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, with customers seeking to cut additional back-office costs due to continued budget pressure, while 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 businesses 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 with 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.
Planning and selection of BPO services and providers is an area where the CIO will need to play a key role
Ilan Oshri, a professor at Loughborough School of Business, says IT is increasingly becoming part of the service, 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,” he says. “Buyers are also expecting vendors to deliver high value, and therefore expect the vendor to work closely with them on improvements.”
At the same time, says Oshri, it has become critical to buyers to consider alignment between IT and business process performance.
All of these trends are leading to a bigger role for IT in the BPO sector, he says, which is being driven by businesses and their suppliers. BPO suppliers are attempting to move beyond the provision of bodies or full-time equivalents 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 growing trend, particularly among offshore BPO suppliers which 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,” says 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. “The main BPO providers 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, he says, and while the Indian BPO providers have taken a while to catch up, they are now doing so rapidly.
Cognizant, which delivers services from India, is one such supplier. Paul Roehrig, a senior BPO specialist 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,” he says. “We’re also seeing next-generation technologies such as cloud, social tools, and analytics much more effectively applied to delivering business process services.”
Roehrig says that 10 years ago, many businesses were trying to outsource non-core processes primarily to cut costs, but although lower unit cost is still critical, they now want more.
“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 mindset for problem solving and dynamic process work,” he says.
“These themes are shaping a new kind of business process service, and there is 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 businesses harness big data says Accenture’s Sagoo.
“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 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 its outsourcing service providers 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, with finance and accounting robots replacing 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,” he says.
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, which are 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 changed the size of the SIMs in its latest iPhone. With less than six weeks’ warning, O2 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 the changeover.
It is benefits such as these which could put the CIO in a leading role in the business. The CIO’s visibility across the organisation means they are 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,” says Sagoo.
Planning and selection of BPO services and providers is an area where the CIO will need to play a key role, he says: “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 reshape 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.”
Oshri agrees that CIOs are playing a bigger role. “A sourcing decision is no longer a standalone 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 business processes and how IT can improve business process performance. The CIO is central to such discussions within the firm and with the firm’s supplier network,” he says.
“CIOs are increasingly becoming the business technology change agents within the enterprise,”
says Cognizant’s Roehrig. “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 – it dwarfs the IT outsourcing sector in terms of spending – but as businesses attempt to take advantage of new technology 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 complement BPO.
Picture credit: nmcandre/Fotolia.com
This was first published in June 2012