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Business Management Review | Monday, January 10, 2022
Business process outsourcing (BPO) is a good way to significantly enhance their cost base and capabilities.
FREMONT, CA: An organization's route to digital transformation depends on a complex mix of factors and possibly includes a blend of these three routes. The key is that BPO gives an alternative option where the learning curve is especially steep, and the client has the skills to make a complicated outsourcing relationship work.
The Changing BPO Landscape
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Business process outsourcing will stay a relevant, often compelling, option for companies following digital transformation – but it will not be BPO "usually," for various reasons:
• Market. The BPO marketplace is in a flow state. "Traditional" BPO organizations still command the market, but many start-ups specializing in robotic process automation or analytics join them. Furthermore, this market is changing continuously as the giants move to establish their cutting-edge technical capabilities, some by accepting smaller companies or forming alliances. Outsourcing buyers should await this marketplace to continue varying as rapidly as the pace of technological change itself.
• Scoping. There will be transformed to where the red line is emaciated between a company and its outsourcing partner. Sometimes, automation and the focus on developing new strategic capabilities will result in work being brought in-house; at others, it will be the opposite. Similar to the economics and mechanics of finance, HR, IT & procurement delivery change, so will the handoffs between client and supplier. For example, in financial transaction processing, after automating activities in AP reconciliation or master data management, it may no more make economic sense to outsource the remaining supervisory roles related to this work. Instead, the opposite could be true, with automation resulting in a pocket of work that can now be handed off to a BPO provider. The key is that digital transformation crosses the border between in-house and outsourcing services.
• Contracting. As outsourcing turns as much about buying technology and innovation as buying people, companies negotiating BPO deals find themselves navigating uncharted water. Future outsourcing arrangements may include a more complex mix of partners, bringing technology vendors into the picture alongside the client-supplier relationship, either as subcontractors or as partners. A few times, all of this may be invisible to the client. Digital will need clients to turn very familiar with players and capabilities in new market segments.
• Contract duration. The business landscape is changing quickly, so signing long, fixed deals has become less attractive. Expect to watch shorter contracts and/or contracts with more built-in flexibility. Deals will be less "static," with more specifications of how the nature of services can flex over the contract term. For instance, the concept of robotic process automation is only a few years old and didn't exist when many current BPO deals were signed. Digital BPO deals are required to take advantage of such new opportunities "in flight."
• Resourcing levels. Digital BPO deals will be less people-concentrated and more technology-intensive. Technologies such as RPA and cognitive automation take on the workload of many transactional tasks and some judgmental tasks. The research found that RPA-powered BPO deals signed today include contractual commitments by suppliers to provide year-on-year headcount efficiencies three times greater than the long-term historical level. BPO deals will need significantly lower staffing within a few years, based on Case 1.
• Total cost/price per transaction. BPO pricing levels haven't modified much over the past decade, but this is shifting dramatically, driven by the above factors. The total cost of finance, IT, HR, procurement, and operational actions will go down significantly, reflected in a lower transaction cost. In this environment, BPO companies will switch their focal point away from increasing gross service revenue to increasing their services' profitability and business impact on clients (e.g., helping clients to increase quality, satisfaction, and revenue growth).
• Location. Successively, increased automation may also challenge the concept of offshoring, as automation decreases the relevance of locating resources in low-cost locations. As automation decreases the overall size of BPO deals in headcount, the remaining resources will be increasingly concentrated on high-value expert roles. Labor rates will be important, but the BPO value proposition will focus less on the lowest-cost labor and more on insight, expertise, and technology.
Strategic Implications
It is crucial to remember that digital transformation is much broader than any technology or practice, like RPA or analytics. Preferably, an organization's future BPO strategy should flow from a thoughtful and well-designed digital transformation roadmap that outlines the changing nature of work with business services functions. When this arises, BPO can be a game changer in driving digital transformation.
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