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Microsoft Cloud Authors: Liz McMillan, Elizabeth White, Pat Romanski, Mihai Corbuleac, David Bermingham

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“BPO on the Brink” Research Finds Technology is Critical for Achieving Value Beyond Cost Reduction in Outsourcing Engagements

The business process outsourcing (BPO) industry has reached a critical inflection point in terms of what clients expect from outsourcing engagements and what providers can deliver, according to an Accenture (NYSE:ACN) sponsored study from HfS Research. The report, entitled “BPO on the Brink of a New Generation: Technology Transformation,” found that in order to address the huge shift in buyer expectations and achieve sustainable value beyond cost reduction, both clients and outsourcing providers must embrace comprehensive technology capabilities including automation, analytics, and cloud computing.

According to the report, which featured a survey of 773 BPO industry stakeholders including enterprise buyers, service providers and advisors, two-thirds of the industry remains trapped in engagements focused on cost reduction alone with existing processes simply “lifted and shifted” from the client to low cost delivery centers. Yet, half (49 percent) of today’s clients expect to undertake a wide-scale transformation of their business processes within the next two years to capture new and more sustainable business outcomes that are enabled by technology.

Despite this dramatic change in buyer expectations, six out of ten clients feel their providers are failing to deliver the technology skills and capabilities needed to drive this transformation. This represents a huge chasm that must be crossed in a short time frame in order to move into the next generation of the market, which is characterized by greater use of technology and higher level skills.

“The HfS report validates that technology-enabled BPO engagements – those we would consider to be high performing – are achieving significantly higher value business outcomes than those focused merely on cost reduction and labor arbitrage,” said Mike Salvino, group chief executive, Business Process Outsourcing at Accenture. “It reinforces Accenture’s recently published Technology Vision, which demonstrates that today every business is a digital business, and companies face a choice to either disrupt their markets or be disrupted by more innovative and agile competitors. The HfS research report is an important call to action for those that want to realize the full potential of outsourcing and move into the next generation of the market.”

Advantages of Technology-Enabled BPO

Clients who have taken the leap to the next generation with technology-enabled BPO are reaping much better results than those stuck in earlier phases, with 80 percent viewing their operational performance as “quite” or “highly effective”, compared to only 65 percent of those who have not technology-enabled their BPO. This demonstrates the impact technology enablement can have in creating a modern service infrastructure, optimized for analytics, offering more standardized processes and workflows, and enabling greater visibility and control for clients. The research found that technology-enabled BPO provides the following benefits:

  • Facilitates the move away from the “lift and shift” model -- Fifty-two percent of buyers with technology-enabled BPO are seeing real progress towards shifting away from the “lift and shift” BPO model where the only value metric is based on cost per employee. This is twice the proportion of those clients which haven’t undergone technology-enablement of their BPO processes.
  • Drives common standards and workflows -- Over half (52 percent) of the buyers who have undergone a technology transformation can boast much greater effectiveness of process delivery in the cloud, with significantly improved cost, quality, and organizational agility.
  • Provides analytical insight and innovative capabilities -- Most technology-enabled BPO buyers are achieving real effectiveness in higher value areas, namely new ideas/initiatives (50 percent), analytical insight (45 percent) and even gain sharing with their providers (42 percent). While clearly there is room for improvement in these areas, it is notable how clients that have invested in technology to enable their BPO are able to focus on higher value outcomes.

Key Recommendations

The research study shows that clear and concerted action is needed by both enterprise clients and service providers. Key recommendations include:

  • Break away from the labor arbitrage model with automation -- BPO clients will eventually see their efficiency gains wither away if they cannot break out of the labor arbitrage model. Automation will provide the bridge between the labor arbitrage past and the state of technology enabled transformation.
  • Embrace the move to digital – Clients and providers alike should re-think existing processes and remove or replace all "analog" steps which may currently be eased by technology but which aren't fundamentally digital in nature. Clients also need to invest in improved governance skills to cover these new capabilities, while many service providers need to invest in the higher caliber talent, analytics capabilities and technology platforms required to create this value.
  • Invest in technology-centric personnel -- Service providers should re-organize around product management and development teams driven by software engineers and supported by business analysts rather than capability teams defined by the geography or broad pools of generalist talent. The CTO of a BPO service provider needs to have a voice at the leadership table.

"Most business function leaders do not have the luxury of ten year programs in today's environment, especially with initiatives like BPO, where expectations for reaching new thresholds of business value are moving a lot faster,” said Phil Fersht, CEO and founder, HfS Research, and author of the report. “Their leadership expects to see tangible results in much shorter timeframes and this study clearly shows that expectations for transforming BPO delivery models are at an all-time high. What started with the reduction of costs of companies' existing processes is now evolving to a wide-scale technology-enabled transformation of business operations, driven by the skill and acumen of operations talent on both the buyer and provider teams. New generation BPO is about transforming processes, developing talent and embracing technology capability for ambitious organizations.”

This report is an important extension of Accenture’s High Performance in BPO research, which identifies the specific business outcomes and the collaborative behaviors and practices that enable clients to capture the greatest potential value from BPO. The full report is available here: www.accenture.com/BPOonthebrink.

About Accenture

Accenture is a global management consulting, technology services and outsourcing company, with approximately 281,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$28.6 billion for the fiscal year ended Aug. 31, 2013. Its home page is www.accenture.com.

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