State of Business Process Outsourcing

The State of Business Process Outsourcing

TechWebTechWeb

July 2008

TechWeb The State of BPO July 2008 Page 2

Overview

Increasingly, organizations are outsourcing to service providers to take over more business processes. In some cases, these are non-core commodity competencies, but in others they are mission-critical operations that outsourcers can help to optimize, and thus help organizations transform their business.

This State of BPO study, sponsored by Satyam, was designed to reveal the opinions of IT professionals regarding business process outsourcing (BPO).

For purposes of this study, business process outsourcing (BPO) was defined for respondents as the following:

BPO includes services (horizontal and vertical) such as call/contact centers, HR benefits administration, finance and accounting, engineering services or procurement, among other examples.

Some of these business services may have an IT component to them, such as hosted services or managed services. They chiefly entail process and domain expertise and are measured in business outcomes.

The State of

BPO


Methodology

Sample: In May 2008, TechWeb sent e-mail invitations to an Nth name sample of those who have agreed to be contacted by TechWeb. The sample was drawn from the U.S. and Canada.

Questionnaire: The questionnaire was developed by TechWeb, and administered via a Web-based survey.

Method: E-mails were sent to subscribers inviting them to participate in an online survey. An embedded URL directed respondents to the survey hosted by our Web survey host partner, SurveyGizmo.

Response: A total of 475 respondents completed the survey. Data is based on these 475 respondents unless otherwise noted.

The State of

BPO


Conclusions

The State of

BPO

The study results reflect the burgeoning interest in BPO–and highlights its potential to help organizations on the road to transformation.

Significantly, 45 percent of respondents say they have attempted to transform a business process after outsourcing it to a provider, and 75 percent of these customers say that their organization's transformation of an outsourced business process has been a success.



STUDY FINDINGS


HR, Tech Support and Finance Top the List of BPO Areas

Is your organization engaged in any of these types of business process outsourcing?

Is your organization engaged in any of these types of business process outsourcing?

The State of

BPO

The high interest in HR outsourcing speaks to the growing trust customers are placing in their BPO providers, as these processes touch the assets that are most vital to the success of any organization: its employees.

A failure to properly execute good service can damage the reputation of a company, especially when it comes to the recruitment and retention of talented workers.

The high interest in HR outsourcing speaks to the growing trust customers are placing in their BPO providers, as these processes touch the assets that are most vital to the success of any organization: its employees.

A failure to properly execute good service can damage the reputation of a company, especially when it comes to the recruitment and retention of talented workers.

41%

38%

31%

28%

25%

24%

23%

20%

20%

19%

14%

14%

12%

10%

8%

Multiple responses allowed


Majority Have Integrated IT + BP for Some or All of Their Outsourced Functions

Do you currently have or are you considering an integrated IT+BP outsourcing strategy?

Do you currently have or are you considering an integrated IT+BP outsourcing strategy?

38%

30%14%

18%

Yes, we currently have an integrated IT+BP outsourcing strategy for all our

outsourced functions.

Yes we currently have an integrated IT+BP

outsourcing strategy for some of our outsourced

functions.

No, we do not have an integrated IT+BP outsourcing strategy for

our outsourced functions, but we are considering it.

No, we do not have an integrated IT+BPO outsourcing

strategy for our outsourced functions, and we are not

considering it.

The State of

BPO

The State of

BPO

Integrating IT and BP outsourcing for some or all outsourced projects requires contracting with service providers that have a broad range of offerings, some of them blended between business processes and IT functions, such as managed or hosted networks or application environments.

The advantage to this approach is that, if a problem occurs, a single vendor must take ownership of the issue.

Integrating IT and BP outsourcing for some or all outsourced projects requires contracting with service providers that have a broad range of offerings, some of them blended between business processes and IT functions, such as managed or hosted networks or application environments.

The advantage to this approach is that, if a problem occurs, a single vendor must take ownership of the issue.


Half Do, Half Don’t Use BPO Services for Core Business Areas

Do you currently procure BPO services that are core to your business?

Do you currently procure BPO services that are core to your business?

It’s a mix of core and non-core

28%

No46%

Yes 26%

The State of

BPO

The State of

BPO

Some companies remain hesitant to part with core processes. About half the respondents still refuse to do so. But the tide is turning, as companies increasingly value the expertise of BPO providers with strong practices in key vertical and horizontal areas.

More than half are looking to business process outsourcers to take over some, if not all, of their core functions.

