BPO's New Look

by John Conley

Business process outsourcing (BPO) has redefined the structure and operations of companies, shifting transactional, administrative and higher-level process work to outsourcing service providers. Benefits include cost savings, easy scalability and leveraging of third party technology, freeing managers and staff from administrative trivia to focus on strategic issues.

Now BPO is entering its second phase. Emerging trends include tighter partnerships and joint venture opportunities, growth in offshore business processes, increased production of granular level business intelligence to improve decision-making and greater involvement by IT departments in strategic outsourcing decisions. Taken together, these trends indicate BPO is not some passing fancy, but represents a paradigm shift in how companies operate.

What began more than a decade ago with the outsourcing of IT now invariably includes the outsourcing of human relations, finance & accounting, business travel and real estate facilities management. Consequently, the BPO industry is growing fast and large.

According to Gartner, Inc., worldwide BPO services will grow from $110 billion in 2002 to $173 billion in 2007, a 9.5 percent compounded annual growth rate.

BPO engagements involve the service provider assuming responsibility for all the components needed to deliver on the business process, from technology, to management, to the actual execution of the process. BPO is distinct from IT Outsourcing (ITO) in that BPO focuses on corporate departments such as customer care, marketing, human resources, learning, finance and accounting, among others. The contracted objective of a BPO engagement is to improve and optimize the management of these business processes while creating cost efficiencies and gaining strategic advantages.

ITO, on the other hand, focuses specifically on the outsourcing of activities within the IT department such as networks, desktops, storage, and applications, among others. ITO does not involve any activities related to the execution and management of actual business processes.

HR outsourcing remains the fastest growing part of the BPO market. Several major joint ventures have been inked between large corporations and service providers to effect end-to-end HR outsourcing, following on the heels of British Telecom and consulting firm Accenture, which essentially forged this market three years ago via their joint creation of Accenture HR Services, today a major HR outsourcing service provider.

In December, BPO provider ACS and Motorola formed a similar joint venture, called ACS Global HR Solutions, to provide HR business process outsourcing services worldwide. The mutually beneficial $650 million HR outsourcing agreement liberates Motorola’s HR staff to focus on core business issues, while broadening ACS’ BPO services to include HR outsourcing. ACS took over Motorola’s HR functions, hiring 650 people on its HR staff, to build the new service enterprise.

Such partnerships are not confined to HR outsourcing. In February, Accenture announced a joint venture with BC Hydro, a British Columbia-based utility, to create another outsourcing service provider, Accenture Business Services of British Columbia. More than 1,500 BC Hydro employees were shifted to the new $1 billion company, of which BC Hydro is the first customer, outsourcing its customer services, IT and HR services, financial systems, purchasing, and building and office services. “What we are seeing is a trend toward service providers joining with their customers to own equity in new entities they form in what is essentially a new market,” says Katrina Menzigian, director of business solutions and BPO services research at IDC, a Framingham, Mass.-based market intelligence company.

page: 1, 2