Despite the variety of business processes and functions that get outsourced, outsourcing in general is changing and several of these changes are not limited to a type or area of business process outsourcing.
Disruptive and transformative factors across value chains and outsourcing ecosystems require the business process outsourcing industry to adapt. Moreover, a new breed of hybrid and flexible (out)sourcing models is entering the market. We are not talking about the hybrid forms of outsourcing as they are known in a context of offshoring, nearshoring and onshoring. In fact, this article is not about offshoring at all, it’s purely about business process outsourcing, regardless of physical locations.
It’s safe to say that the current and future wave of digital transformation exercises, related technologies and the goals organizations want to achieve by transforming play an essential role in the increasing pressure on business process outsourcers (BPOs) to up the ante – and, indeed, transform themselves as well. Before exploring some of these trends let’s start with a look at business process outsourcing and how it has evolved.
What You Will Learn
- 1 Business process outsourcing: back office and front end
- 2 Business process outsourcing: vertical and horizonal
- 3 Collaboration and (digital) transformation: the increasing role of the ‘B of BPO’
- 4 The new business process outsourcing
- 5 Business process outsourcing across various functions and activities
Business process outsourcing: back office and front end
As the name indicates, business process outsourcing means that a business process is tasked to an external contractor who is then charged with the various aspects of the business process, with a clear Service Level Agreement (SLA) and thus outcome-oriented metrics and Key Performance Indicators (KPIs) in place.
The contractor is responsible for all the aspects of the business processes or some of them, including operational aspects, management, responsibilities, control and reporting, etc.
Traditionally a distinction has been made between back office outsourcing and front office outsourcing as you can read on Wikipedia. However, as said business process outsourcing, in its early days mainly associated with manufacturing and supply chain management, is changing.
We see more demand for services regarding compliance and security as digitalization continues and regulatory requirements change.
Back-office processes and front-end processes are strongly interconnected in all possible senses. In fact, digital transformation often is about connecting various processes, automating them and leveraging data and IT resources to serve a common outcome.
Back office outsourcing is defined as the outsourcing of internal processes such as the digitization of paper-based information (turning it into digital data that steer and trigger processes) or human resource outsourcing. Front end process outsourcing is customer-facing whereby contact center operations outsourcing is probably the best known example but you can also think about marketing and sales operations such as telesales.
Business process outsourcing: vertical and horizonal
As a holistic view on various business processes and how they are all connected, is crucial and as in practice we see an overlap between the actual processes that are outsourced, it’s probably best to look at business process outsourcing from both a vertical and horizontal perspective.
An example: digitizing paper documents (done by document service bureaus, document process outsourcers, scanning service bureaus or simply BPOs) is typically a back-office process. However, as information is crucial for several front-end processes and as digitizing paper documents is part of a broader goal, it needs to be seen from a different perspective.
If you look at what a business wants to achieve by outsourcing, in our example digitization of paper documents, you come in vertical areas (one industry domain) such as insurance claims processing or in horizontal situations (occurring across various industries) such as Accounts Payable (Processing).
As mentioned and explored below there is an increasing pressure on business process outsourcing firms, depending on their specialization, to not just reduce costs and enhance efficiency but also to be more of a strategic partner and add more value to allow organizations to focus on their core business.
In some BPO segments, there is a clear demand that outsourcing providers are able to offer an end-to-end solution, including strategic tasks.
This allows BPOs to extend their offering, broaden their skillsets and services (closer to the business value, horizontally, vertically, with specific solutions responding to changing business needs, etc.). In some BPO segments, for instance, we see more demand for services regarding compliance and security as digitalization continues and regulatory requirements change. In other BPO segments, there is a clear demand that outsourcing providers are able to offer an end-to-end solution, including strategic tasks, so companies can free up resources to transform, innovate and create value. Therefore they expect the same from their business process outsourcing partners: more value than many traditionally delivered.
In that sense it’s important to note that the digital transformation economy almost by definition is one of partnerships and strong ecosystems.
- Vertical BPO services. Examples of processes that are typical to specific industries and thus require specialized outsourcing partners, include processes in industries such as insurance, banking, healthcare and IT services. Among these processes: claims processing, health payer business process management and loan portfolio process management.
- Horizontal BPO services. Examples of business processes that are cross-industry and require a deep expertise of the specific process at hand, include HR business process outsourcing (from payroll to human capital management), Supply Chain Management (SCM) BPO, finance and accounting, document capture and digitization of paper-based processes.
