The continuing implosion of the traditional organization and its underlying support-management approaches, and the emergence of “virtualized” businesses, will see the Business Process Outsourcing (BPO) market grow substantially over the next few years, and by 2010 become a $212 billion industry. The range of processes that are being outsourced is continuing to develop. Large BPO markets like HR, Customer Relationship Management (CRM) and payments processing are being joined by new areas such as Finance and Accounting (F&A) and procurement. By 2010, there will be few processes within businesses that will not be outsourceable, and where customers will struggle to find capable and willing BPO providers.
Yet, after a decade of good growth and being regarded oftentimes as “part of the solution,” there are troubling indicators in the market that all is not well. Many BPO customers tell us that they are “underwhelmed” with the levels of service they receive from BPO providers. At the same time, many BPO providers tell us that their profit levels are far from ideal.

In none of the major BPO areas can customer satisfaction be regarded as well aligned with the primary driver of outsourcing — the cost of process execution and management. The trend is most marked in domains where BPO is least mature. Customers who outsource F&A and CRM, and to a lesser extent, HR, have lower expectations of the cost savings and recognize other benefits of outsourcing such as process improvement or higher service quality. Customers focused on emerging areas of BPO, such as procurement, often have greater expectations of their BPO engagements, and consequently report that these benefits are often hard to achieve.

This is an unsettling fact for BPO providers. In trying to prize open the window of opportunity, they are seemingly guilty of talking a better game than actually delivering. This may provide short-term contract wins, but will do nothing for renewals and ultimate profitability.

Clearly, however, this is not all simply a provider-side issue. Customers also need to look at their understanding of what can genuinely be achieved. However, even with this caveat, providers must remember the simple mantra: The customer is always right (even when they’re wrong).
In trying to address these challenges, Gartner foresees four themes that can lead to better outcomes for all concerned by 2010.

The Rise of Automation
In the coming years, customers and providers will have to embrace greater levels of process automation. More and more customers are hitting a “brick wall” when it comes to leverage of offshore resources to drive costs out of their outsourced processes; the first year or two of labor arbitrage is impressive, but the only way to sustain cost reduction is to further refine efficiency through automation.

Plug and Play
Along with this is the leverage of more standardized, “configurable,” pre-built solutions, rather than current fixation on using unique, one-off, “customized” ones. The days are rapidly ending where mainstream, established BPO providers can afford to tailor every solution and provide the reductions in process cost that customers seek. More and more customers are waking up to the simple truth that customization costs. And that if they want less expensive process execution, and enabling technology, then it makes sense to source solutions that are less complex and less unique.

Global Services PREDICTIONS

Expect new and more high-value business processes to join the list of outsourcing services as more and more lower-end processes will get automated

Peaking attrition levels and rising costs in relatively mature outsourcing destinations will force customers to move toward other newer locations in Latin America and European countries such as Northern Ireland and the Czech Republic.

BPOs will rise above level-1 services such as information collection to level-2 and level-3 services such as high-end analytics and knowledge processing.

Next-gen Technology
A major inhibitor enterprises face in leveraging BPO is their past technology investments. Often a desire to change the way a process is undertaken is hampered by the inability of an application/system to correspondingly change. Hence, a situation is created where “business as usual” is re-enforced by the realization that changing the associated IT is too hard. Gartner sees much provider-side innovation emerging to address this complication, much of it based in the emerging Web-based technologies. Business Process Utility (BPU) providers ape the style of Software-as-a-Service providers in terms of technological architecture and competitive positioning. Though still relatively immature, BPU is an important developing trend.

In the past decade, there has been little momentum towards the adoption of process automation in BPO. However, sectors like payroll and, more recently, payment services, have featured highly automated delivery as a feature of highly transactional BPO services. Gartner expects that more BPO customers will be looking for an outsourcer who can provide the next level of lower cost through the melding of global sourcing and automation.

Global Sourcing
Though the greater use of automation will eventually decrease the amount of labor involved in process execution, the use of non-domestic delivery will be an important factor for the foreseeable future. As Thomas Friedman’s “flat world” becomes more and more a reality, the globalization of resource pools, from Jamaica, Brazil, Northern Ireland, Poland and China, will become a key corporate competitive weapon. Huge re-invention will incur in first-world labour pools as skill sets rise exponentially all around the world. 

At Gartner, Benjamin covers BPO services and IT-utility computing. He has also been a market analyst at Input and PricewaterhouseCoopers in their IT practice.