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The Business Process Outsourcing (BPO) market is expanding globally.
Successful providers have best practices, methodologies,
and industry standards that allow deals to get done quickly.
The entire BPO field has learned from past deals, so we
now see bigger deals with better foundations. As a result,
BPO is continuing to be used in new functional areas,
new industries, and across the world.
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BPO has come a long way in the past three years
Three years ago, BPO meant payroll processing and benefits
administration - not exciting enough to talk about at
a conference. Mainly the big consulting firms were talking
about it, said Scholl of Gartner Dataquest. Since then
the mega-deals have become very important in shaping the
new form of Business Process Outsourcing or BPO. The field
has become much more segmented, complicated, and sophisticated.
It will fundamentally change how businesses work.
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The BPO market is growing, but not as fast as expected
Business Process Outsourcing (BPO) is still the top growth
market for IT services, but several factors - the economy,
the BPO adoption curve, and the technology innovation
downturn - have slowed its growth. BPO is driving growth
in system integration and IT services. Every single BPO
engagement includes sub-components of IT consulting, application
development, IT outsourcing, and process management.
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The key drivers of Business Process Outsourcing (BPO)
have changed
Cost savings and variable cost structures are more important.
Information security, the ability to execute, and business
continuity have also become more important. But strategy
and transformation are less important. As are innovative
financial and tax structures.
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Technology management - including IT outsourcing - is moving into the
hands of process-based management organizations.
Of 50 CIOs surveyed, on average, they outsourced 28 percent
of their IT budget, said Bobby Cameron, Principal Analyst
at Forrester Research. And they are looking to outsource
34 percent. One company has out-sourced 76 percent of
its IT. This is just the tip of the iceberg. The ITO paradigm
is being restructured. IT organizations used to build
everything. Now an increasing amount of their work is
below ground. The emerging business model is collaborative
and operates at a process level. Firms specialize in their
core competencies and collaborate with other specialists
for the balance of the work. The technology to operate
these outsourced processes - which used to be supplied
by internal IT - is now provided by the process outsourcer.
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The market drivers are more practical than in the
past
Gartner Dataquest conducts a BPO survey every fall. In
fall 2001, the top two drivers of Business Process Outsourcing
(BPO) were focus on core business and reduce costs, both
of which are more practical than the previous year's top
driver: gain competitive advantage.
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Companies are either doing BPO or not even planning
to do it
There's not much middle ground at the moment, said Pierre
Mitchell, Vice President of Research at AMR Research.
A joint survey by AMR Research and CFO Magazine found
that those doing BPO are aggressively doing it in non-core
areas to save money or gain expertise. It's not about
reducing headcount or reducing capital costs. Travel and
payroll are the most outsourced functions, by far, ahead
of outsourcing accounts payable, asset management, expense
reporting, indirect procurement, recruitment, direct procurement,
and warehousing. As big suppliers become committed to
procurement BPO, it is growing. The top three criteria
are vendor viability, domain expertise, and price. And
while 64 percent of the respondents said BPO is growing
(and only 2 percent said it was shrinking), only 55 percent
justified Business Process Outsourcing (BPO) on return
on investment - even though they should, to show that
value is delivered. CFOs are involved in 90 percent of
the decisions. The average contract life is one-year (41.4
percent) and three-year (28.8 percent), but 50 percent
of the contracts are three-year contracts in companies
with revenues over $500 million.
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BPO staff will come from numerous sources
People from industry may have process experience on a
large scale, but they often do not have multi-client skills,
which they need because they must serve different clients
in different ways every day. Some people come from consulting,
but they often lack operating experience. And IT people
lack domain (process) expertise. As a result, BPO providers
must mix-and-match skills from these different sources.
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Integrators with outsourcing expertise are gaining
ground on BPO specialists.
The integrators are learning specialty areas more quickly
than the specialists are learning to form outsourcing
agreements and manage service delivery.
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The next generation of procurement outsourcing will
be procurement utilities.
These are utilities that companies "plug into"
to get the procurement services they need. These utilities
will have standardized processes, a common infrastructure,
and a menu of procurement services. Companies will select
from the menu and thereby leverage the common processes
and infrastructure.
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Business Process Outsourcing (BPO) expansion is going
to be infinite
Providers will find ways to get to this higher-margin
work. In fact, the Business Process Outsourcing (BPO)
marketplace is similar to the ITO marketplace in 1992-93.
That's when CEOs and CFOs asked their CIOs, "Why
aren't we doing this?" In the not-too-distant future,
there will be a BPO deal or series of deals that galvanizes
the BPO market. When that happens, this market will grow
faster than the ITO market did. |
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