Vengroff, Williams & Associates, Inc. (VWA), the global domain leader for Order to Cash Business Process Outsourcing, today announced the company’s annual BPO trend forecast for 2011.
According to VWA, business process outsourcing (BPO), like all other industries worldwide, was not completely spared from the negative effects of the global economic crisis over the course of the past 12 months. VWA sees the coming months of 2011 as showing significant signs of upward momentum, as outsourced contracts set to expire will most likely be renewed. Organizations continue to see notable value in outsourcing as the means to continue process improvement and reduce costs to increase working capital.
In 2011, VWA is of the opinion that corporate decision makers will demand business transformation as part of the BPO relationship, as well as partial or full labor arbitrage.
Essentially, the mindset of business executives will be one of ‘we want it all’ — cost savings, transformation improvement and improvement in working capital.
VWA’s 2011 BPO Trend Predictions
‘Cloud Computing’ — The Bundling of IT and BPO Is the Catchphrase
Cloud computing will continue to be the key dialogue among CFO’s in 2011, as more companies look to move both back-office and front-office IT solutions to the cloud.
VWA predicts that the BPO industry will see a rise in the demand for platform-as-a-service solutions. Clients looking to drive major change in business process or spending are increasingly outsourcing their IT and telecommunications’ requirements.
The trend of bundling IT and business processes runs parallel with the trends towards vendor consolidation and adoption of cloud computing and software-as-a-service (SaaS) models. While vendor consolidation seems to contradict the “best-of-breed” approach that was a reaction to the overpriced multi-tower megadeals of the past, it is a bundling of IT and BPO within a defined ‘cloud’ environment that gives the vendor more control of the overall process.
For that reason, VWA predicts that cloud computing within BPO will lead to greater efficiencies and enable the vendor to deliver the contract on a business outcomes basis. Globally, budget allocations are now shifting from traditional IT categories to new types of spending.
BPO sector set for rebound in 2011 — Service Providers with the most tools win
There is clearly pent-up demand for BPO services. VWA believes that buyers are waiting for clear signs of where the economy is going and appear to be moving forward with caution — yet definitely moving forward.
On a macro scale, disposable income will come more from west to east over the next decade, thus this will mean that the companies in the US and Europe will see less demand for their products and will be forced to reduce costs. They will look for internal and offshore solutions to drive costs down. The OTC tower is likely to see more activity than others, since working capital optimization will be the name of the game. The client will want both the cost reduction offered through labor arbitrage and the optimization of their working capital.
VWA sees technology as playing a leading role in maintaining cost efficiency, both on shore and offshore. The BPO provider who has the technology, offshore locations, onshore capability and the reputation of near flawless execution in past engagements is likely to win more deals.
In terms of specific vertical markets, the largest opportunities in expiring contracts are in the manufacturing (31% of total contract value) and banking (24%) industries. Telecommunications (6%), as well as both local (9%) and central government (6%) also represent significant opportunities.
Process and People — Lessening the impact of transition while facilitating the speed of the deal
Corporations continue to face challenges in managing their outsourcing transition processes. Efforts are hampered by both a lack of adequate and skilled resources, as well as ineffective and inadequate planning and processes. This leads to transition efforts not being completed on time, within budget and with the required functionality. Critically, it too often means that poorly handled initial transition efforts negatively affect the start of the relationship between the client and the service provider.
According to VWA, this is where on on-shore, near shore and offshore offerings will become the hybrid model of choice. The implementation, insuring right skills and project planning will become the key to being successful. Additionally, the communication between the supplier and client will improve with an onshore presence and capability. The required skills will be best found in-country, not offshore, for the purpose of transitioning, business process optimization, and business process transformation.
FAO Shared Services — Up the Value Chain
Globally there is a shift in shared services and the recession has only oiled this movement. Shared services ten years ago were mostly, if not exclusively, about transaction processing. In the past 5 years there has been a significant market shift which means shared services organizations are keen to take on FAO solutions which are more strategic, yet do not require being too close to the business.
VWA’s prediction for 2011 regarding the continued momentum in shared services is that the provider who can fill the gap on shared services (such as VWA) and deliver in-country as well as offshore personnel for those functions that are non-customer facing will be viewed by clients as providing the most value.
Fortune 1000 companies’ transitional benefits to shared services are fairly risk-free: using offshore and near shore delivery centers, superior technology with data shared within the business, and low costs labor arbitrage — all work seamlessly. The cornerstone will be the direct relationship and communication at the local level with the client, making the client a partner in transforming the business.
Platform-Based Finance and Accounting outsourcing — PFAO
VWA strongly encourages the growing momentum of platform-based finance & accounting outsourcing (PFAO), defined as ‘platform FAO’. PFAO is the provision of FAO services that are enabled by a standardized, multi-client, F&A-specific software platform hosted by the supplier — with low, if any, customization. (Note: VWA introduced Source MPO last year as a PFAO).
VWA believes that PFAO is attractive to the growing midsized market companies that have limited or no resources for IT and Finance and Accounting, or for spin-off organizations that need to build a finance function. These types of companies are quickly seeking to improve their working capital position and reduce operational costs. Single-process PFAO offerings give customers labor costs savings, faster implementation, greater certainty of outcomes based on predictable (because it is standardized) outcome, lower costs access to specialist functionality, reduced costs and greater control and transparency.
PFAO’s cost advantage is achieved through rapid set-up (with pre-defined processes) and a sharing of resources among clients. In its purest form, the technology platform is deployed for multiple clients (running several clients on a single ERP instance in a multi-tenant mode) and delivery personnel are shared among several clients.
Alternative delivery models and approaches in the marketplace
In 2010 and again in 2011, VWA is a strong supporter on inviting its clients to take a multi-provider approach to BPO services. VWA sees a continued pattern of organizations buying, rather than bulking, BPO services so that not one provider is the gatekeeper to all FAO processes such as AP, AR, Deductions, Cash Applications, P2P, O2C, etc.
Several alternative multi-provider “end-to-end” models are now prevalent with providers who are developing the ability to work together with other providers and take on risk for the integration of third party services as an alternative to a client assured multi-provider delivery model.
VWA believes that there is an increase in providers’ ability and a readiness to construct relationships and contracts to deliver increased productivity, transformation or innovation — often via the use of outcome-based or risk-reward pricing. In the past, most corporations wanted one organization to handle everything. Now, they are looking to find an AR competent or specialist firm. This is more the a la carte approach to parceling out business.
Source:http://www.marketwire.com/press-release/Vengroff-Williams-Associates-Predicts-Strong-Increase-in-2011-for-BPO-Sector-1371809.htm
