the CFO may think.

There are a number of facets to this

issue. First, can the organisation afford the

management time to implement BPO? This is

a real challenge for the many organisations

that have adopted leaner management

structures since the 2008-09 credit crunch;

quite simply, there are fewer of the middle

managers necessary to make it work.

Unfortunately, there is probably no easy

“The next big

question is: Can

the organisation

afford the money

and the time to

achieve process

excellence? BPO is

a journey that may

take years.”

answer to this. While outside help can be

obtained to assist in supplier selection and

contracting, it is important that the organisation

develops a strong relationship with the

supplier as quickly as possible. It might be

regarded as a business cliché, but empathy

and the ability to work together are the real

key determinants of whether, and how

quickly, a BPO service will succeed.

Achieving ROI

The second factor is how long it will take the

organisation to break even or reach a positive

ROI, and the third is whether the organisation

is willing to make the up-front investment in

BPO, given its limited funds and competing

investment priorities. This tends to favour

certain types of BPO adoption, including:

• Leveraging multishoring up front to

achieve a rapid change in process costs.

• Using Cloud or Business Process as a

Service (BPaaS) approaches to fix a process

relatively quickly, paid for via operational

rather than capital expenditure.

• Contractual terms that align process

costs with levels of business activity.

• BPO programmes that promise new

sources of revenue, such as improvements

in acceptance of supplier discounts, improved

collection performance, or improved

revenues per customer (very important in

a flatlining economy).

Locating new revenue

In the current environment, BPO certainly has

a role to play in assisting organisations to find

new sources of revenue, particularly in new

markets or regions. This role extends beyond

customer-facing services to areas such as

Recruitment Process Outsourcing. The current

environment also tends to support the

outsourcing of a narrow range of processes

or sub-processes, reducing both the initial

investment and risk. ➔

Professional Outsourcing Report 19

BPO: STRATEGIES FOR A DOWNTURN


The economic crisis tends to mitigate against

outsourcing a broad range of complex

processes, such as ones where major

technology investment is required, and also

ones that have long lead times to break even.

Benefits to look for

So what are the benefits that organisations

should be seeking from BPO in the current

business environment? Essentially, they

should be looking for improvements in key

business outcome metrics (for example,

inventory turnover or revenues per customer),

achieved through process excellence. Despite

these difficult times, it is important to think

beyond simple cost reductions and towards

process development.

The principal risks lie in selecting the

wrong vendor and in failing to set and drive

the agenda for achieving process excellence.

While it is tempting to economise on

governance or building relationships in the

quest for easy cost-cuts, organisations need

to emphasise partnership, both in their dayto-day

operations and in establishing a

roadmap for process excellence.

Do your homework

Of course, due diligence on any prospective

vendor (and their marketing claims) is equally

important. Do not be bamboozled by the use

of vague umbrella terms and jargon. It is

important to really look into, at a detailed

sub-process level, the vendor’s activities, and

also the tools it is using in support of the

processes it provides. Customers may be

signing a contract for several years, so check

these things beforehand – not when the ink

is dry and dispute is the only recourse.

At the same time, ask the supplier’s

existing clients not only about its capabilities,

but also about its style of governance and

relationship management, and its actual

responses whenever problems have arisen.

20 Professional Outsourcing Report

“The economic

crisis tends to

mitigate against

outsourcing a

broad range of

complex processes,

such as where

major technology

investment is

required.”

Ask about its specific actions in specific

situations. Another significant risk, particularly

when there is pressure on working

capital, is failing to achieve the targeted

benefits within the timescales that have

been set. Here, it is important to undertake

extensive due diligence on the realistic

business impact, and on the feasibility and

timing of the vendor’s roadmap. Remember:

the onus is not just on the supplier to make

that roadmap happen.

Be realistic about deadlines

As with all projects, it is important to have

some slack in the schedule, together with

relationship or governance mechanisms, in

case problems do ever arise. Most, if not

all, transitions to outsourcing will face

unexpected challenges at some point, and

these will be the acid test of whether the

two organisations can actually work together.

There is no point driving a project into the

ground in order to meet overly ambitious

deadlines, creating potential legal disputes.

Overall, BPO has matured considerably

in the years since the 2008 credit crunch and

is now much better placed to identify and

deliver a roadmap to process excellence. In

the present economic environment, organisations

most want to achieve certainty of

process excellence, for a modest up-front

investment and within a shortened timescale.