Some companies remain hesitant to part with core processes. About half the respondents still refuse to do so. But the tide is turning, as companies increasingly value the expertise of BPO providers with strong practices in key vertical and horizontal areas.

More than half are looking to business process outsourcers to take over some, if not all, of their core functions.

Jennifer Zaino

Actually wouldn't this be over 50%, when you take some core processes as well as just plain YESes into the picture? That's how I interpret it--see caption.


Decreasing Costs Is the Top Driver for BPO Services

What are the primary and secondary business drivers for BPO services within your

organization?

What are the primary and secondary business drivers for BPO services within your

organization?

Primary Secondary

Decrease costs 26% 14%

Add business value 17% 11%Need to outsource non-core services in order to focus internal staff on core services

16% 15%

Improve service levels/quality 14% 13%

Drive business transformation 11% 12%

Manage services 10% 13%

Provide domain knowledge 6% 14%

Other 2% 9%One response allowed per column

The State of

BPO

The State of

BPO

BPO adoption is tied to much more than cost savings, yet that is the primary business driver for respondents.

If BPO providers don’t succeed on that level, they may not get the chance to prove their merit in terms of other important drivers, such as adding business value or creating business transformation.

BPO adoption is tied to much more than cost savings, yet that is the primary business driver for respondents.

If BPO providers don’t succeed on that level, they may not get the chance to prove their merit in terms of other important drivers, such as adding business value or creating business transformation.


BPO Is a Success at Most Companies

Has your organization achieved success in outsourcing BPO services to onshore, near-shore or offshore

destinations?

Has your organization achieved success in outsourcing BPO services to onshore, near-shore or offshore

destinations?

59%

21%

20%

16%

11%

The State of

BPO

The State of

BPO

Organizations can be successful with BPO whether it is undertaken onshore, near-shore, offshore, or using a combination of these locales. Eighty-four percent of the BPO buyers surveyed have experienced success with BPO engagements, no matter the location of the service delivery. In many cases, success equals improving service delivery and performing the function at a lower cost –not necessarily transforming it.

Organizations can be successful with BPO whether it is undertaken onshore, near-shore, offshore, or using a combination of these locales. Eighty-four percent of the BPO buyers surveyed have experienced success with BPO engagements, no matter the location of the service delivery. In many cases, success equals improving service delivery and performing the function at a lower cost –not necessarily transforming it.


We have had success with domestic BPO

We have had success with offshore BPO

We have had success with combination BPO model

We have had success with near-shore BPO

We have not experienced BPO success


Transformation Efforts Stay Close to Home

56%

35%

23%

12%


The State of

BPO

The State of

BPO

Has your organization attempted to transform a business process by outsourcing to service providers in onshore, near-

shore or offshore locations?

Has your organization attempted to transform a business process by outsourcing to service providers in onshore, near-

shore or offshore locations?

Most of the respondents transforming a business process undertake such projects with providers who offer onshore services.

But more than one-third are comfortable working with talent that is located offshore to transform their processes–overtaking near-shore options by a significant margin.

Most of the respondents transforming a business process undertake such projects with providers who offer onshore services.

But more than one-third are comfortable working with talent that is located offshore to transform their processes–overtaking near-shore options by a significant margin.

Onshore (U.S.)

Offshore (Asia, Europe)

Near-shore (Mexico, Canada)

Never attempted to transform a business process


Transformation Approach Depends on the Process

In your view, is it wiser to transform a business process by …

In your view, is it wiser to transform a business process by …

34%

12%

45%

10%


The State of

BPO

The State of

BPO

Carry out process improvement internally before outsourcing of the

processes

Having the service provider carry out process re-engineering first, prior to

shifting the processes

Having the service provider do a "lift and shift" of the processes and then carry out

business process re-engineering

It depends on the processes being outsourced

There’s no right answer when it comes to how you will transform a business process.

But experts agree on one thing: Before you or your outsourcer can improve a process, you must understand your process workflows.

That means it’s important to invest time to document and diagram the workflows, including roles and responsibilities, business rules and policies.

There’s no right answer when it comes to how you will transform a business process.

But experts agree on one thing: Before you or your outsourcer can improve a process, you must understand your process workflows.

That means it’s important to invest time to document and diagram the workflows, including roles and responsibilities, business rules and policies.


About Half Transform a Process After Outsourcing It

Has your organization attempted to transform a process after outsourcing

it to a BPO service provider?

Has your organization attempted to transform a process after outsourcing

it to a BPO service provider?

