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Outsource magazine: thought-leadership and outsourcing strategy | May 29, 2017

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How will BPO providers’ business models evolve over the next decade?

How will BPO providers’ business models evolve over the next decade?
Outsource Magazine

This article originally appeared in Outsource magazine Issue #32 Summer 2013, as part of our feature ‘Visions of the Future’. To read the main body of that article, click here.

If the last decade has seen the emergence of BPO, the next decade will bring about the divergence of BPO. To prove the initial BPO concept, service providers and their clients had to sort through a range of concerns such as the ability to transition knowledge, mechanisms for ensuring security, and the breadth of applicability of labour arbitrage.

All of these are now considered old news and clients are striving for the next wave of value from BPO, which must move beyond a cost savings-oriented value proposition. New executives have replaced the original leadership who implemented BPO and they want to know “what more will you do for me next year?”.

Further, most BPO markets have experienced a proliferation of service providers with service offerings that are largely undifferentiated. The same tools, delivery locations, process frameworks, and other enablers are generally available from most service providers providing a particular service. Although we do see emerging and meaningful differentiation themes (industry focus in F&A outsourcing, geography density in recruitment process outsourcing and multi-country payroll, category focus in procurement outsourcing, etc.), these are in early stages and tend to simply represent the book of business a service provider has accumulated using a snowball effect to win new clients versus driving forward from targeted investments.

In short, clients are demanding new value propositions and service providers must differentiate to sustain and grow their practices.

With these forces at play, where will this lead the business models of service providers over the next decade?

First, the emerging value propositions will vary dramatically by the nature of the service being provided – typically focusing either on process impact (predictability, transparency, flexibility, compliance, etc.) or business drivers (customer retention/growth, productivity of hired talent, speed to market, response to competitors, etc.) instead of primarily anchored around cost. This will require service providers to understand what drives value in a particular situation with far greater precision – and be proactive in shaping the scope of the solution vs. “what heads are you comfortable transitioning now and later?”

Second, the delivery models required to enable the divergence in value capture will proliferate. For all of the talk in recent years about platforms, BPaaS, analytics, onshore delivery, social media, mobility, etc. there has been limited proactive shaping by service providers of which of these specifically apply to capture a desired source of value beyond cost savings. If the value of these emerging solution ingredients moves far beyond the cost discussion and into powerful other sources of value (increased customer retention, better pricing decisions, faster acquisitions/divestitures, etc.), then adoption levels will increase.

Third, the manner in which service providers go to market must also evolve. Many of these value propositions will apply to different budget centres in existing clients (generally moving more towards the business stakeholders vs. corporate functions of finance, HR, and procurement) or potential clients with entrenched incumbents. Further, some value propositions will target the SMB segment (and many of the enterprise-level relationships will also be smaller than traditional BPO). The resulting expansion of potential relationships to cultivate will require discipline on which to pursue and how to best build those relationships. And a good dose of creativity on the potential roles of channel partners – technology integrators, consulting firms, and other service providers – may also be required.

The bad news for service providers: a lot has to change and the changes will require time and investment.

The good news for service providers: if successful in finding, developing, and selling the right services, the potential for sustained competitive differentiation (or divergence) is far higher than the current resource-centric BPO model.

Those service providers who don’t make the shift will be increasingly be viewed as something like a staffing company – providing skilled resources to run the systems and processes of their clients, but largely interchangeable.


About the Authors

Saurabh Gupta is Vice President of BPO, Everest GroupSaurabh Gupta

 

 

 

 

 

 

 

Eric Simonson

Eric Simonson is Managing Partner of Research, Everest Group

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