2009 INDUSTRY-CENTRIC BPO SOLUTIONS OPPORTUNITY TO ATTAIN DISTINCTIVE MARKET POSITIONING

Industry-Centric BPO Solutions Opportunity to Attain

Distinctive Market Positioning

Everest predicts that industry-centric BPO capabilities will emerge as an

opportunity for suppliers to create top-line impact for their clients and
attain distinctive positioning in an increasingly competitive market.

By Katrina Menzigian, VP Research and Saurabh Gupta, Research Director

The value chain for all industries has a set of operational and corporate functions.
Operational functions are directly tied to the final goods or services that the industry
produces; hence, they differ substantially across industries. Corporate functions are not
directly linked to the final output but are essential for supporting the operational
functions. Corporate processes are often centralized and remain largely similar across
industries.

Consequently, the outsourcing industry historically considered BPO segments catering

to outsourcing of corporate functions such as Finance & Accounting (F&A), Human
Resources (HR), and procurement as horizontal services (i.e., similar across industries).
However, as the BPO concept matures, the demarcation between corporate and
operational functions blurs when it comes to scoping an outsourcing deal. Companies
now bundle more operational processes into the scope and offerings are emerging that
address industry-specific requirements in the corporate processes.

Finance and Accounting Outsourcing (FAO) is an example of a market with increasing

industry-centric capabilities. Everest defines industry-specific FAO as offerings where the
outsourcing scope includes industry-specific requirements in the corporate F&A area
along with industry-specific operational F&A processes. Exhibit 1 illustrates this concept
using the retail industry as an example.

EXHIBIT 1
Focus of traditional FAO Focus of retail-specific FAO

Scope of industry-specific
FAO in retail
Retail-specific requirements in
Corporate F&A corporate F&A
 Order-to-Cash (O2C): Order management and billing,  O2C: POS accounting, program-
dispute and deduction management, accounts based discounting, A12, A20 invoice

Source: Everest Research Institute

receivable, aging & collections, analytics, and reporting management, significant B2C
environment

 Procure-to-Pay (P2P): Sourcing support and catalog  P2P: Vendor chargeback, SKU
management, day-to-day purchasing, compliance, management, volume discounts,
accounts payable and T&E, spend analytics unique payables (licensing,
utilities/energy spend)

 Record-to-Report (R2R): Regulatory compliance,  R2R: P&L at store level, product

financial analysis and reporting, budgeting and level, and territory level
forecasting, internal audit, fixed asset accounting, tax
compliance, general accounting

Retail operational F&A

Sales & marketing Store operations

 Loyalty program  POS management
Merchandising Property services
administration  Cash management
 Price and promotion  Lease
 B2B contract  RMA management
management administration
management  Coupon/voucher

management

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 INDUSTRY-CENTRIC BPO SOLUTIONS OPPORTUNITY TO ATTAIN DISTINCTIVE MARKET POSITIONING

Primarily, two factors push and pull suppliers to build industry-centric capabilities, as
follows:
 As direct-cost impact (primarily through labor arbitrage) becomes hygiene, clients

are willing to push the boundaries of traditional horizontal BPO. While traditional
BPO focused on reducing direct operational costs, industry-specific BPO offerings
promise to create business impact.
 Suppliers also find the marketplace is increasingly crowded, and industry-centric

capabilities enable competitive differentiation.

Industry-Specific BPO are More Suitable for Service-Oriented Industries

There are stark differences when we compare the historic adoption of a horizontal
FAO service and industry-specific BPO across industries (see Exhibit 2). While
manufacturing and high-tech (providers of goods) account for nearly 45 percent of
the FAO contracts, they account for only five percent of the industry-specific BPO
contracts. This reverses for financial services and healthcare (service providers) that,
together, account for over 80 percent of the industry-specific BPO but less than 20
percent of FAO.