No55%

Yes 45%

The State of

BPO

The State of

BPO

BPO providers have taken on the job of transforming a process in 45 percent of cases.

Typically, companies will work in tandem with the provider to make changes that are often impossible to do on their own with overburdened in-house staff.

BPO providers have taken on the job of transforming a process in 45 percent of cases.

Typically, companies will work in tandem with the provider to make changes that are often impossible to do on their own with overburdened in-house staff.


Tech Help Desk and Customer Care Top List of Transformation Targets

Which is the most recent process your organization sought to transform with the help of a BPO service provider?

Which is the most recent process your organization sought to transform with the help of a BPO service provider?

The State of

BPO

The State of

BPO

While the most recent targets of provider-led transformation have been tech help desk, customer care, finance and accounting, and engineering service processes, nearly 10 percent have turned to their business process outsourcer to help them innovate their industry-specific processes.

While the most recent targets of provider-led transformation have been tech help desk, customer care, finance and accounting, and engineering service processes, nearly 10 percent have turned to their business process outsourcer to help them innovate their industry-specific processes.

16%

14%

15%

9%

14%

8%

5%

4%

3%

3%

1%

1%

1%

5%


Three-Quarters Have Successfully Transformed a Business Process They Have Outsourced

Overall, would you consider that you have successfully transformed the business processes that you have outsourced?

Overall, would you consider that you have successfully transformed the business processes that you have outsourced?

26%

48%

13%13%

It’s too soon to tell

It was/is somewhat successful

It was/is very successful

It was/is unsuccessful

The State of

BPO

The State of

BPO

Impressively, three out of four BPO customers say that their organization's transformation of an outsourced business process has been a success.

Two-thirds of those respondents qualify their success as "somewhat successful" rather than "very successful," but when it comes to transformation–an exercise that is not without risk–any form of success is welcome.

Impressively, three out of four BPO customers say that their organization's transformation of an outsourced business process has been a success.

Two-thirds of those respondents qualify their success as "somewhat successful" rather than "very successful," but when it comes to transformation–an exercise that is not without risk–any form of success is welcome.


63%

51%3%

47%

18%

6%41%

31%

54%12%

46%

6%

40%4%

34%8%

33%3%

25%4%

23%1%

21%2%

7%2%

Proven track record of successful transformations

Willing to share risk and rewards for stated business transformation objectives

Compliance with U.S. regulatory standards

Operations in local and low-cost destinations

Scalable supply of trained domain experts

Ability to send staff to work with us at our locations

Latest and highest global standards and certifications

Track record of at least one successful project with us

Willingness to accept third-party technology and business audits

Proven investment in infrastructures across service locations

Ability to execute in multiple languages

Consulting expertise/Six Sigma or Lean Sigma expertise

Other

Proven Track Record Is Most ImportantWhich of the following conditions must a BPO service provider meet

before you would award it a contract for business process transformation?

Which of these is the most important?

Which of the following conditions must a BPO service provider meet before you would award it a contract for business process

transformation? Which of these is the most important?

All Conditions – Multiple responses allowed

Most Important Condition – Single response only

The State of

BPO

The State of

BPO

When buyers consider awarding a provider a contract for a transformational BPO engagement, most will not consider a vendor that lacks a proven track record of successful transformation.

When buyers consider awarding a provider a contract for a transformational BPO engagement, most will not consider a vendor that lacks a proven track record of successful transformation.


Slow Execution and Poor Customer Service Cited as BPO Partner Performance Issues

What are the biggest gaps between your expectations and your partner's performance?

What are the biggest gaps between your expectations and your partner's performance?


The State of

BPO

The State of

BPO

Given that delays can reflect poorly upon the project managers, it is easy to see why “slower than expected execution” would vex a higher percentage of BPO buyers than, say, insufficient cost savings, or mistakes, flaws or bad transactions.

Given that delays can reflect poorly upon the project managers, it is easy to see why “slower than expected execution” would vex a higher percentage of BPO buyers than, say, insufficient cost savings, or mistakes, flaws or bad transactions.

52%

39%

40%

34%

35%

31%

24%

24%

24%

20%

18%

17%

13%

2%



Three-Quarters Use Metrics to Benchmark Performance of BPO Contracts

Does your organization use metrics to benchmark the performance of its BPO

contracts?

Does your organization use metrics to benchmark the performance of its BPO

contracts?

