Business process outsourcing (BPO) is simply the transitioning of specific business processess or functions to third party providers. The attraction is that BPO providers offer economies of scale, category expertise, and infrastructure that many firms lack or have the wherewithal or resources to develop. Although cost reductions are compelling -- particularly in the current anemic economic environment -- BPO should not be viewed merely as a way to divest of assets or reduce headcount. Such a narrow view of outsourcing can indeed deliver short-term results. However, this tactical approach to outsourcing has proven to be at high-risk of long-term failure if the decision does not support future growth and direction of the business.
Success requires enterprises to view outsourcing as a way to enhance overall procurement and supply management operations by transitioning under-performing assets or processes to third parties that can deliver greater economies of scale, process efficiencies, and enhanced domain expertise than are available or practical to develop in-house. In other words, an enterprise should outsource a procurement activity if it cannot sufficiently perform the process internally or if the process does not support the company's competitive differentiation.
Examples of non-IT BPO services include claims processing,
IT-related BPO services include everything from hosting to software development to data center management. With all the hype about IT BPO offshore outsourcing, why is the percentage of firms thinking about doing it within the next five years only 33%?
To be fair, our study focused on the transitioning of business processes to offshore BPO providers. So, the total percentage of IT-related BPO deals could be higher. But even at 33% of companies, the penetration of IT-related BPO service consumption is still pretty impressive. Also, our study found that growth rates for IT-related services will be pretty impressive. Examples: Global sourcing intentions reported by respondents suggest a 183% increase in the use of IT infrastructure management services from foreign suppliers over the next five years. Likewise, demand for offshore software development services will climb by 127% over the next five years.
It's just when these services are viewed within the realm of BPO, you realize that demand for other BPO services is equal or greater than demand for IT-related BPO services -- despite the fact that IT is getting all the attention. Why does IT get all the hype when it comes to offshore BPO? Is it because IT is perceived as being too costly and something that enterprises should "trim" or control at all cost? Is it because India is chock-full of incredibly talented techies, so it just makes the most sense to leverage their labor?
To a large extent, your assumptions are correct. IT is a big expense on most companies' balance sheets. It is also an area of operations that is complex to manage and maintain a competitive advantage in. In other words, companies often lack the resources -- both technically and financially -- to take advantage of the rapid advances in technology. Transitioning such activities to a third party offers economies of scale that can enable a company to access and maintain the latest technologies without lengthy implementation cycles or associated risks. Will India still be the destination for these non-IT offshore BPO projects?
India will remain a major destination for both IT and non-IT BPO projects. However, it will receive pressure from other regions, such as Eastern Europe.
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Click here to read the nuts and bolts of Aberdeen's 'BPO Myth' study.