Business process outsourcing has much in common with its smaller sibling IT outsourcing, but there are still some lessons to be learned.
What is business process outsourcing (BPO) and how is it different to the outsourcing we're already all too familiar with?
While there is a distinction between BPO and outsourcing generally, the line is not clear-cut, as some organisations merely use BPO as a buzz-word and apply it to relatively simple services. Formal definitions vary widely, but we believe the key feature is that an entire process is outsourced, not merely one or two steps in a process. For example, contracting a freight company to deliver goods to your customers is outsourcing, but engaging a logistics company to handle warehousing, distribution, and delivery is BPO.
"People have been doing [BPO] for a long time," says Brian Prentice, senior analyst with META Group, pointing to the way companies engage an advertising agency and have the relationship managed by their own marketing staff. What has changed is that the processes involved increasingly relate to or use IT, he says.
But Sujay Chohan, research vice-president at Gartner points out that very few organisations have an extensive end-to-end capability for any business process, so today it is more likely that only parts of a process will be outsourced rather the entirety, but even that can give a tremendous business advantage.
In any case, simple outsourcing can lead to a BPO relationship. Fuji Xerox's BPO involvement with customers often starts with a document-related service, such as graphic design or imaging and evolves over time into BPO as the customer becomes more confident and sees the value, says Michael Byrne, services development manager.
The relationship may evolve as both parties gain further understanding of the situation. For example, Fuji Xerox might start by handling the documents associated with a client's accounts payable, receiving the invoices, imaging them for electronic storage, and handling the storage. Over time, its role may expand into making the payments.
Clients may be sceptical if you offer too much at the outset, he says. They want to get to there in small steps. "Generally you start with a vision," he says, "but it's a big commitment to outsource to one organisation."
Market size
BPO is a AU$1 trillion global market, according to John Bligh, VP business transformation at IBM Global Services. If the entire back office operation could be outsourced, the market would potentially be AU$5 trillion. IBM alone expects to sign over AU$5 billion worth of BPO contracts this year, including deals with companies as prominent as Goodyear, Philips, and Toyota.
Although Asia-Pacific represents a small part of the current market at AU$5 billion, it is the fastest growing according to Chohan, and is expected to reach AU$12 billion by 2007. This growth is largely driven by Australia, Singapore, Hong Kong, and New Zealand.
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