Labour arbitrage cost cutting through consolidation and/or offshoring of operational staff has driven the rapid growth of business process outsourcing (BPO) in recent years. But this one-off hit needs to be followed by further incremental savings. Increasingly, outsourcers are utilising their internal IT skills to build proprietary software to deliver these ongoing efficiencies.
Software underlies the vast majority of business processes, and control of this software enables organisations to improve process efficiency in line with changes in processes and business strategy. This is, after all, what has created and sustained the IT services industry.
However, in business process outsourcing, control of the underlying software platform isnt a straightforward matter. While the IT services and BPO services industries are converging as clients look beyond IT outsourcing towards BPO, to date the combined outsourcing of IT software platforms and BPO services has been slower than originally expected.
Platforms arent for everybody
Platform BPO dominates in one main area of BPO: payroll outsourcing. Here, processes are non-core, repeatable and, most importantly, well-understood. Its common to see clients outsourcing their processes and transitioning to the underlying technology platform of payroll outsourcers such as ADP or NorthgateArinso. There are also several large multi-tower BPO deals, particularly in the public sector, where both IT platform and BPO services are outsourced, such as with Birmingham County Council in the UK.
Yet in most of the BPO market including horizontal functions such as finance & accounting and human resources, and vertical industry services in financial services, utilities or pharmaceuticals the platform BPO model has not had as much traction. Indeed, the view that IT services vendors could deliver BPO savings through a large transformation of a clients underlying software platform, has given way to an acceptance that the investment, effort and risks involved in such a transformation do not ensure rapid enough returns even in a ten-year deal. Labour arbitrage, most often through offshoring, provides much more immediate savings.
Controlling the process layer
To secure contract renewal, vendors have to provide continuous incremental cost savings, process efficiencies and support for new services. But once the labour cost savings have been achieved, where next can you gain savings? For many BPO vendors, the answer is to develop an additional layer of process-enabled software that sits above the clients own platform.
Common application tools developed for this layer include workflow, customer services/relationship management, analytics, web-enablement, digitisation and project management. These tools are typically built using available third-party components where feasible, and on open standards where possible. Ovums upcoming report The role of proprietary software in BPO provides specific examples of how companies including Capita, Atos Origin and Tata Consultancy Services are involved in using these types of software tools to support BPO delivery.
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