by Dinesh Goel, Partner, ISG
The business process outsourcing (BPO) industry continues to evolve, propelled by developments in technology; in some circles, its name is changing to IT-enabled services industry. The genesis of the industry, in terms of its global service delivery (or offshoring) model, was tightly bound to its promise of up to 40% cost arbitrage, which created a “life and shift” or “same mess for less” type of activity in the marketplace but, nevertheless, resulted in growth of the industry as buyers slowly embraced the model.
Of course, the cost arbitrage wasn’t a sustainable proposition, so providers started building propositions around what more they could offer to customers: process re-engineering, innovation, process transformation, committed productivity, gained ground and traction in the industry. Under-delivered promises and a high degree of ambiguity resulted in buyers who were circumspect of the provider pitches and proposals.
As the next stage evolved, providers began emphasizing the need to manage end-to-end processes rather than rule-based fractional activities. This constrained their ability to drive productivity and process improvements, and their limited knowledge and ownership of the process reduced them to the role of “order takers.”
Now, the next wave has come along, driven by the new IT delivery platforms and models. The buzz is “process as a service” with the entire solution on the provider’s nickel and invoicing on a “pay-per-use” basis. We are just seeing the early stages of development and adoption here, save point solutions such as payroll, recruiting, accounts payable, etc.
So, what’s next? How will the industry mature over the next few years?
In my view, the industry will offer end-to-end process solutions to clients that could take a variety of delivery model forms:
- A solution on the client’s infrastructure/platform
- A solution that includes the provider’s platform and/or infrastructure
- A solution hosted in the private/public cloud
The growth and maturity of the industry will be propelled by a market offering compelling value that encompasses full process service, contemporary point or full IT solution, and domain knowledge and capability that adds value on an ongoing basis. The commercial structure will save clients from a huge fixed cost so they are equipped to thrive in a fluctuating business environment.