That does not happen without risk, and so

client organisations need to think in a much

more holistic and forward-looking manner

than cost reductions alone.

Once all of the above factors have been

considered, then there is a final consideration

when deciding whether to embark on a new

BPO relationship, or to extend an existing

one: the impacts on the internal workforce

and customer perceptions. Ultimately, those

are the kinds of decisions that only senior

business leaders can make. ■


Multisourcing

vs. single source

Should you put all your BPO eggs in one basket, or go for a best-of-breed approach and hope that

internal competition will not be too hot to handle? John Willmott sets out the pros and cons.

Twenty years ago in the relatively early

days of IT outsourcing, it was widely

assumed that organisations would soon

stop using specialised firms for activities

such as data centre or server management,

workplace services, network management

and application management. It was argued

that such distinctions would soon

disappear and the industry would be left

with a small number of firms dominating

multiprocess IT outsourcing across the

entirety of IT infrastructure management

and application management.

Instead, organisations still predominantly

outsource IT infrastructure management

services and application management services

within separate, rather than combined, IT

outsourcing contracts.

Bundling it all together

While many vendors have capabilities across

both IT infrastructure management and

application management, clear divides still

exist. Indeed, rather than combining all their

application management needs and bundling

them with IT infrastructure management in a

single outsourcing deal, customer organisations

still tend to maintain a shortlist of

BPO machine: Process and excellence interlock.

Photo: Press Association

Professional Outsourcing Report 21

BPO:MULTISOURCING vs. SINGLE SOURCE


preferred suppliers, frequently chosen

along process domain lines, for application

management. The reason is typically

to maintain a level of competition between

vendors as much as deploying vendors

according to their strengths – the theory that

an internal market breeds both competition

and innovation, which is fine in areas where

the buyer is both in control and gains

demonstrable benefits. However, it fails to

address the internal management challenges

within the customer organisation.

Put simply, the fundamental difference

between these two sourcing options are:

Multisourcing

Multisourcing tends to be driven by the

business’ desire to:

• Adopt best-of-breed approaches for

a particular process or domain and ensure

access to superior capabilities.

• Maintain a level of competition between

vendors to ensure quality of service and a

competitive price.

Single sourcing

Single-sourcing, on the other hand, tends

to be driven by the desire to:

• Reduce the level of resources tied

up with vendor management.

• Work more closely with a vendor and

devote the resources that are appropriate to

strategic partnership.

• Take a more end-to-end approach to

process development.

So how does this apply to BPO and how are

these approaches developing? First, BPO is

much more diverse than IT outsourcing, since

it encompasses hundreds, if not thousands,

of distinct processes. There are few vendors

with end-to-end capabilities within these

broad process areas. For example, many

vendors offer Process-to-Pay (P2P) services

22 Professional Outsourcing Report

“Internal

competition and

innovation is fine

in areas where the

buyer is in control

and demonstrably

benefits. However,

it fails to address

the management

challenges in the

organisation.”

and some offer procure-ment support, but

few have the necessary category management

capabilities to offer end-to-end Source-to-

Pay services. Similarly in HR outsourcing

(HRO), the leading vendors in, say, Payroll are

rarely able to offer Recruitment Process

Outsourcing [RPO – see The Highlighter in

the main issue] or learning services, for

example. This means that it is not usually

possible to choose a single vendor to handle

a wide range of processes across front office

customer handling, vertical middle office

processes, and back office support, even

should the client wish to do so.

A portfolio approach

Therefore, in BPO, as in application

management, many organisations prefer

to maintain a small portfolio of strategic

vendors with whom they can develop close

collaborative relationships. So for the

foreseeable future, NelsonHall believes that

organisations will maintain these portfolios

of strategic suppliers in both IT outsourcing

and BPO, with these BPO relationships based

around centres of process domain excellence.

At the same time as reducing the number

of strategic vendors, it seems likely in BPO,

as in ITO, that organisations will gradually

increase the scope of their outsourcing as

vendors’ capabilities broaden – especially

since the process scope within individual

BPO contracts is typically narrow.

The disruptive element within this vendor

consolidation or shortlisting process is the

emergence of Cloud Computing, with

suppliers increasingly supporting edge

processes alongside the client’s main

outsourcing vendor portfolio. In the medium

term, therefore, customer organisations are

likely to maintain small (and shrinking)

numbers of strategic ITO and BPO vendors

complemented by a range of Cloud

services specialists. ■


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