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?”
But Deal Architect’s Mirchandani warns that outsourcing isn’t the same as improvement. “We’re probably in the second inning of BPO. People are just not that sophisticated,” he says. “An old adage in outsourcing has been ‘outsource an efficient process.’ If you just hand it to a vendor and expect efficiencies, I think you’re being somewhat naive.”
From the beginning, technology was the fertile ground for BPO’s growth. The expansion and consolidation of the ERP and application software markets, for example, helped standardize common enterprise processes. In turn, the rise of the Internet made it easier to farm out not just code and data but workflow and process information as well.
“The tools have evolved to allow a company like us to provide A-level services on an outsourced basis,” says Gene Long, president of consulting services at Atlanta-based UPS Supply Chain Solutions. “The big driver now is the software. It lets you outsource operations that before had to be managed uniquely by location, like warehouse performance optimization, inventory track and trace, traffic and carrier management, recognizing demand, and even returns.”
Across the board, technology is shaping up to stay at the heart of the BPO battle. Responding to cost pressure from offshore vendors, incumbents including IBM have recently announced that they plan to focus more on using technology rather than labor to deliver compelling BPO solutions.
“There’s no question that the absolute improvements over time will be by employing better technology,” says HP’s Schwarz. “It is absolutely about leveraging assets.”
But some analysts say that many BPO providers have a long way to go to leverage technology well, and that they must better use open standards and existing applications platforms. “If BPO vendors are smart, they will not reinvent the wheel,” says Mirchandani. “But especially the offshore guys, they think, Why pay Oracle so much when I can go write a custom piece of software, with my labor costs the way they are?”