Cost-cutting remains the top reason why companies outsource business processes, but other drivers include supporting growth and driving innovation.
Posted Jan 17, 2007
Capgemini and IDC have unveiled "From Transactional to Strategic BPO: Putting the Evolution in Context," a coauthored report contending that while business process outsourcing (BPO) can lower costs and improve productivity, it's gaining traction as a strategic tool for process and business transformation. The report is based on the results of pulse surveys with a combined total of more than 100 executives at the March 2006 and September 2006 IDC Forums.
Not surprisingly, respondents tapped reduced costs as the most important driver for incorporating BPO into their corporate strategy, with 68.2 percent. Focusing on core competencies secured the second position, albeit garnering a substantially smaller percentage than reducing cost--22.7 percent.
"There will always be an accelerating pressure to drive down costs, but fueling innovation requires shedding non-core activities to maintain focus, thereby freeing up cash to continuously invest in core competencies and focus on driving a better return on capital across the enterprise," Capgemini's Viewpoint states. Other drivers ranked include supporting growth (9.1 percent), and driving innovation and accessing best practices, both tallying 4.5 percent.
"Early on a lot of companies experimented with IT outsourcing and had seen results in terms of cost reduction but also flexibility in their operations, supporting M&A and growth areas, and also being able to focus on their core business," says Maureen Barry, director of global marketing and communications for Capgemini and an author of the report. "So they're looking at aspects of their SG&A or their company operations and how they can do the same in other areas such as finance and accounting, HR or customer care."
Survey results also revealed that 85 percent of respondents have saved at least as much as they invest in outsourcing, while 26.4 percent noted that they've saved at least twice the size of their investments. When it comes to how companies are using savings from outsourcing, however, most--63 percent--have invested savings amassed as a result of outsourcing back into the company to enhance operational performance, drive innovation or support growth, according to the report. Slightly less than one third--31.6 percent--noted that the savings went to their bottom line, improving shareholder value. The report also contends that 5.3 percent used the savings to cover the cost of outsourcing while improving flexibility or agility. It is important, though, that companies keep in mind that potentially hidden or overlooked expenses like travel costs have the potential to reduce expected savings.
One of the main issues that companies must be aware of when evaluating BPO providers is that the company has industry-specific experience. "Technical competence alone is not enough in BPO," Capgemini's Viewpoint states. "To deliver the full value of BPO, a provider must understand the challenges, best practices, and business issues driving a particular industry."
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