For at least 15 years, commentators have recognised that business process outsourcing (BPO) can transform business profitability, growth potential and value. Now, the BPO industry is itselfevolving and undergoing major transformation.
Firstly, services are becoming more complex and diverse. Traditionally thought of as ‘call centres’, 85% of BPO services are non-voice. Administrative support is a well-established area of activity, alongside transactional services such as cheque processing and payroll. The goal of providers now is to supply services with an ever-higher intellectual content. Collectively dubbed Knowledge Process Outsourcing (KPO), these services include legal, design and research activities.
Secondly, the offshore element is expanding rapidly. Currently around 10% of BPO takes place on a cross-border basis – with a global value of $14bn in 2006. By 2010, phenomenal growth rates are expected to take the annual value of the global offshore BPO market to $55bn (source: NASSCOM-McKinsey). India delivers about half of the world’s offshore services, relying on a vast workforce which is well-educated, English-speaking and lower-cost. However, other parts of the world – including Latin America, Vietnam and eastern Europe – are also achieving success, by offering targeted language and skills capabilities.
Finally, as the diversity of activities and locations grows, BPO clients are faced with an increasingly complex range of service options. Smart suppliers are helping to simplify their clients’ choices by offering multi-location delivery capabilities through one provider. This
enables clients to ‘rightshore’ – meeting their needs through a tailored blend of onshore and offshore options. Since December 2006, 3i has been working closely with Bouncopy, a Spanish BPO supplier which exemplifies the multilocation approach (see box).
Designing the 21st century business
If they were starting out now, most organisations wouldn’t create their current structure. BPO gives companies a framework to re-invent themselves.
Whilst much of the media focus has been on multinational giants ‘transferring thousands of jobs overseas’, a quiet revolution has gathered pace in smaller organisations too – companies that are either young enough to embrace new ways of working from the outset
or nimble enough to seize new advantages quickly.
Swedish firm Boxer AB, a 3i portfolio company, is a great example. With a team of just 50 employees, it has 654,000 customers and €150m annual turnover, and is Sweden’s fastest-growing pay-TV operator. How can a company with so few employees achieve such a strong position in such an attractive market? Simple: Boxer sticks to what it’s really good at – packaging and pricing digital channels – and outsources noncore activities such as manufacturing, logistics, IT, payroll and other finance functions to specialists.
As a result, the leaders of Boxer are free to continue focusing on what’s really important to them: growing the business and working towards their long-term vision of personalised TV.
Making it happen
For the CEO contemplating BPO for the first time, the road ahead can look tough. Deciding what to outsource and identifying the right provider are simply the opening challenges. Not surprisingly, it takes a top team with vision, energy and commitment to select the BPO route and see it through to successful implementation.
Clive Williams, former CEO of Capgemini UK, has helped many companies to offshore. He says: “People see outsourcing to India as a well-trodden path but it’s not that straightforward. Contract preparation requires careful thought. Because many outsourcing deals are awarded on a simple costdriven basis, the BPO provider is working on very tight margins and seeks opportunities to change arrangements to give them higher-margin business. That makes it vital for agreements to be crystal clear at the outset – particularly with services that have a higher intellectual content and are therefore intrinsically harder to define.”
A tailored solution
To assist companies along the path to offshore BPO, 3i has established Portfolio BPO Services (PBS). Ordinarily, ‘Tier One’ BPO providers reserve their premium rates for the largest contracts from the world’s biggest names.
By pooling the potential flow of business, PBS has secured advantageous terms. Akshaya Bhargava was CEO of Infosys BPO growing it from start up to over $500m in value in four years. He now heads PBS. He says: “Standardisation is key. When outsourcing, many companies expend huge amounts of time creating business cases, legal documentation and migration plans. PBS has created a standard model that fast-tracks the BPO decision-making process and reduces the risks around implementation.”
Akshaya sees 3i’s focus on BPO as a major strength: “Because 3i understands the segment so well and networks strongly within it, we understand the value BPO can create. 3i differs from others by focusing on execution – not just viewing BPO as ‘a good idea’ but thinking long and hard about how to operationalise it for the wide range of businesses it partners.”
Attacking the last 20%
Bruce Keith is responsible for BPO investing across 3i: “I believe that outsourcing will continue to attack ‘the last 20%’. In any business, managers rightly prioritise those activities that generate the most value, but that typically leaves a cluster of activities where there’s rightly less emphasis. For BPO providers, the number one goal is to improve these activities, offering dramatic cost, service and output improvements. For them, it’s the main focus, not a lesser priority.”
In Bruce’s view: “Outsourcing and offshoring are issues on which every CEO needs to take a stance. Leaders with vision and courage will seize these opportunities and use them to redesign their businesses, outperform their peers and enhance their growth potential.”
