Business Process Outsourcing (BPO) has been providing businesses with a way to cut costs for years, but current IT trends are shaking up the sector, putting CIOs at the forefront of planning.
A perfect storm is in progress as customers want to cut additional back office costs due to continued budget pressure, and at the same time suppliers are trying to create additional services and the revenues that go with them.
Technologies such as cloud computing, business analytics software, social media platforms and process automation software are being used within BPO to enable them to lower costs and be more effective.
Recent research from Accenture revealed that high-performing BPO relationships, those that deliver business value, use technology as a source of innovation and advantage, rather than just providing the infrastructure of delivery. It found that 40% of high performers consider technology provided by the service provider to be an important component of the BPO relationship, compared to only 27% of typical performers. A total of 56% of high performers believe it is important to gain access to technology in a BPO relationship, while 34% of typical performers agree.
"Effective technologies and architectures contribute to cost reductions and more efficient operations by streamlining the systems environment and reducing the number of systems involved, often standardising the technology environment on a unified, centralised platform," says Anoop Sagoo, products industry BPO lead at Accenture.
Ilan Oshri, a professor at Loughborough School of Business, says IT is increasingly becoming part of the services as well as the platform through which they are provided. "Businesses have been considering more functions for BPO, mainly because of the current economic conditions and because the suppliers [can now] provide BPO services much better than 10 years ago. Buyers are also expecting vendors to deliver high value therefore expect the vendor to work closely with them on improvements." At the same time he says it has become critical to buyers to consider alignment between IT and BP performance.
He says all of these trends are leading to a bigger role for IT in the BPO sector which is being driven by businesses and their suppliers. BPO suppliers are attempting to move beyond the provision of bodies or Full Time Equivalents (FTEs), by offering additional value add services through technology.
Because outsourcing relationships are like marriages both partners have to get something from it. Through additional technology based services customers will get more for their money, while supplier business models will change, with less reliance on providing human resources. This move by suppliers to what are known as non-linear growth models is a trend, particularly amongst offshore BPO suppliers who have relied heavily in the past on selling low cost labour.
"Many of the large vendors are now pitching the end-to-end value proposition to clients claiming that they are capable of introducing improvements across IT and BPO. IT is an enabler for suppliers and sometimes it is a differentiator. Ten years ago, the little BPO carried out was pretty much detached from the IT function, " adds Oshri.
Mark Lewis, head of outsourcing at law firm Berwin Leighton Paisner, says the growing scale of the BPO market requires greater levels of automation through IT. He adds, "The main BPO providers can see IT as a way of achieving non-linear growth." He says companies that have traditionally made their money by providing workers at a lower cost are changing to these business models. "Generally the Indian BPO providers have taken a while to catch up, but are now doing so rapidly."
Cognizant, which delivers services from India, is one such supplier. Paul Roehrig, a senior BPO specialists at the company says the integration of business process work and technology "has profoundly changed the business process service value for clients."
"New business process services are emerging that integrate human process work with collaboration and automation via technology enablers and automation platforms."
"We're also seeing next-generation technologies like cloud, social tools, and analytics much more effectively applied to delivery business process services," says Roehrig.
He says that ten years ago, many businesses were trying to outsource non-core processes primarily to cut costs. Although lower unit cost is still critical they now want more, he says. "Companies everywhere are grappling with the challenges and opportunities presented by the mega-trends of continued globalisation, new technologies such as emerging social/mobile collaboration, and a new mind-set for problem solving and dynamic process work."
"These themes are shaping a new kind of business process service, and there's growing evidence of a major market shift as next-generation business process services and solutions offer ways to modernise activities that underlie complex dynamic knowledge work."
Businesses intend to modernise processes in response to a continued economic downturn, says Roehrig. "Process virtualisation and externalisation is truly transforming how enterprise work will be conducted over the coming years."
Another transformational trend in business today is the importance of data and the technology that enables businesses to use the data they have. BPO can help businesess harness big data, says Sagoo at Accenture. "In the past couple of years, we've seen BPO moving away from large scale transaction processing largely associated with operational cost take out and process efficiency and moving towards being a driver of tangible business value," he says. "As such, BPO today is about mining the huge volume of transactional data that is being processed. BPO providers and their clients today are sitting on a gold mine of data and it's all about using the provider's industry expertise and insight, analytics and innovation to help a client tap into that information in order to operate its business better and drive business outcomes."
"The ability to undertake analytics on transactions, understand the insights and then identify opportunities to improve and add value to the client's business is what clients today expect from BPO. Analysis of transactional data provides clients with actionable insight into their business operations," says Sagoo.
Suppliers are able to focus on services that improve the business due to the increasing use of process automation robots, which carry out the grunt-work. Businesses are using software that automates processes as an alternative to offshore BPO services. When workloads spike the business does not have to pay BPOs for more human resources.
Lewis at Berwin Leighton Paisner says using software to automate business processes is on the up and will cut people costs dramatically. "Finance and accounting robots will replace people in the back office."
"There has been very little automation in BPO, mainly because of the amount of offshoring, but as offshore people costs increase automation will increase."
Mobile network operator O2 has deployed software, from Blue Prism, to automate business processes in an effort to reduce the cost of back office operations and cut its reliance on offshore recruitment to cope with spikes in workload. The company's back office has about 400 individual mini processes used to work around bigger processes to support new service offerings. Part of the business case for buying the Blue Prism licences came when Apple decided to change the size of the SIMs in the latest iPhone. With less than six weeks' warning, 02 had to have a business process in place to deal with changing customer SIMs. O2 said that before the automation software was acquired, there would have been a three-month spike in demand for 60 full-time staff in India to cope with this.
It is benefits like that which could put the CIO in a leading role in the business. As a result of the CIO's visibility across the organisation they well positioned to understand the various business processes and interdependencies. "They can play a key role in the outsourcing relationship, helping to elevate the role of IT to a business enabler and source of competitive advantage," say Sagoo at Accenture
He says planning and selection of BPO services and providers is an area where the CIO will need to play a key role. "The CIO's role will increasingly deal with information rather than technology, fulfilling the original vision of the role. As technology becomes more transparent and cloud architectures re-shape and simplify delivery infrastructures, the CIO will need to be more focused on understanding and supporting the needs of the business by ensuring availability, accuracy, consistency, and timeliness of information to users and processes across the business."
Professor Oshri agrees that CIOs are getting a bigger role. "Sourcing decision is no longer a stand-alone decision about the IT component, but rather moving towards an integrated sourcing approach in which executives will need to consider how IT can be aligned into BP and how can IT improve BP performance. The CIO is central to such discussions within the firm and with the firm's supplier network."
"CIOs are increasingly becoming the business technology change agents within the enterprise," says Roehrig at Cognizant. "The role of the CIO is evolving from the caretaker of the systems of record to the person who unlocks value at the intersection of process and technology. The CIO of the 21st century will be instrumental in helping unlock process-aligned business value.
IT enabled BPO is a huge sector and dwarfs the IT outsourcing sector in turns of spending. But as businesses attempt to take advantage of new IT trends the, IT element of BPO relationships will grow at the expense of people. Technology trends such as cloud computing and big data are supported by technologies such as social media and smart devices to create new services to compliment BPO.