Leadership & transition

Michael Alan Hamlin

Posted on April 27, 2010

The global economic downturn that began in 2008 and persists today-especially in the developed economies where it began and that were worst hit-accelerated the pace at which the business process outsourcing (BPO) industry is maturing. “There is more acceptance” among top managers, Vipin Suri, a program director for The Conference Board and a BPO authority, told a group of industry executives earlier this week, “and a bigger appetite for change.”

Suri spoke before member of the ICT Committee of the American Chamber of Commerce of the Philippines (AmCham) on “The Future of Outsourcing in an Increasingly Competitive World.” Although the committee chairmen who conceptualized the topic might have been thinking of competition for BPO investors or between BPOs themselves, Suri spoke of competition in a broader sense, and said that competition continues to drive development of the BPO industry.

“Senior executives continue to seek ways to run their businesses more effectively and efficiently,” Suri said. Before his formal talk, I had a few minutes to speak to Suri one-on-one and he told me the stakes are enormous. “We’re talking about a lot of money,” he said of the potential savings as a result of outsourcing processes: millions, hundreds of millions, and potentially billions of dollars.

“If you want to leave that kind of money on the table,” he said when I asked him about prospects for industry growth, “go ahead. But your competition isn’t going to.” Suri doesn’t believe that the perception of political expediency in developed economies struggling to create and retain jobs is anything but a phantom threat to the industry. In fact, Western companies are foregoing the “two-step” outsourcing development process prevalent before the recession to streamline and accelerate the shift to outsourcing and offshoring.

Several years ago Suri said the typical pattern was for risk-averse companies to open a shared services facility in an offshore location offering lower costs. These companies were still in control, and enjoyed the benefits of substantially lower costs typically providing between 20% and 30% savings. However, outsourcing to a third party can provide another 20% or more in savings on operations costs in part by leaving processes to process experts. With saving money and increasing productivity so important, it hasn’t taken senior executives long to decide that they should forego the shared services process and go direct to third parties.

Suri said an informal survey conducted by The Conference Board illustrates this trend. Fifty-seven percent of respondent executives said they had increased their level of outsourcing as a result of the recession, and almost 80% said they had realized anticipated value as a result or exceeded the value they expected outsourcing to generate for their firms. For 45%, the principal objective was cost reduction, and 36% said they wanted to free up resources.

With a long and impressive history in shared services and outsourcing, Suri’s insights into the industry were clearly appreciated by the executives who attended his presentation. While it is encouraging to hear that the industry is well-positioned for growth-Suri and others believe it’s impractical for companies to pull back from outsourcing even when economic conditions improve-are BPO services providers in the Philippines really benefiting from increased demand?

An informal show of hands at the AmCham briefing suggested they are, with executives in established firms suggesting they will grow anywhere from 15% to 35% this year, creating thousands of new jobs. A more formal indicator of industry sentiment will be presented by the Business Processing Association of the Philippines (BPA/P) and Outsource2Philippines (O2P) next Wednesday, April 28 in their first CEO Breakfast Briefing for 2010.

Entitled “Leadership & Transition in the Next Decade of Philippine BPO,” the Briefing will be the venue for the release of the results of the latest BPA/P-O2P survey. KPMG global partner-in-charge Egidio Zarrella will provide an analyst’s perspective on the industry, and SPi president and CEO Maulik and Philippine American Life & General Insurance Company vice chairman Jose L. Cuisia will provide the private sector perspective. (Disclosure: BPA/P is a client of my firm, TeamAsia, which is organizing the Briefing. I am a director of O2P.)

The speakers are expected to address competition for BPO investment, which Suri did acknowledge as an important factor for the Philippines’ continued success. He singled out competition from Malaysia and Central America particularly, noting that these governments are providing significant incentives to investors to create jobs in their countries. That’s an important issue for BPO executives here, as well as for the next Philippine government.

(Michael Alan Hamlin is the managing director of TeamAsia and a Manila-based author. His latest book is High Visibility: Transforming Your Personal and Professional Brand . Write him at mahamlin@teamasia.com and follow him on Twitter, Facebook and LinkedIn.).

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