Professional Outsourcing Report
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SCOTLAND. SUCCESS LIKES IT HERE.
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
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
to keep their
costs down, while
Guaranteed free from vendor-influenced content
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
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
anger to meet a
may have negative
cost savings may
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
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
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
unlikely in the
with deals driven
by the need to cut
costs, not add
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
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
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
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.
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
MAKE THE RIGHT MOVE
WITH HP BUSINESS PROCESS
Many CFO’s and CEO’s believe a strong
shared services operation is necessary to
support their global business imperatives.
Indeed, 75% of the Global Fortune 500
companies are implementing shared
services or global business services
to meet the challenges of the current
business environment. So what levers
are they looking for through shared
Shared Services Value Levers
��Increase speed to market, to meet the
demands of the global economy
��Grow top line through focusing on
��Enhance market perception of the
organisation through improved controls
��Reduce the cost of back office operations
��Reduce organisational cost through
leveraging best practices
��Exploit innovation and analytics
��Increase flexibility, gain access to skills
and to free up scarce capital resources
Whether you are implementing shared
services or moving to a global business
services environment, you have a
choice of implementation models
ranging from in-house shared services to
outsourced operating models in single
or multi-functions. The decision to set up
an internal shared service centre or to
outsource is a complex decision. Indeed
many organisations are now moving to
a hybrid model where an outsourcing
provider works collaboratively with them to
set up an integrated model to deliver the
best of both options.
The Advantages of a
��Faster to benefits realisation
��External catalyst for change
��Access to best practice – Skills, expertise,
experience, process and industry
��Access to tools, technology and
��Greater scale and reach delivering
economies of scale and location
��Internal competition to drive ongoing
��You keep direct control and knowledge
of current process environment
How HP helps clients working
in a Hybrid Model
Working collaboratively at all levels in the
organisation, HP brings skills, expertise
and experience to help clients effect
change and reduce transition timescales,
costs and risk. Leveraging the experience
of HP’s own shared services journey
over 20 years along with the successful
engagements with more than 50 enterprise
clients in the private and public sectors,
HP’s practitioners help you:
��Transform the end to end provision of
back office services
��Centralise, standardise and industrialise
��Increase quality through simplified and
��Achieve economies of scale and lower
cost of operations using our Best Shore ®
network of centers
��Transform your in-house operations into
centers of excellence
��Reduce transition timelines by bringing
significant and proven transition and
Choosing the right partner is critical to
success. With HP you can leverage the
proven industry, processes, applications
and IT expertise trusted by many of
HP’s clients around the world. As a
trusted partner, HP delivers the outcomes
Make the right move with HP business
process outsourcing. Contact us
+44 1793 796026 or Dave Brown,
HP EMEA BPO Business Development
Leader at email@example.com.
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
begin to automate
that were not
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
• 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
• BPO is generally undertaken without any
• Executive buy-in is key to corporate
• 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
• Delivery models are changing to take
advantage of new tools and technologies,
such as mobility, analytics and the use of
• 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
makes it harder for
vendors to grow
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
• Software or SaaS platforms to extend
platform BPO offerings.
• Partnerships with SaaS specialists and
How to Compare BPO Providers
include the underlying
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?
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.
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.
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.
beware of being
require the implicit
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;
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;
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
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
come to the table
with demands that
terms like ‘business
place of detailed
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’
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
• 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
• 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.
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,
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;
• Payroll Services
Vendors include: ADP; Paychex; NorthgateArinso; HP Enterprise
• Benefits Administration
Vendors include: Hewitt Associates; Ceridian; Towers Watson.
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;
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.]
Professional Outsourcing Report 15
BPO: NAVIGATING THE MARKET
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
and in terms of
and not as an easy
route to shortterm
• 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
comes down to
IP against the
vendor’s. But it
is wise to ignore
to believe that
technology is a
• Provide a roadmap with costs and
timescales for implementing the process
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
afford the money
and the time to
excellence? BPO is
a journey that may
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.
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
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
crisis tends to
broad range of
such as where
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. ■
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
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 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
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
• Take a more end-to-end approach to
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
innovation is fine
in areas where the
buyer is in control
it fails to address
challenges in the
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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