Collaboration and (digital) transformation: the increasing role of the ‘B of BPO’
Back to the transformations of BPO and how digital transformations in organizations are impact business process outsourcers. How else could it be? Outsourcing doesn’t work without close collaboration (and increasingly, strong business-oriented aligning) between outsources and their customers. Especially since one of the traditional main reason for outsourcing, cutting costs, is being joined by a myriad of various optimization-driven, value-oriented and often very pressing business reasons.
When business are impacted in the profound ways as they are in today’s so-called (digital) transformation context, the obvious consequence is that the expectations from business process outsourcing partners evolve as well.
The major challenges of organizations, the customers of BPOs, are to be found in streamlining the business by connecting functions, processes, skills and systems that are and always were to siloed.
Digital transformation – the transformation of business processes, models and competencies in a context of ongoing digitization and technological innovation – is not the only reason why the business process outsourcing industry needs to adapt. Far-reaching new regulatory frameworks, cost considerations, changing employee and customer demands, the need to innovate (which is even a growing customer expectation), and the lack of ‘new’ skills which are increasingly required in organizations but are scarce, are equally disruptive. Admittedly, several of these reasons are inevitably connected with digital transformation but they existed before that.
The new business process outsourcing
The crux of the matter is that the business part is gaining importance in all possible senses: the ‘B’ of ‘BPO’. The second letter, the ‘P’ of Process, is also becoming more albeit in an evolving way. Connectedness is a keyword here as mentioned before, as is holistic: in those processes indeed but also in functions, technologies, business goals, people’s needs and the next stage of business process outsourcing itself.
There has been a lot of talk about the ‘new outsourcing’. However, often it’s restricted to a context of IT outsourcing or IT-related phenomena such as the cloud. The next stage of business process outsourcing is about much more than that. It is exactly about a more connected and holistic form of outsourcing whereby outsourcers are challenged to broaden their scope and value proposition, speaking with the business, equally talking the language of the C-suite and understanding business areas that traditionally didn’t fall under the scope of whatever ‘type’ of outsourcing they are specialized in.
In more than one sense this isn’t that surprising either. In the end, the major challenges of organizations, the customers of business process outsourcers, are to be found in streamlining the business by connecting functions, processes, skills and systems that are and always were to siloed. Digital transformation really is a more holistic form of optimization whereby bridges are built, on organizational levels, information and data levels, human levels, process levels, innovation levels and/or collaboration levels – including external partners whom become ‘less external’ and closer to the customer in the broadest sense.
The specialist BPO: from just ‘well’ to ‘excel’
Does this mean that there is no more place for very specific types of business process outsourcers who are specialized in very specific types of processes or operations?
Not at all: no business process outsourcer can be or do everything (and certainly not everything equally well in a world where simply good often isn’t enough). There is even a very strong case for BPOs to focus on expertise regarding specific industries, processes, technologies, business functions, etc. where they excel and have a clear historic and proven competitive benefit, enabling their customers to go from just ‘well’ to ‘excel’. However, even here a more holistic or end-to-end value-oriented collaboration is often needed.
A cost plus performance plus value proposition – and beyond
So, how does this next stage of business process outsourcing look like? Obviously we need to distinguish between different processes that are outsourced, the scale and nature of specific markets and even the challenges that are pressing organizations to alter their demands from BPO partners. Nevertheless, some changing BPO realities spread across all these segments.
No BPO can be or do everything equally well in a world where simply good often isn’t enough
The best-known and most common shift in the BPO reality is the shift from a cost reduction and performance optimization proposition to a cost plus performance plus value proposition, whereby value and performance can take many shapes. Outsourcing used to be driven by the need to reduce costs, get rid of mundane (and less value-creating tasks) and increase the performance of the outsourced process/function. Forward-thinking companies also saw outsourcing as a way to meet the growing need to focus on the core business instead of wanting to do everything as was the case in times when business success was believed to be reflected by size of buildings and workforce.
Even if all these factors still play a huge role, the value and performance part has grown significantly. The way it is defined and measured is also changing.
Business process outsourcing across various functions and activities
As said, value and performance (optimization) can mean many things. And it’s exactly here that we find more shifts in the BPO space. Moreover, business process outsourcing covers several possible functions, ranging from IT and HR to the digitization of documents into business processes and LOB systems.
We list a few of these BPO functions below. This list is growing so make sure you come back now and then!
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