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| Recognize That BPO Is Not One Market, or Risk Your Career Business process outsourcing is not one homogeneous market but is an amalgamation of many different markets, each with unique characteristics. Failure to appreciate this will lead to some expensive mistakes. Analysis Business process outsourcing (BPO) has grown steadily for years; however, in the past year, it has become a "hot" topic. Enterprises are increasingly willing to engage specialists with business process expertise, a trend fueled by executive agendas being more and more focused on core competencies. Not surprisingly, a growing number of IT — and non-IT — suppliers have recognized the potential untapped market opportunity and have begun to develop and offer BPO capabilities. The increasing interest in BPO comes at a good time for vendors. The IT market (including IT services) is relatively flat, and IT service suppliers are struggling as they discover that their old sales pitches have less impact than they used to. BPO offers traditional IT outsourcing suppliers an elegant way to reposition themselves so they can deliver potentially higher-margin opportunities. It also enables them to re-energize their business development activities and target a new buying audience that is less accustomed to the propositions of IT solution providers. However, the booming interest in BPO is leading to a perception that there is a single — and potentially large — homogeneous market for BPO services. Enterprises embarking on a BPO initiative must realize that there is not one BPO market, but multiple ones. Failure to recognize this will lead to some expensive, career-limiting mistakes. Decisions on whether to outsource business processes, and on subsequently selecting a service provider, are highly dependent on the specific processes being considered. Although this seems obvious, we see enterprises routinely overlook this fundamental principle. Potential purchasers of a BPO service need to consider carefully what processes are candidates for BPO (for example, human resources, finance or accounting processes) and whether those processes have unique industry-specific aspects (for example, in healthcare, energy or financial services). Although the key drivers of BPO (focusing on core competencies, improving service levels and reducing costs) and its obstacles (perceived loss of control) are common for most business processes and industries, the characteristics of the drivers vary widely from process to process, and industry to industry. For example, a primary driver of BPO in the healthcare market is the threat of regulatory intervention and its impact on costs. In contrast, financial institutions' BPO relationships are highly focused on improving shareholder value. Another complicating factor in understanding the development of BPO is that services will be adopted in a transitional way. Instead of moving straight to a fully outsourced environment for a business process, enterprises will increasingly use multi sourcing strategies. Multi sourcing melds the use of in-house applications with outsourced approaches, whether they are hosted solutions, "out-tasking" some of the steps in a process, or full BPO solutions. Out-tasking is often a pragmatic way of exploring the potential benefits of BPO without fully committing to it. Other enterprises, however, are moving more quickly toward BPO, hoping to use it strategically to differentiate themselves from their competitors. Several industries are moving from out-tasking specific tasks to outsourcing entire back-office processes. Examples can be found in the United States in the utilities industry and in state and local governments. Multi sourcing will also increasingly have a multinational dimension. Along with being delivered onsite or by local suppliers, BPO services are increasingly being delivered from remote locations in the same country, or even from an offshore location. Cost is clearly the key factor driving interest in offshore BPO. Although the potential benefits of offshore BPO appear to be promising, we warn enterprises using such services that they will need to mitigate the risks, not just to avoid the downside but also to secure the upside. One early adopter of offshore BPO is the insurance industry. The key to success in all BPO engagements — regardless of process or industry — is the ability to measure process performance before a process is outsourced and during the life cycle of the engagement. Two sets of metrics are required to measure the success of a BPO relationship: business activity and service delivery. As the different BPO markets mature and develop, commercial success in using and providing services will increasingly depend on understanding the specific needs and peculiarities of each area. In the past, a vendor that was able to demonstrate BPO competency would have been able to sell BPO services; however, the generic term "BPO" will come to mean less and less. Vendors will need to position themselves for a specific market — for example, as a human resource service provider or a customer management service provider. The demise of the term "BPO" may be a prerequisite for success in the growing diversity of BPO markets. The sooner active buyers and sellers in these markets come to accept this, the sooner the undoubted potential opportunity and benefits can be realized. |
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