24%53%

7%16%

We use third-party industry-standard

and our own benchmarks Yes, metrics are

established and measured by us with our service

provider

No

Yes, we use third-party

industry/benchmark metrics

The State of

BPO

The State of

BPO

You can’t manage what you can’t measure.

Most organizations have imposed metrics—key performance indicators (KPIs) or service-level agreements (SLAs), such as network availability for network management processes—to gauge how well their BPO provider is performing.

You can’t manage what you can’t measure.

Most organizations have imposed metrics—key performance indicators (KPIs) or service-level agreements (SLAs), such as network availability for network management processes—to gauge how well their BPO provider is performing.


Incenting Service Providers

Does your organization offer any of the following types of bonus or incentives to BPO

service providers?

Does your organization offer any of the following types of bonus or incentives to BPO

service providers?

23%

16%

59%

13%

18%

1%


The State of

BPO

The State of

BPO

Of those organizations that offer incentives to their BPO providers, most provide bonuses based on adherence to quality standards.

As more organizations consider how they might incentivize providers, it is important to note that process improvements will be realized only when incentives are designed to bring about greater efficiencies and effectiveness.

Of those organizations that offer incentives to their BPO providers, most provide bonuses based on adherence to quality standards.

As more organizations consider how they might incentivize providers, it is important to note that process improvements will be realized only when incentives are designed to bring about greater efficiencies and effectiveness.

Quality standards bonuses/incentive

Gain/profit sharing based on SLAs

Service delivery staff/ retention bonus/incentive

Time-to-market bonus/incentive

None/We do not offer incentives

Other


Most Organizations Decide on BPO Contract on Their Own

64%

Does your organization work with third-party experts for identification, evaluation, or

contracting with identified service providers?

Does your organization work with third-party experts for identification, evaluation, or

contracting with identified service providers?

27%

37%

2%


The State of

BPO

The State of

BPO

It’s important that the internal parties charged with the task of choosing service providers understand the rationale for outsourcing the business process.

They also should have deep insight into potential providers’ market presence and whether those providers can provide services at the scope and scale required.

It’s important that the internal parties charged with the task of choosing service providers understand the rationale for outsourcing the business process.

They also should have deep insight into potential providers’ market presence and whether those providers can provide services at the scope and scale required.

Decide on our own

Consulting firms (TPI, Deloitte, neoIT, etc.)

Research advisory firms (Gartner, Forrester, etc.)

Other


Most Respondents Work With Four or Fewer BPO SPs

How many BPO service providers does your organization work with now?

How many BPO service providers does your organization work with now?

46% 34%

7% 9%

One to two

Five to six

Three to four

NoneSeven or

more

4%

The State of

BPO

The State of

BPO

When it comes to IT, many multinational companies are comfortable with multisourcing, spreading billion-dollar deals across multiple service providers.

That’s been slower to take off in BPO, however: Very few respondents are working with more than four providers, and most work with one or two.

When it comes to IT, many multinational companies are comfortable with multisourcing, spreading billion-dollar deals across multiple service providers.

That’s been slower to take off in BPO, however: Very few respondents are working with more than four providers, and most work with one or two.


Most Have Not Attempted Multivendor Strategy

Has your organization attempted to outsource a specific business process simultaneously to more than one BPO

service provider (multi-vendor strategy)?

Has your organization attempted to outsource a specific business process simultaneously to more than one BPO

service provider (multi-vendor strategy)?

No, we have not

attempted it67%

Yes, we have done it

successfully

12%

21%

Yes, but it has not been a success

The State of

BPO

The State of

BPO

Just as organizations have not gravitated to wide-scale use of many BPO providers, most also have not outsourced a specific process simultaneously to more than one outsourcer.

Just as organizations have not gravitated to wide-scale use of many BPO providers, most also have not outsourced a specific process simultaneously to more than one outsourcer.


It’s a Near Split for the Need for Global Services

Do you require that your business process outsourcing partner be able to

deliver its services globally?

Do you require that your business process outsourcing partner be able to

deliver its services globally?

No51%

22%

Yes27%

Yes, for select functions

The State of

BPO

The State of

BPO

Customers that require a business process outsourcer to be able to deliver its services globally may need to support multi-lingual business operations, or they may want a "follow-the-sun" customer care operation that involves establishing contact centers on several continents to exploit time-zone advantages.

Customers that require a business process outsourcer to be able to deliver its services globally may need to support multi-lingual business operations, or they may want a "follow-the-sun" customer care operation that involves establishing contact centers on several continents to exploit time-zone advantages.


