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BPO is little more than IT outsourcing by a different name – or is it?
According to Giga Information Research, Business Process Outsourcing (BPO) will grow an average of 20 to 25 percent in 2003 and far outweigh growth in other areas of the outsourcing market. But does BPO offer companies anything new or is it little more than outsourcing by another name? A trusted BPO provider partner can offer significant benefits. But, argues Ashley Whittaker, Founding Director, GlobalExpense, companies will not reap the rewards if they don’t take on board the difference between BPO and traditional outsourcing.
The Evolution of BPO
Outsourcing today is largely built on the revolution in the quantity, quality and speed of communication that the Internet allows. Online, companies can now address a range of concerns from access to markets to access to IT skills. With the right external relationships companies can also cut and control costs. All in all, IT outsourcing (ITO) is accepted as one good way of addressing operational efficiency and effectiveness.
BPO takes these benefits a step further. Its precursor was the rationalisation of internal processes from administration to HR that was scaled up across the corporation to achieve ever greater economies of scale. Hence, the birth of the shared service centre. Corporate companies then realised that further potential efficiencies are available through outsourcing business processes to third-party providers. Hence, BPO – and the reason that, compared to the rest of the outsourcing market, BPO is booming.
Walking the walk, not just talking the talk
However, companies looking for BPO providers need to watch out. For service firms everywhere are looking to secure a piece of the BPO cake, regardless of whether they are BPO experts or not. To put it another way, companies need to be wary of buying an old outsourcing service in a new BPO wrap.
For example, a big brand consultancy might offer advice on business process change, calling it BPO. That advice may well be alright, as far as advice goes. But if the consultancy is not offering to actually run your processes for you, then they are merely coming up with ideas for change, not BPO proper. Alternatively, some smaller outsourcers may offer a range of IT services, with a number of maintenance savings that look attractive. But again, if all they will do is run the technology piece, the savings that can be made will be restricted.
BPO is different. Consider the difference in relation to the HR function. Traditional outsourcing has helped with the HR department by offering two kinds of service. The first are IT services, the second consulting. But on both counts the HR department is still left running the HR function themselves. BPO, however, takes outsourcing to a new level. The HR department is run in its entirety by the service provider which brings in many additional benefits. They range from the economies of scale that the BPO provider can implement resulting in cost savings for its customers, to the expertise the BPO provider can offer. In order to deliver the true benefits that genuine BPO can bring, companies must understand what it is they should expect.
The BPO difference
So why does the full outsourcing of business processes make such a difference? BPO proper involves a service provider offering compelling business value to a process or function within a company by automating, optimising and then outsourcing a business process. The result is the freeing up of valuable corporate resources that could have been deployed onto more profitable tasks.
Back-office business processes are prime candidates for BPO. For example, while elements of the accounting and finance function such as financial analysis, budgeting and managing cash flow are competencies the business must keep as core, more basic functions such as accounts payable/receivable, and billing are not. Alternatively, a non-core transactional process like travel and expense management is a necessary evil, but it can be a major admin headache, let alone a source of unnecessary costs. Automated through BPO, the company can take a step back from the bureaucracy and improve, say, its expense policy.
BPO itself brings specialist expertise to the management of processes too and the benefits should not be underestimated. For example, there is a growing need for corporate governance in certain business functions as a result of increasingly complex tax and regulatory environment, such as the imminent international accounting standards. Companies can clearly benefit from shifting accounting and other potential financial process risks to a third party with expertise in these functions that will ensure compliance with such required standards and practices.
Take an issue like dealing with the Inland Revenue. The rules governing what can and cannot be offset against tax in this area are legion. If a company gets them wrong it is not just that they stand to be fined, but also that they might be incurring extra costs unnecessarily. For example, travelling business people can spend £5.00 on sundry costs in the UK per day, but if they go over that limit the company is liable for the tax on the full amount. This is the kind of spend BPO can control.
Dipping a toe in BPO
With deployment over the internet, even very small companies with just a handful of employees can gain from the advantages of outsourcing whole business functions. Of course, scepticism as to outsourcing proposition is widespread. The business proposition must be clear and service providers must credibly demonstrate that the proposed service will deliver short-term savings to the bottom-line. A bare minimum is that the BPO provider can demonstrate the expertise it’s offering by showing what it has done for customers whose needs are similar to the company making the decision.
But with the right partner, BPO can bring benefits that will help businesses, particularly in the current economic environment. Costs can be cut, time savings can be achieved, management can be improved, and new expertise can be bought it fast. 2003 will be good year for BPO providers. The savvy business will be ready to exploit the services on offer.
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