EXHIBIT 2
Pure services 100% = 316 589
FAO and industry-specific
BPO market share by
Financial services 14%

industry (number of Healthcare 5%

contracts) Travel & logistics 10%
61%
Services-goods spectrum

Telecom
Source: Everest Research Institute
7%
Retail 9%

Energy & utilities 10%

Hi-tech 12%

21%

Manufacturing 33% 4%
4%
4%
3%
2%
3%
Pure products
FAO Industry-specific BPO

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The type of value any industry creates is closely linked to the output it produces. On a
goods-services spectrum, manufacturing companies produce tangible outputs that
consumers essentially evaluate by the quality and performance of their products.
Healthcare services provide patient-care services that consumers primarily measure by
the quality of services and the end-customer experience. Corporate processes do not
create a significant bearing on the quality or performance of a product (for a
manufacturing company), but they can impact the customer experience of a service
(e.g., billing for a telecom company). Consequently, manufacturing-oriented
organizations focus on optimizing their supply chains while the services industries
focus more on optimizing their front-end revenue cycle.

Given the importance of corporate processes in services, processes have evolved to

become more complex thereby increasing the level of industry-specific requirements.
In the U.S. healthcare industry, for instance, out-of-pocket funding reduced from over
55 percent to nearly 15 percent in the last 40 years. Government and third-party
health insurance now represent significant number of payers, which complicates the
revenue cycle management for most healthcare providers. So any supplier developing
an FAO solution targeting the revenue cycle for healthcare providers needs to
understand these industry-specific requirements.

Implications for Suppliers

For BPO suppliers, this verticalization of services implies numerous opportunities for
value creation. There are also potential risks, and suppliers need to identify and adopt
mitigation strategies for these risks. Exhibit 3 summarizes these implications.

EXHIBIT 3
Implications for value creation
Implications for suppliers 1. While the overall BPO market is highly
competitive, the market by industry is
concentrated
Source: Everest Research Institute
2. Industry specificity sets the stage for
the introduction of higher-value pricing
models
3. With increasing industry-centric
capabilities, analytics is also playing a
much more invasive role
Implications for risk management
1. Industry relevance is now a key
ingredient in BPO offerings
2. Stakeholder management is becoming
complex with increasing involvement of
business and operational leaders
3. Strategic investments for capability
building will carry larger risks

Increasing industry specificity in BPO changes several dynamics of the BPO market.
We want to ensure that you understand its value-creation aspects, how it differs from
traditional BPO, and which industries and processes are relevant to building industry-
centric capabilities. Feel free to call or e-mail us for more details.

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About Everest Group

Everest Group (www.everestgrp.com) is a global consulting firm that assists

corporations in developing and implementing leading-edge sourcing strategies
including captive, outsourced, and shared services approaches. Everest helps
companies create strategies and sourcing relationships that deliver total value
improving performance and results while managing the risks in such initiatives.

Since 1991, we have completed 300+ engagements, advising clients on complex

sourcing issues in more than 30 key business processes worldwide. Our experience
spans numerous Fortune 1000 clients in banking, insurance, retail, healthcare,
telecom, media & entertainment, and hospitality sectors, among others.

Our breadth and depth of experience enables us to deliver expert analysis and
strategic results. Our flexible, collaborative approach analyzes the specifics of each
sourcing challenge. Throughout the process, we encourage collaboration between
buyers and service providers to spark creativity and lay the groundwork for long-term
outsourcing success. The result is a solution that recognizes the strengths, weaknesses,
and strategic objectives of both parties.

Everest Group is headquartered in Dallas, Texas and has offices in Toronto, New York,
London, Amsterdam, New Delhi, Melbourne, and Sydney.

For more information about Everest Group, please contact:

Everest Group
Phone: +1-214-451-3000
E-mail: info@everestgrp.com

For more information about this topic please contact the author:
Katrina Menzigian, Vice President
kmenzigian@everestgrp.com
Saurabh Gupta, Research Director
sgupta@everestgrp.com

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