BPO: Cost Takes a Back Seat
The possibility of substantial cost savings remains the foremost reason why most companies decide to outsource, but according to a new Capgemini/IDC survey, when it comes to selecting a business process outsourcing (BPO) provider, cost is no longer the main factor. About 35 percent of survey respondents said that cost reduction was the primary driver for deciding to outsource, followed by 29.4 percent who rated focus on core competency and outsourcing non-core processes as the top priority.
Of the more than 200 respondents to the BPO-pulse survey conducted at the IDC Outsourcing Forum in San Francisco, 34 percent were from financial services and 30 percent came from product industries (including energy, automotive, and retail). Service providers/vendors represented 26 percent, and the remaining 10 percent were from the services industries sector.
Only 18.8 percent declared that the lowest cost solution was the most important selection criteria when choosing an outsourcing provider. Just under one-third, 32.8 percent, designated cultural fit with provider as the top reason, while another 29.7 percent admitted that the ability to offer transformation service plus operating capability as their top priority for selecting a BPO provider.
According to Chris Carrington, vice president of Capgemini's BPO practice, the results indicate that companies are reaching for what he refers to as the second phase of maturity
. "Clearly, BPO decisions have been driven by cost reduction, but phase two of maturity is that cost is no longer the primary reason for [outsourcing decisions].... The market is sensing that there has to be cultural alignment with a partner...to be complimentary with cost reduction."
When segmented by department, 30 percent of respondents said that they plan to outsource IT in 2005 and 25 percent plan to outsource HR, but perhaps most surprisingly, just 18.8 percent of respondents said they plan to outsource customer care in 2005. "HR and IT have been around a long time, and people have gotten more comfortable with the delivery results. They are farther along in their maturity curve," Carrington says. Customer care is still sensitive to outsourcing. "[Companies] are in business to serve their clients, so it's almost hard for them to fathom that someone might be able to serve their customers in an equal or better fashion."
Survey results also indicate a shift in how companies measure ROI generated from BPO initiatives. Only 20 percent of respondents said their companies define successful BPO ROI by pure cost savings, while 31.4 percent responded that they use the delivery of internal value and shareholder value through competitive advantage to determine a successful BPO project. About 17 percent said that they define a successful BPO initiative by its ability to focus on its core competencies, 15.7 percent do by its ability to drive greater process visibility, efficiency, and integration, and the remaining 8.6 percent judge success by being able to access or enhance its technology environment. "Although pure cost savings was still one of the key measures...the marketplace has grown in its understanding of business process outsourcing."
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