During the past 15 years, standards such as Java, Windows, and TCP/IP have made it much easier to outsource various aspects
of IT, spawning a huge IT outsourcing industry. But that trend may pale in comparison to the next outsourcing wave: BPO (business-process
outsourcing).
Companies have offered limited BPO for decades, such as ADP’s payroll processing. But only recently have the floodgates opened.
Today, companies are outsourcing a broad array of processes, including finance, accounting, and HR. The BPO industry is growing
at double-digit rates, with Gartner predicting a $133-billion market for BPO this year.
“More and more people are saying, ‘Why am I buying accounts payable from a software vendor if somebody can just come and do
it for x cents per check?’ ” explains Vinnie Mirchandani, CEO of Deal Architect, which helps enterprises secure offshore contracts.
“They’re saying, ‘I’m tired of SAP and maybe Infosys [an India-based company] can give me the results I need at much better
price points.’ ”
According to Mirchandani, BPO is the inevitable convergence of application software and services, as more companies balk at
the costs of deploying software internally and prices drop for fast-maturing outsourced offerings.
But key questions remain unanswered about how BPO will play out and how enterprises can best ride the wave. Will BPO vendors
eventually look like ASPs, offering open interfaces and process transparency? Or will they look like black boxes providing
only limited inputs and outputs? Can BPO vendors actually deliver innovation and optimize outsourced processes, or will they
just run existing processes at a lower cost? And what will the impact of BPO be on existing IT organizations?
Looking in, farming out
Beyond call-center outsourcing, which has already seen its boom, recent BPO growth has centered on four key areas: finance
and accounting, such as time and expense management, credit analysis, and collection activities; HR, including payroll and
benefits management; supply management and procurement; and industry-specific vertical processes, such as mortgage and claims
processing.
“CFOs and CIOs are looking to outsource those areas that are noncore and can be handled by a trusted third party in repeatable
and minimally invasive ways,” explains Patrick Grady, CEO of Rearden Commerce, which provides BPO-enabling technology.
A dizzying array of vendors has stepped up to meet the demand, including traditional broad-based outsourcing firms such as
Accenture, Hewlett-Packard, and IBM; companies focused on a specific function, such as ExcellerateHRO and UPS Supply Chain
Solutions; and leading Indian IT services companies looking to extend their labor-cost advantage.
“Companies that don’t do BPO are putting their business at risk because they’ll be at a cost disadvantage,” warns Richard
Garnick, CEO of Americas of Wipro, India’s largest private employer -- a third of whose 44,000 employees are dedicated to
BPO.
But IBM Global Services Vice President Donniel Schulman has a different view. “People have confused labor arbitrage with BPO,
but it’s more than that,” he says. “This isn’t about offshore. It’s about taking over a process and adding value right away,
like putting in Six Sigma and smart operational improvements. Your provider should be able to bring things to the table that
you can’t do yourself.”
Both IBM and HP claim that process-specific expertise -- for example, a detailed knowledge of how revenue accounting in the
energy industry should work -- trump labor costs, which IBM and HP claim to have already neutralized by setting up outposts
worldwide.
“The market’s moving toward intellectual property and business content,” says Marc Schwarz, general manager at HP’s 6,000-person
BPO organization. “Do I have real experience? Do I have people who’ve been accountants for years?”
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