Outsourcing business processes for M enterprises

Nobody can be a specialist in everything: hence the growth in outsourcing of standard business processes. So far business process outsourcing (BPO) has been dominated by large enterprises. Now M enterprises are moving to exploit its benefits.

Growing maturity of the BPO market is enabling medium enterprises to take advantage of new opportunities. I asked Phil Fersht, a former colleague of mine, to define BPO and explain its workings for M organizations. Phil is vice president of the BPO Group at Everest Research Institute, and is well-regarded around the world for his expertise in the matter. Over to you, Phil.

How BPO can provide business value to the middle market 
The term BPO is used when an organization transfers management and operational responsibility of core business processes over to a third-party provider to manage. Typically, these business processes form part of the General and Administrative (G&A) functions, namely Finance and Accounting, Human Resources and Procurement. Other G&A functions we typically see outsourced include customer care services, logistics and industry-specific processes, for example insurance claims processing and payments processing. The Everest Research Institute views a BPO contract as one that combines at least two core processes in a business function (three for HR).

Mid-market buyers can benefit from BPO in a number of ways.

Administrative cost-savings
Some buyers can downsize the G&A function as a result of the services being administered by a third-party. Moreover, they can also deploy labour arbitrage in some cases and have more costly staff in higher cost locations (i.e. North America or Western Europe) replaced by much lower-cost staff in near-shore, rural-shore or offshore locations (for example, Canada, South America, Eastern Europe, China or India).

Access the latest technology at lower costs
Typically, mid-market organizations are not blessed with enough resources to deploy the latest technology solutions and staff to support their G&A IT needs. Most of today’s BPO providers are deploying BPO offerings that are underpinned by a technology platform that can be delivered to mid-market customers with relative ease, in terms of time and cost. Often a BPO engagement can enable a mid-market buyer to solve its technology needs to support a particular G&A function in a single swoop. The key for suppliers is to deploy a platform with common standards that the buyer can change its process to as it is going through the outsourcing transition process.

Increased business focus by retained organisation
Organisations need to adapt to outsourcing to take full advantage of having more focused internal staff that can channel their time and energies on making strategic business decisions. For example, do businesses really care where their general ledger is being reconciled? If they are receiving their GL information quicker than they were pre-outsourcing (and at the same or better quality), then their accounting staff can focus on applying the GL data fluctuations to help support business decisions, rather than spend their time collecting and reconciling administrative data processes.

More fulfilling career paths
Outsourcing can provide more fulfilling career paths for professionals, and does not mean they will lose their jobs (for example, IT outsourcing has ultimately led to increased opportunities for IT professionals). Globalisation is here to stay and today’s professionals – especially in the G&A areas, will benefit from sourcing and vendor management experience as they develop their careers.

Mid-market BPO adoption on the rise
The BPO market was pioneered by the global 100 companies. It quickly expanded to global 500 and more recently to smaller organizations.

Everest Research Institute, as a as part of its ongoing tracking and analytical work of the global BPO industry, has analyzed 275 multi-process BPO contracts in human resources, finance & administration, and procurement. Our analysis suggests that mid-market BPO accounts for only 7% of all the multi-process BPO contracts signed to date. However, contract signing in the mid-market started to gain momentum post 2002.

Currently, mid-market penetration in BPO is low across geographies and industries, leaving significant room for growth.

Finance is prime target for mid-market BPO
The adoption by a buyer segment is dependent on the maturity of the individual BPO market. As the market matures, the value proposition is established, standards emerge, and outsourcing related risks are lowered making the environment favorable for smaller buyers. Currently both the human resources (HRO) as well as the finance and accounting (FAO) markets have progressed beyond the initial “pioneer” stage of market maturity into the “emerging rapid growth” phase and consequently contribute to over 90% of the total mid-market BPO revenues. Procurement outsourcing (PO), on the other hand, is still a nascent market where the value proposition has been identified but remains untapped. As such, the buyers are typically large sized with larger risk appetite and mid-market adoption has been limited.

The large buyers are moving up the food chain by outsourcing activities beyond transactional activities. They are now looking to include more key activities like financial analysis & management reporting and end-to-end processes like Order-to-Cash (O2C) and Procure-to-Pay (P2P) in the process scope. However, cost reduction continues to be the key driver for the smaller buyers.

Mid-market buyers have a strong propensity to outsource transactional F&A processes like payables and receivables, as well as administrative work like payroll, benefits, and compensation in HR. Specifically within FAO, the scarcity of accounting talent, combined with the intense competition for contracts, and lower delivery costs from major providers will open up the FAO market to mid-market buyers. Consequently, nearly 2/3rd of the total overall mid-market BPO is constituted by FAO contracts.

To find out more about Everest's BPO research, do check out the website for yourself.

Comments

[Offshore Outsourcing]

Thanks for sharing this info article.

[outbound call center]

Excellent Description about BPO and its functions nad how to helps to increase the business.