Cost arbitrage will be a key area, but going forward, will not be the only area of focus.
The year 2011 is going to witness dramatic upheavals for some and achievements for others, as 422 outsourcing contracts come up for renewal. Industry consultant TPI estimates 422 contracts worth USD 15 billion will stand at the ‘renewal altar’ – an increase of 40 percent from 2009. Everest’s Transaction Intelligence estimates a total of approximately 1750 transactions across seven major industries coming up for renewal till the end of 2011.
Outsourcing’s Point of Inflection
The outsourcing industry is currently at an inflection point. The first generation of BPOs was in the form of captive centers. The earliest captives were set up in India in the 1990s by firms such as British Airways, American Express, General Electric and Citibank, who wanted to leverage labor arbitrage and the ability to scale faster. At the time, mature offshore service providers providing sufficient security, sourcing options and IP (Intellectual Property) protection were still a long way off.
The second wave saw plain vanilla outsourcing, wherein organizations were outsourcing transactional or commoditized pieces of work. These companies wanted service providers to maintain the status quo by simply replicating the existing processes and transactions. Several contracts that were signed during this time are coming up for renewal now.
The progression to the next phase began with improved service delivery, enhanced productivity and lower operating costs. BPO firms began to play the role of transformation consultants, partnering with customers to determine further opportunities in the area of outsourcing, becoming more strategic rather than tactical in their approach. The industry has been witnessing some of the leaders propel the concept of ‘innovate and own’ instead of ‘lift and shift’.
To quote David Tapper, Vice President, Outsourcing and Offshore Services at IDC, providers in the outsourcing market in 2010 must take a “strategic approach, with attention to providing innovation and transformation, investing in host-based and platform-centric service delivery, establishing unique partnerships, pursuing new markets and customer segments, and building for the future — a future that will likely see a new services industry arise”. Cost arbitrage will be a key area, but going forward, will not be the only area of focus. Providers will also look at optimizing service delivery, providing sustainable and predictable quality of service, step changes in productivity and improved control and compliance through the use of process improvements, innovative technologies, analytics, domain knowledge and industry experts, all of which will center on business outcome.
Moving from the Incumbent – Five Critical Factors
An organization’s relationship with a BPO service provider is a highly strategic business partnership taking into account several factors such as functional expertise, technical capabilities, locational advantages, innovation and financial terms. With the BPO industry attaining maturity, it is now easy to evaluate what factors have led to a successful or failed outsourcing relationship.
There are essentially five driving aspects that could determine whether an organization remains with or moves from the incumbent BPO service provider when a contract is up for renewal.
1.Moving Up the Value Chain: This would be relevant in the case of companies that have employed ‘plain vanilla outsourcing’ thus far and are now looking at a more strategic advisory role from the BPO service provider. These companies are looking at more than just process transactions and now want their outsourcing partners to jointly work on end-to-end processes with the priority on business outcomes.
2. Current Vendor Evaluation: Organizations are cognizant of the fact that there are new vendors in the marketplace who are likely to be available at revised prices and better services. Companies may conduct a dipstick study to understand what services are available and whether they are procuring these services at a market relevant cost.
3. Strained Vendor Relationships: A company is likely to move from the incumbent if there have been failures in the outsourcing partnership. This could include issues in terms of health of operations, regulatory compliance, governance mechanisms and the inability to meet performance parameters.
4. Amended Organizational Requirements: It is also likely that there are changes in the needs of the company wherein they now need to evaluate their business strategies as a whole. This could be due to the altering dynamics of the competitive landscape, changes in leadership, regulatory and technology requirements.
5.New delivery models and locations: With the maturity of the BPO industry in the last 5 years, there are organizations that provide innovative service delivery frameworks and commercial constructs that go beyond people-based and transaction-based pricing, focusing on end business outcomes. In addition, some global BPO firms are taking advantage of new offshore / nearshore destinations providing better quality of resources at reasonable prices and these will provide a viable option as the BPO contracts get renewed.
Source:http://www.indiainfoline.com/Markets/News/Methodology-for-moving-work-from-incumbent-BPO-service-provider/5156438749
