The great business process handoff

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.

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“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.