Majority Have Not Consolidated Functions Into Shared Services

Have you consolidated F&A, procurement, order management and HR into shared services?

Have you consolidated F&A, procurement, order management and HR into shared services?

No, we have not consolidated these functions into shared services

72%

Yes, we have consolidated these functions into shared services using in-house IT

16%

Yes, we have consolidated these functions into shared services via an outsourcing provider

12%

The State of

BPO

The State of

BPO

Among organizations that have consolidated finance and accounting (F&A), procurement, order management and HR processes into shared services, the preferred route is to use internal resources to handle the job.

Among organizations that have consolidated finance and accounting (F&A), procurement, order management and HR processes into shared services, the preferred route is to use internal resources to handle the job.


Respondents Choose In-House Approach Due to Complexity of Processes

60%

For those who answered “in-house” on the previous question:

Why did you choose the in-house approach?For those who answered “in-house” on the previous question:

Why did you choose the in-house approach?

37%

44%

32%

Data based on the 73 respondents who answered “in-house” on the previous question.


The State of

BPO

The State of

BPO

Complexity of processes

In-house cost of consolidation lower than

service provider's

Lack confidence in service provider‘s capabilities to

perform consolidation

Geographical requirements

By a wide margin, companies say the processes are too complex to entrust to an outsourcer for consolidation into shared services.

By a wide margin, companies say the processes are too complex to entrust to an outsourcer for consolidation into shared services.


Outsourcing Partners Expand Their Influence

24%

Which service providers do you currently use as business processes outsourcing partners?Which service providers are you most likely to consider in the future as potential business

process outsourcing partners?

Which service providers do you currently use as business processes outsourcing partners?Which service providers are you most likely to consider in the future as potential business

process outsourcing partners?

26%

16%24%

22%14%

13%9%

14%8%

12%7%

7%10%

6%13%

5%9%

4%9%

3%8%

7%2%

2%5%

Currently in use

Would consider for use in the future


The State of

BPO

The State of

BPO


RESPONDENT DEMOGRAPHICS


The State of

BPO

The State of

BPO


Respondents’ Roles in BPO

64%

58%

42%

39%

7%

How are you involved in your organization's sourcing or management of BPO service providers?

How are you involved in your organization's sourcing or management of BPO service providers?


The State of

BPO

The State of

BPO


Majority of Respondents Are In IT

Which of the following best describes your job function?Which of the following best describes your job function?

22%

27%

15%

26%

IT Mgmt.

Executive IT Mgmt. (CIO, VP of IT)

Consultant

IT Staff

5%

Executive Corporate Mgmt .(CEO,

President, Corp VP)

General Corp.Mgmt.

3%

General Corp. Staff

2%

52% of respondents

have an IT jo

b title

The State of

BPO

The State of

BPO


Respondents Equally Distributed Among Small, Medium and Large Companies

How many employees are in your organization in total?How many employees are in your organization in total?

500-999

Less than 100

100-499

1,000-4,999

5,000 or more

11%19%

32%

9%

29%

Approximately one-third from small companies (less than 100 employees)Approximately one-third from mid-sized companies (100-4,999 employees)Approximately one-third from large companies (5,000 or more employees)

The State of

BPO

The State of

BPO


Organization’s Primary IndustryConsulting and business services 14.9%IT vendors 7.9%Financial services/Banking 6.8%Health care and medical 5.7%Manufacturing and industrial (non-computer) 5.5%Other 5.1%Education 4.9%Telecommunications and ISPs 4.9%Financial services/Securities and investments 4.5%Government 4.5%Media and entertainment 4.0%Insurance and HMOs 3.8%Electronics 3.2%Biotech, biomedical, and pharmaceutical 2.3%Consumer goods 2.3%Financial services/Insurance 2.3%Financial services/Other 2.3%Automotive 2.1%Construction and engineering 2.1%Nonprofit 2.1%Retail and E-commerce 1.9%Food and beverage 1.3%Real estate 1.3%Distribution 0.9%Logistics and transportation 0.9%Utilities 0.9%Energy and utilities 0.6%Hospitality and travel 0.4%E-marketplace (portals or auction) 0.2%Metals and natural resources 0.2%

The State of

BPO

The State of

BPO

State of Business Process Outsourcing

Business

state of bpo bpo adoption

business services

bpo outsourcing strategy

state of bpo study

outsourced business

business processes

bpo providers dont

expertise of bpo providers