Business Process Outsourcing & Factors that Influence BPO Success

May 10, 2007 on 7:07 am | In Uncategorized |

IntroductionBusiness process outsourcing, or BPO, is the act of transferring responsibility for a significant part of a business process and the respective process results to a third-party service provider.It has become a mainstream strategic tool for organizations to employ to support process improvement and/or cost-cutting efforts.Beyond these critical and high-level issues lie numerous additional details organizations must factor into their decision-making processes.The scope of BPO is expanding beyond functional areas initially targeted and more often comprises multi-level efforts. 

 

 

Factors that Impact BPO SuccessThis document will make you familiar with present findings from the 2007 study update, as well as reinterpretation and analysis of original findings based on the results of ongoing market assessment.Survey respondents were organizations in North America and Western Europe. All respondent organizations have 5,000 or more employees and over US$1 billion in annual revenue. Respondents overall most frequently indicated they planned to expand BPO usage into new business units, divisions or geographies.Based on this BPO definition, 84% of total respondents described themselves and their organizations as currently engaged in BPO. The remaining were actively evaluating BPO.The 2006 study surveyed a total of 126 respondents engaged in human resource and/or finance and accounting outsourcing and the 2007 update included buyers of procurement outsourcing for a total of 154 respondents.Respondents were queried on what they viewed as the biggest factors impacting the success of BPO efforts. 

The following table illustrates the combined rankings of the success factors for HR and F&A respondents. 

 

**SP – Service Provider 

 

The quality of the BPO service provider was the leading factor cited over the life of the study and in each individual year, surpassing all other factors and being the only factor cited by a majority of respondents.The need and desire for service provider quality, however, is somewhat self-evident.It is also important to note that the adoption of standardized processes was not deemed critical to BPO success overall. This is unfortunate because standardization also could ease transition costs, pains and timeframes. Respondents give relatively high emphasis to the BPO service provider’s abilities to meet cost reduction and process improvement goals. Achieving these goals are typically two of the main reasons why buyers undertake BPO efforts. We interpret these rankings, however, not to mean that buyers today care less about saving money and improving process performance, but rather that they are more focused than in the past on how to achieve the goals. 

 

 

The Importance of Information Technology to BPO SuccessThe current and future IT systems and application environment is one critical area organizations must evaluate when assessing BPO opportunities. This is especially the case with core enterprise applications, such as those embodied commercial enterprise software and integrated Enterprise Resource Planning (ERP) systems. These systems play a key role in the business operations of any organization that has deployed them. While they represent IT systems, it is difficult to separate them from the business processes they support when it comes to outsourcing.Organizations must address many elements of their ERP and related enterprise software applications when pursuing BPO. These include:    • Measuring and benchmarking current cost levels, and accurately estimating cost levels and savings potentially gained from outsourcing.    • Understanding the capabilities of the enterprise software environment that supports ongoing outsourcing management and governance needs, as well as the costs to provide this support both in terms of operational  (expenses and any required software enhancements or upgrades.   • Determining how underlying IT systems enable and/or constrain business process performance and how outsourcing will impact performance levels.   • Defining a means to compare and contrast the current enterprise software environment to that provided by BPO service provider candidates.   • Defining the outsourcing scope from the perspective of the enterprise software environment. This involves mapping the business process elements being outsourced against the underlying software applications support. Typically, the IT components do not map cleanly to the business functions being outsourced, creating challenges in terms of extracting the relevant IT applications. 

Many organizations struggle to address these points for various reasons, including:§   BPO is focused on cost reduction and process improvement (the end goals) and often not enough on the means, of which IT is one

• BPO decision making typically is driven by efforts to reduce costs and improve process performance levels, not specifically to address IT issues. These BPO goals are impacted and enabled by the IT environment, but also are dependent upon non-IT elements like strategy, people, resources, operational locations, and process definitions and operating models. IT considerations can get lost in the shuffle if decision makers do not adequately understand IT’s role.

§   BPO typically is driven by business units

• BPO efforts are nearly always driven by business unit and executive management. The key BPO decision makers often are not IT-literate or interested enough in IT issues to adequately represent the firm’s enterprise software interests in a BPO effort. In many cases, the IT group play only a supporting role in BPO decision making and are not always in a position to fully address BPO challenges.

• BPO buyers also can suffer when the IT group is involved but takes a narrow, negative, or overly technical approach to their role.

Buyers must assess candidate BPO service providers’ IT application and system capabilities and the fit of these systems into their own IT environment, architecture and strategy. §   BPO decision makers may not understand understand the Impact of outsourcing decisions on ITo       Many BPO decision makers tend to focus on the outcome of the BPO effort and not on how the organization gets there. For example, while event driven employee self-service portals are often highly sought after by Human Resources (HR) professionals considering BPO, their focus generally is on how the portal performs and not on the underlying applications and systems enabling that performance. BPO buyers may not fully understand that the capabilities viewed in a service provider demo may or may not work in their own IT environment or the time, effort and cost that may be required to achieve those capabilities. The organization’s BPO decision makers, however, must ensure that someone is playing that role and can connect the dots between business and IT. This ideally would be representatives from the IT group, as well as third-party advisors, or potentially representatives from key strategic IT vendor partners.The underlying IT and enterprise software operating environment, its strengths and weaknesses, costs, and supporting vendors’ capabilities and future direction are all critical elements for organizations to analyze in any BPO decision-making process. This holds true for existing and future environments of the BPO service provider. The process becomes more complex due to the dynamic BPO service provider IT environment (e.g., current client burden, service offering plans, retirement of other offerings, strategic relationships).  

 

 

Current BPO Investments and Future Investment PlansRespondents cited HR and F&A as the two process areas most frequently outsourced.The other areas selected included ITO, call center, and industry specific BPO such as payment processing, as well as IT knowledge process outsourcing services like engineering. In terms of geographic differences, European respondents were more likely than North American respondents to have undertaken HRO. Respondents that had not already undertaken BPO but were actively engaged in doing so, also most commonly cited HR and F&A. 

 

Respondents overall were positive about their future BPO investment plans. Just two individual respondents in the overall survey indicated that their organizations planned to curtail or eliminate existing BPO efforts. Respondents overall most frequently indicated they planned to expand BPO usage into new business domains. This was followed closely by expanding into process areas currently outsourced and into new process areas. Maintaining existing BPO investment levels was the next most frequently cited direction. 

 

Future investment plan citations were lower across the board in 2007 than 2006 for comparable samples (i.e., HR and F&A respondent classes polled in each year). This may represent a slight cooling in the BPO market. It also is a function of the survey sample in that each respondent in general selected less options in this multiple answer question in 2007 than in 2006, leading to lower overall response levels. Given this point, it is important to view the ranking of the responses as well as the absolute levels. 

 

 

 

 

 

 

ConclusionThe future expected growth of BPO is consistently strong in North America, as well as Europe, and across the functional areas of human resources, finance and accounting, and procurement.BPO investment and expansion plans: Existing human resources, finance and accounting, andprocurement outsourcing levels remain strong as do plans for future BPO investments, though expansion plans tempered somewhat in 2007 compared to 2006.Sources of advice for IT issues and needs related to BPO: The internal IT group was the leading source of advice for line-of-business BPO decision makers on IT issues related to BPO.  Outsourcing consultants and enterprise software vendors also were frequently cited as sources of advice.Biggest factors impacting BPO success: Service provider quality remains the leading factor cited. The collective IT capabilities of BPO service providers clearly are recognized as critical to BPO success. The cultural fit between the buyer and the service provider, as well as creating a collaborative ”win-win” relationship, also are deemed important – more so in 2007 than 2006.