BPO Trends and Predictions for 2006

i.t. matters
Monday, March 06, 2006 MANILA, PHILIPPINES

BPO Trends and Predictions for 2006

By Nilo S. Cruz
Country Managing Director and
Technology Solutions Group Leader
HP Philippines

As Thomas Friedman pointed out in his book "The World is Flat," distance is becoming a shrinking barrier, markets are globalizing rapidly, and business today needs to operate at Internet speed. To compete successfully in this new flat world, companies are looking for ways to better align business and IT, standardize and streamline business processes, mitigate risk, and cut costs overall.

Similar to IT outsourcing’s ability to help businesses compete through lower costs and greater access to technology, companies are beginning to evaluate and take advantage of business process outsourcing (BPO). Within this evaluation process, companies are looking to identify those non-strategic processes that are ripe for outsourcing, to educate themselves on the risks and benefits, and to understand the offerings and capabilities across the BPO service provider landscape.

Based on companies’ findings, we are seeing some interesting purchasing trends in BPO including such things as an increase in adoption rates, companies demanding more from BPO providers, clients demanding greater focus on measuring impacts and results, and a focus on service providers that can provide rigor and governance within a multi-vendor outsourced environment.

Based on what we’re seeing in the marketplace, the following are top BPO trends happening in the global as well local markets:

1) Companies want and need more from BPO.

Companies are looking for more than just cost savings. Labor arbitrage is not enough on its own. Buyers’ are making sourcing decisions that will improve processes and customer service balanced with cost cutting goals. They are also looking for business transformation along with rigor from a BPO provider in benchmarking and measuring the performance outcome of the outsourced services.

By leveraging the best people, processes and technology for business transformation, corporations are looking to achieve better consistency in services to their customers and suppliers, compliance with regulatory mandates and better governance, and decreased time to market. It is through refocusing on the broader goal of business transformation that companies can better align IT and business processes to drive business growth and gain competitive advantage.

2) Success will be defined by the collaborative nature of relationships and ability for continuous improvements

As companies continue to outsource more of their business processes, building solid relationships with service providers will become increasingly more important. The relationship needs to be collaborative, meaning that the company and the service provider work together to build strategic frameworks, preparing the corporation for growth and agility to meet the changing demands of the business.

In the past, being reactive was "good enough." But moving into the future, being proactive will put companies ahead of the competition. By working collaboratively, service providers will be able to better anticipate what changes and challenges companies will most likely face as a result of their business plans and help them to respond accordingly. There will be a greater focus on partnering with a service provider that successfully (and painlessly) can implement global integration strategies, whose technology is cutting edge, and that is continuously working to upgrade the quality of its workers and its processes in order to continue to adapt to changing business needs.

3) As multi-sourcing becomes more standard, governance will be key

While companies see the great benefits of outsourcing, they also see everyday, more and more sourcing options. Multi-sourcing therefore has become a more standard option. By using multiple vendors, companies can get access to best in class across processes and industry expertise.

With this new multi-source strategy however, companies are faced with a bigger challenge than which vendors to select. They will need to learn how to effectively manage multiple vendors. To do this, governance and training will be critical for clients’ multi-sourcing project managers in order to mitigate risk and ensure service levels are met in alignment with the contract. And for their part, service providers will need to learn how to best work within this multi-sourced environment in order to effectively and efficiently collaborate with the client and the other vendors in order to solve challenges and deliver against expectations.

4) Measurement and quality are top of mind

For both the buyers and service providers, having a set way to measure the impact of outsourcing on the company’s growth will aid them in proving the benefits of outsourcing. Without it, companies are at great risk of not making clear their expectations and services providers are at risk of not proving their value. By having a way to measure benefits and goals, the buyer will be able to prove to his company that by outsourcing, they’re not only saving money, but they’re acquiring access to highly educated and skilled people, along with cutting-edge technology and processes that delivers benefits to the business. The result is greater (and better) productivity and cost savings.

As for service providers, they will need to utilize current standards for process management and measurement such as Six Sigma, CMMI and ITSM in order to ensure governance and measure the benefits of outsourcing such as: process improvements, customer satisfaction, compliance and the ability to adapt to changing business needs. Once a set way to measure performance is put in place, the process will become an integral part of the business contract.

5) BPO contracts will become increasingly sophisticated

BPO contracts are becoming more sophisticated, focusing on how the service provider can transform the business by offering an array of business capabilities. In the past, contracts focused primarily on cost-savings and services, but now the focus has shifted to value add. The buyer wants more options, and wants a set way to measure progress.

And, like companies that need to be flexible in an ever-changing business environment, contracts too will need to be flexible. They’ll need to mold to the changing needs of the company. As the complexity of the contracts increases, they’ll be a growing need for third party advisors. The advisors will act as "mediators" during the contract process and will clarify the services and the way they’ll be measured.

6) Global footprint for BPO will continue to expand As buyers are moving more toward a global delivery model, they are looking to take advantage of skills and BPO delivery centers around the globe. India is no longer the only place that buyers will go for outsourced services. Although companies have become more comfortable with India, they’re looking for other options. They’ll be outsourcing wherever it makes the best sense for their business. Some areas that are growing in popularity are: China, Latin America, and Eastern Europe. Buyers are looking at areas that have a large pool of educated applicants with various language capabilities and "solid geographies." When choosing where to outsource, companies will also be checking to make sure these new areas are advanced enough that they can recover from natural disasters, such as hurricanes and floods.

Companies are no longer just looking for a place for their customer service desks or for a place to manufacture goods more quickly. They’re looking for highly-educated people specialized in different fields, such as Finance & Administration, Procurement or Product Fulfillment, that have the right processes and capabilities to cut costs and help drive revenue.

7) To become truly global, rigor and consistency will be needed

As companies become increasingly more comfortable with a global delivery model, having less worries as to where work is getting done, they will be looking for standardization and consistency in services around the globe. Service providers that have a truly global sourcing delivery model will concentrate not only on building clients a solid integrated global infrastructure, but on processes and standards that will deliver consistency. This is especially important now that work is being moved to all different parts of the world. When that move takes place, the company can’t "miss a beat".

This new global delivery structure will need to have a broader reaching multi-site processing strategy. No longer will one or two sites outside of the U.S. be able handle all the business transactions. Several facilities will need to work simultaneously throughout the world, acting as a back-up to each other. When things are integrated and standardized effectively worldwide, companies can be assured that business will be uninterrupted and that their employees, customers and partners, no matter where they are located, are receiving the same level of service.

In addition and through a globally harmonized and standardized environment, companies will be able to more easily support growth strategies. For example, if an office needs to be relocated across the globe from the U.S. to China, wouldn’t it be easier to handle the change if standardized processes were already in place? When consistency and confidence is reached, The Global Delivery Model will prove to continuously work because of its synergy. It’s just a matter of time before all companies feel it.

About HP

HP is a technology solutions provider to consumers, businesses and institutions globally. The company’s offerings span IT infrastructure, global services, business and home computing, and imaging and printing. For the four fiscal quarters ended Jan. 31, 2006, HP revenue totaled $87.9 billion. More information about HP (NYSE, Nasdaq: HPQ) is available at www.hp.com.

© 2006 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice. The only warranties for HP products and services are set forth in the express warranty statements accompanying such products and services. Nothing herein should be construed as constituting an additional warranty. HP shall not be liable for technical or editorial errors or omissions contained herein.