Outsourcing – A Perspective

By Martin Conboy – President, Australian BPO Association

outsourcing

Outsourcing has evolved and seen a number of major changes over the last 15 years. For a long time the industry in Australia was battling negative perceptions because of a disproportionate level of scrutiny driven by accent neutralization challenges with outbound telemarketing call centres in South Asia and the challenge was making the Australian public understand that outsourcing is so much bigger than annoying calls at dinnertime.

As I am fond of saying outsourcing is a very broad church and people might be surprised to learn that the industry employs over a ¼ of a million people in Australia.

Front office outsourcing, which is often referred to, as call centre work is a small albeit very important part of the outsourcing value chain. They are used by businesses for both inbound customer service work and outbound telemarketing work. Call centres and how they work and their functions are reasonable well understood, and over the years there have been countless research projects investigating them with over 80% of all customer interactions now going via call centres.

Many of them have been centralized and they are now being outsourced to specialise outsourcing companies for various reasons around efficiency gains, expense reduction and enterprise reengineering. (See next story about captive centres) Having said that the broad church of outsourcing is also about back office processes such as data entry, accounting, debt collection, database management, claims processing and HR administration and recruitment, all the way through to shared services and IT Data centres.

It’s time to move the debate along from the very narrow perspective of call centres to the larger arena of all of the business process that can be outsourced.

With the benefit of hindsight we can now see that the first wave of outsourcing has just about passed. To put things in perspective and to give context to our understanding of the outsourcing journey that all major companies are going through we now refer to three stages of outsourcing as ‘BPO 1.O, BPO 2.O and BPO 3.O’. Much could be said about each stage of market development, but at its plainest:

BPO 1.O or the first wave of outsourcing was all about basic “lift-and-shift” or labour arbitrage. That wave has landed and washed back. On the back of this around 1999 we saw the rise and rise of outsourcing destinations like India and the Philippines. These countries were able to bring to the table their highly educated, highly motivated and relative to countries like the US, UK and Australia inexpensive pools of labour. The economic change in these countries because of BPO has been nothing short of amazing, in fact according to the Business Process Outsourcing Association of the Philippines (BPA/P) the Philippines has about 17,000 seats valued at $400 Million serving the Australian market. There is absolutely no doubt what so ever that BPO is floating a lot of boats around the region and it is brilliant to see.

BPO 2.0 Although Australia has a risk adverse business culture; businesses are being driven by an appetite for change and a gradual acceptance of outsourcing as a legitimate and mainstream business strategy. Moreover Australian businesses are really starting to focus upon what their core business is. This new focus is steering them to re-structure and re-engineer their businesses. Process re-engineering delivers better efficiencies and many people are now familiar with concepts like Six Sigma and expense reduction analysis.

At this stage of outsourcing market development we see the introduction of tactical quick fix technology point solutions that solve one particular problem without regard to related issues or higher lever strategies. Having said that technology point solutions along with BPO enable better straight-through performance and higher effectiveness. In my view the leading Australian companies have just broken through the BPO 2.0 barrier.

BPO 3.0: As organisations move along the outsourcing journey, we will see organisations move beyond outsourcing transactional processes to outsourcing complex, high-end processes that have a higher impact and thus positively impact the bottom-line and create shareholder value faster. We will see terms like Knowledge Workers who may not necessarily be based in centralized locations become common place and companies will see the opportunity to link BPO solutions and move to transaction-based and outcome-based de-risked pricing models. At this stage of the BPO journey organisations will start to utilize SaaS, BPaaS, cloud-computing and social media driven business platforms to allow them to convert from capital expense business models to switch on / off operating variable expense business models. We are already starting to hear about innovative services that will address these opportunities. Our own company (FooBoo) has developed such a service called RVSA for the recruitment industry. (Recruitment Virtual Support Agents)

What’s Hot?

The sort of areas we are seeing a lot of interest is in RPO which is Recruitment Process Outsourcing and HRO (Human Resource Outsourcing) which includes Payroll outsourcing, with global organisations working on multi-country payroll outsourcing deals. Sizzling!!!

Other hot areas include financial and accounting outsourcing not only transactional processes such as accounts payable and receivable but also higher-end processes such as general ledger and tax.