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Disrupting Business Process Outsourcing

By Steve Deverill. Published on 16 March 2016

Throughout the 1980s and 1990s organisations pursued every avenue to achieve a sustainable competitive advantage. Few were explored with more enthusiasm than Business Process Outsourcing (BPO), creating a $160bn global industry and numerous opportunities for the big consultancies to guide clients through the business transformation process.

More recently organisations have been asking if greater savings can be made by creating in-house service centres; they are challenging the conventional wisdom of using Big 4 consultancies to support the transition.

Eton Bridge Partners gathered 26 industry experts at a business breakfast meeting to discuss experiences and current thinking in this area.

The conversation covered four key themes:

1.  Insourcing vs Outsourcing   

Although many (by no means all) BPO initiatives have delivered on their promise of cost savings, outsourcing often involves a compromise when it comes to responsiveness, dependability and customer satisfaction.

Leaders are increasingly questioning whether they might reap the benefits of BPO whilst asserting more influence over quality, through the process of ‘Insourcing’ – bringing in-house, or into the organisation’s own shared service centre, non-core business processes such as finance, payroll and procurement.  And all without the need to give away margin to an external provider.

Our invited guests felt there was no universal right or wrong answer. Even apparently similar organisations in the same industry have adopted opposite approaches.

Some guests thought outsourcing would drift in and out of fashion, but agreed that the current trend is for more insourcing. The market for BPO remains strong, but there are signs it is fragmenting.

Ultimately, whichever route an organisation chooses, the effectiveness of the execution and the on-going management is critical, as is the geographic location of any shared service centre.

2.  Consultancies vs a team of independent experts

Establishing service centres was once the exclusive domain of the Big 4 consultancies. While these corporate behemoths still have a role to play, particularly in the development of business cases, strategies and methodologies, they are increasingly seen as expensive when it comes to implementation.

A new breed of expert interim has emerged as a cost effective alternative to consultancies for the management and execution of business transformation projects. Interims now include genuine world class transformational talent and specialists who can provide the specific expertise needed at a critical point in a project.

By way of example, our invited guests heard about the experiences of two Independent Transformation Directors at a corporate communications business.

Working closely with Eton Bridge Partners, they have built and managed a flexible team of independent interims who could offer the hands on experience lacking in consultancies.

Independents are not only more costs effective, they offer other advantages too.

By choosing to use a team of independent experts rather than a large consultancy, the company made immediate savings of €3m, which was then reinvested in widening the scope of the work. Ultimately the project secured savings in excess of €50m and positioned them for a highly profitable sale in 2016.

To read the full case study please click here.

3.  The emergence of the smart buyer

Using independent experts instead of consultancies requires a leap of faith on behalf of the client.

One consensus that came out during the debate was the emergence of the ‘sophisticated buyer’. While in the 80s or 90s the core consideration for people looking at BPO was as simple as how much money would be saved, modern buyers are more analytical.

These smarter buyers are more confident about bypassing the Big 4 consultancies; a confidence that comes from experience.

Whether pursing an insourcing or outsourcing strategy, smart buyers also tend to be positive sponsors, pursuing a true partnership with the consultancy or interim team. Sponsor support was widely considered to be critical to the success of any programme.

4.  Future trends

So what next for outsourcing and insourcing? Both, in their traditional forms, may be usurped by the development of ever more sophisticated technological solutions and process automation.

AT Kearney anticipates a move to Business Processes as a Service (BPaaS) as the next wave of arbitrage in business services. This will see service users of all sizes tapping into standardised processes in the Cloud, often with a large degree of automation.

The firm reports that BPaaS already accounts for $18bn of the BPO market and has the potential to expand that market exponentially by targeting the multitude of small enterprises for whom outsourcing has never before been an option.

Conversely, some processes do not lend themselves to the standardised BPO model based on monolithic ERP systems. These present another challenge to the outsourcing advocates.

It seems the future of outsourcing and insourcing will offer immense opportunities and challenges for independent interims, bright new start-ups and the established consultancies.

And it starts here.

To read the full white paper summary of this debate please click here or to discuss further please contact me on 01753 303 600 or email steve.deverill@etonbridgepartners.com

Steve Deverill                                                                                                                             Partner – Head of Business Transformation and Technology                                       steve.deverill@etonbridgepartners.com

Steve Deverill

PARTNER
HEAD OF BUSINESS TRANSFORMATION AND DIGITAL & TECHNOLOGY LEADERSHIP PRACTICES

Steve is Head of the Business Transformation practice and manages executive level interim appointments. He supports global businesses, FTSE 100s and entrepreneurial SMEs with transformational business change projects.

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