BPO Outlook: Most US Companies Pursue Outsourcing

Michael Alan Hamlin

Posted on June 18, 2008

For service providers, the future is domain expertise

A recent survey conducted by InformationWeek showed that more than 70 percent of US companies polled are pursuing business process outsourcing (BPO) initiatives, and only seven percent are cutting back on outsourcing. Released over the weekend, the survey showed that 36 percent of respondent companies plan to maintain their current level of BPO, and 28 percent will increase their use of BPO services.

The seven percent of respondents that are decreasing their use of BPO will continue to use some level of outsourcing services, providing 71% of respondents who will increase, maintain, or decrease but continue to use BPO. Another eight percent will consider using BPO if they get the right offer. Of all respondents, only 19 percent said they have no intention of outsourcing business processes.

For BPO executives in the Philippines and India, the results probably don’t come as a surprise. Demand has never been an issue, and senior industry executives in the Philippines tell me that hasn’t changed. Indeed, announcements by multinational contact centers of new facility launches are commonplace, such as those last month by Convergys and Sutherland.

Convergys is planning to add five new facilities and 7,000 employees to its present nine facilities and 13,500 employees. Convergys has more facilities and employees in the Philippines than anywhere else in the world outside the United States. Sutherland announced that it opened its fourth facility in the Philippines in Camarines Sur, reflecting the industry’s relentless quest to address an issue that does keep executives awake at night: Finding enough people who can communicate fluently in English. In 2007 alone, Sutherland says it hired 3,000 people, bringing its Philippine headcount to 5,600.

The “Latest News” links on the Outsource2Philippines website provides a long list of similar and other upbeat announcements on the Philippine BPO industry. One reason the news is so upbeat according to the results of the InformationWeek survey is that many BPO providers appear to be getting better at what they do. Almost 40 percent of respondents said that their outsourcers have improved significantly over the past two years in two important ways: 1) Understanding their clients’ businesses and industries; and, 2) Meeting agreed-upon metrics.

About 30 percent of respondents said their providers had improved significantly in terms of providing lower costs than running the same services they are outsourcing in-house. And 24 percent cited “adapting as business needs change” as an area of significant improvement, while 23 percent cited the addition of technology by providers to improve processes.

However, not all the news is good. Despite their intent to mostly maintain or expand their outsourcing programs, only half of respondents said they were satisfied with their outsourcers. The other half were either neutral or dissatisfied. Thirty-two percent of respondents said their outsourcers’ performance had declined significantly in the past two years in the area of “Assigning and retaining quality people for our projects.”

Other areas of dissatisfaction included “Meeting agreed-upon metrics” (29%), “Innovating process changes” (28%), “Retention of key people assigned to projects” (28%), and “Providing lower costs than running it in-house” (27%). A gradual but perceptible shift from relatively simple BPO services to high-level knowledge process outsourcing (KPO) helps explain these dissatisfaction levels.

InformationWeek reported that even financial decisions that affect the capital position of companies are increasingly being outsourced to KPO specialists along with other processes “requiring professional judgment.” The magazine also reported seeing “such banking functions as market segmentation analysis and data mining to identify new business opportunities” and other sophisticated functions being outsourced to organizations with the expert domain knowledge to undertake such tasks.

In fact, 43 percent of the survey respondents said that their approach to BPO is strategic or more strategic than tactical, and meant “to create long-term competitive advantage or transform processes.” This suggests that future competitiveness for these companies is as tied to the quality of outsourcing providers as it is dependent on internal organizational excellence. Another 28 percent of respondents said their outsourcing initiatives are evenly divided between strategic and tactical objectives. Seventeen percent had at least some strategic objectives. Only nine percent had purely tactical motivations such as cost.

What these results indicate for the Philippines’ BPO industry is that people pressures are going to increase not just in terms of language fluency, but in the exercise of world-class thinking and decision making. To continue growing rapidly as demand for not just BPO but KPO expands, Philippine providers will need to figure out how to acquire domain expertise rapidly as well, and keep it.

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