Business process outsourcing is not a new field. Paychex, for example, has been outsourcing payroll processing for small businesses since 1971. But the market is heating up these days, thanks to companies' keen interest in cost-cutting, their desire to improve business methods and their growing comfort with outsourcing arrangements. Gartner estimates the worldwide market for business process outsourcing grew from $115bn in 2000 to $124bn in 2001, and will expand to $178.5bn in 2005. Investment firm SG Cowen Securities expects the BPO market to jump by 10 percent to 15 percent in both 2003 and 2004, while IT services in general will grow just 5 percent to 6 percent this year, and 6 percent to 10 percent next year. EDS, meanwhile, forecasts the BPO market will grow at an annual clip of 9 percent to 11 percent through 2005, with sales of enterprise shared services growing three times that rate. IT services overall will expand at a more tepid 8 percent to 10 percent annually, EDS expects. Processing insurance claims and handling student loan collections for banks may not be as glamorous as designing a new computer network architecture, but those business tasks represent a large expense that companies are eager to trim, says Lesley Pool, chief marketing officer for Affiliated Computer Services, which provides IT services and business process outsourcing. BPO results can be more dramatic than IT service offerings, Pool says. While IT outsourcing, such as farming out control of a data centre, can cut costs 10 percent to 15 percent, outsourcing a business process may shave 40 percent to 60 percent off the bottom line, Pool says. "What you're providing on the BPO side is much more valuable to the client." One key to the savings is increased use of technology such as scanning systems that read data from paper forms and populate database fields. Whereas back-office transaction processing used to be labour-intensive, machines now do much of the work. Outsourcing can also lead to more accurate results, Pool said. One client of IT services company Affiliated Computer Services found the accuracy of its transaction processing jumped to 97 percent from percentages in the low 60s, Pool said. At the same time, health care claims that had taken the client three weeks to process could be done in one day by Affiliated, Pool said. Affiliated has followed the BPO money trail. Initially formed in 1988 strictly as an IT services provider, the company made a push into business process outsourcing about four years ago. Now two-thirds of its revenues comes from BPO deals. The company posted annual revenues during the last fiscal year of $3.1bn, and it employs more than 38,000. Wall Street takes notice
Affiliated's BPO strategy has won over some Wall Street analysts. In its "Tech Road Map 2003" report earlier this month, SG Cowen Securities called Affiliated one of its favorite investments. The brokerage said that BPO, application outsourcing and facilities management were the exceptions to "lacklustre" growth in IT services in 2003 and 2004. "During the past two years, given the more widespread acceptance of the BPO concept at the corporate level, demand trends have been accelerating," the investment firm wrote. Also earlier this month, Bear Stearns said it was biased toward "transaction processing" computer services companies, including Affiliated and Alliance Data Systems. "Relative to traditional systems-integration/large-scale outsourcing companies (such as Computer Sciences and Electronic Data Systems), transaction processors tend to have more predictable, leverage-able, and scalable businesses," the investment firm wrote in a report. "And, importantly, the transaction processors are less exposed to information technology...spending patterns and less vulnerable to increasingly rapid changes in technology." Electronic Data Systems and rival Computer Sciences say they see the BPO light as well. EDS' roots are in processing Medicare insurance claims, and the company now processes more than one billion health care claims per year. It also supports credit card activity for two million merchants in 19 countries, EDS spokesman John Clendening said. "We do a ton of processing," Clendening said. EDS also has about 14,000 employees working at help desks or contact centres. EDS workers handle emergency roadside assistance calls for General Motors, for example. Computer Sciences provides BPO services including claims processing, invoicing, human resources and payroll, and customer support. Computer Sciences has staked out a BPO claim in the energy industry by establishing an Energy Services Center in Dublin, Ohio. The company says its agreement with an energy firm with $101bn in revenues is the first major deal in the energy industry in which full customer service operations are being outsourced. "As more states deregulate their power industries, CSC will be there, ready to take over back-office operations so that these companies can concentrate on their core business," Computer Sciences says on its Web site. Management consulting and technology services company Accenture also is a BPO player. Accenture's first BPO deal came in the early 1990s, when it outsourced finance and accounting functions for British Petroleum. Accenture now handles a variety of outsourcing tasks, such as airline ticket processing and call centre staffing for AT&T. Another Accenture client is communications technology company Avaya. In late 2001, Avaya asked Accenture to manage a roughly $50m training programme. Avaya leaders weren't interested in cutting the cost of the programme so much as improving its efficiency and expanding online course offerings -- which would let sales employees spend more time in the field. With Accenture managing the training programme, e-learning course consumption rose from 17 percent of coursework to 40 percent, according to Avaya's human resources head Ron Kitlas. Kitlas said one trouble spot in the arrangement is that Accenture's courses don't always fill up, leaving Avaya with less bang for its buck. But Avaya leaders say Accenture has managed to develop courses in a timely way for the dozens of new products it releases each year. IT services giant IBM also has a BPO strategy. Having acquired consulting and technology services company PwC Consulting last year for $3.5bn, IBM now trumpets its ability to help businesses run more efficiently through a combination of management advice and technology. But its BPO approach is a bit different from that of other IT services companies, in that it focuses on processes that can be highly automated, such as developing an efficient procurement system. "It doesn't make sense for IBM or the customer to just go after the cheaper labour play," said Dev Mukherjee, vice president for On Demand Services at IBM. If a client wants to outsource manual tasks such as call centre staffing, IBM finds a partner provider, Mukherjee said. Tomorrow the world...
One strategy companies are using to keep labour costs low is going overseas, part of a broader trend of IT services providers trying to cut expenses with foreign operations. About a quarter or Affiliated Computer Services employees, for example, work overseas in countries including Ghana, India and Guatemala. EDS for its part plans to open a new customer contact centre in India this spring. Some foreign nationals aren't waiting for US-based firms to establish satellite operations. Locals in countries such as India and Jamaica are setting up BPO outfits. Prominent Indian BPO firms include Progeon, a unit of IT services company Infosys Technologies, and Daksh. India's National Association of Software & Services Companies says revenues in the country's call centre and BPO industry grew by 70 percent during the 2001-2002 period to a total of $1.46bn, and should jump to $16.94bn by 2008, capturing more than 10 percent of the global market. So far, however, only a small portion of transaction-processing work has actually crossed overseas. A Gartner survey in late 2001 found that just 5 percent of US corporations with revenues ranging from $100m to $4bn outsourced, or had the intention of outsourcing, portions of their back-office tasks to offshore companies. Still, Indian outfits are part of a challenging landscape, Gartner's Scholl said. Other competitors to IT services firms in the world of BPO include consulting firms, human resources outsourcers like Exult and Paychex, and companies like Automatic Data Processing that, along with human resources outsourcing, offer other services such as auto repair claims processing. To set themselves apart, some companies, such as IBM and Accenture, talk about "transformational" outsourcing, which involves improving business processes instead of just managing existing ones. Scholl, though, warns that the concept may be partly hype. Service providers may not be able to continually enhance a customer's methods over the life of a 10-year deal, she said. Scholl also points to the roots of IT companies as a possible obstacle to good business process outsourcing. Tech-oriented providers may focus too much on technology metrics rather than business results, and may suffer from a culture arising from short-term IT projects. "Once they're done with the implementation, they just leave," Scholl said. "In outsourcing, you're there for the long term."
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Going to start a call outsourcing center in chennai, india. want to have a tie-up .