Business Process Outsourcing

– WHAT NEXT?

Mustafa Shehabi
musrash@hotmail.com

January 2003

Disclaimer: This paper is a compilation of data from various sources together with the opinions of
the author. This paper is not meant for any commercial use or transaction. This is for private
circulation only and not meant for publishing on any public domain.
Business Process Outsourcing – What next? Jan’ 2003

INTRODUCTION ......................................................................................... 2

BPO DEFINED.............................................................................................. 3

BPO MARKET DRIVERS............................................................................ 3

CLASSIFICATION OF PROCESSES WITHIN AN ORGANIZATION .... 4

BPO GROWTH FACTORS .......................................................................... 4

BPO GROWTH INHIBITORS ..................................................................... 4

BUSINESS FUNCTIONS ELIGIBLE FOR BPO ......................................... 5

BPO MARKET STATISTICS....................................................................... 5

BPO COMPETITIVE LANDSCAPE............................................................ 6

BPO MARKET TRENDS.............................................................................. 9

EMERGING SOURCING TRENDS........................................................... 10

CRITICAL DIFFERENTIATOR 1............................................................. 12

CRITICAL DIFFERENTIATOR 2............................................................. 13

A NEW VIEW OF THE IT SERVICES MARKETPLACE....................... 15

THE MATURITY LIFE CYCLE................................................................ 17

BPO – WHAT NEXT?................................................................................. 18

CONCLUSION ............................................................................................ 19

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Business Process Outsourcing – What next? Jan’ 2003

Introduction

As downsizing, competitive business pressure, macroeconomic and political

factors change the business landscape, organizations are searching for ways to
manage growth cost-effectively and efficiently with less infrastructure and fewer
employees. For these organizations business process outsourcing is emerging as
a viable and a strategic business solution.

Over a period of time, businesses have come to rely more strongly on external
service providers who can leverage their domain, process expertise and cost
effective delivery models to give an undeniable advantage in managing non-core
processes for businesses.

Business Process Outsourcing (BPO) as a service is usually considered as part of

the IT services industry, as it is a form of IT enabled service. Thus, BPO too is
subject to the dynamic changes sweeping across the IT services industry, which
is the least mature segment of the IT market. The recent economic conditions are
forcing attention to some basic but redefining issues concerning buyer sourcing
strategies and service provider delivery models.

This paper makes an attempt to:

1. Analyze the global BPO market.

2. Classify different BPO vendor categories.

3. Analyze recent trends within the BPO market.

4. Understand the evolving model of buyer sourcing strategies.

5. Analyze what the current BPO model will evolve into.

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“BPO is the intersection of
imperatives & enablers, the must-
do’s and can-do’s. The main
imperative is collaborate or die!”
“….. it is part of a portfolio of
assets – the base to which a firm
builds sustainable capabilities &
competitive differentiation. The
more uncertain & volatile the
environment, the stronger the
case for BPO”
- Peter Keen
(Noted Author and Speaker)
Business Process Outsourcing – What next? Jan’ 2003
BPO Defined
The IT services industry in the recent years has desperately been searching for a
growth stimulant to keep up the double digit growth rates which it was used to -
in the not so recent past. Apparently, it seems that it has found this catalyst for
invigorating growth in “BPO” also known as Business Process Outsourcing.
Various definitions of BPO exist. Simply put, it is a business strategy used by
enterprises to access best-in-class processes and cost predictability.
Alternatively, BPO is defined by Gartner as “the delegation of one or more IT-
intensive business processes to an external provider who, in turn, owns,
administrates and manages the selected process(es), based on a defined and
measurable performance metrics.”
BPO is not an IT service line but rather a contractual agreement to deliver a
combination of business process transaction management services and IT
management services (refer paper: IT Services 2003 and Beyond. A Perspective:
Creating Recovery).
BPO Market Drivers
There are two primary drivers to BPO.
1. Increasing influence of Information Technology on business transactions
and processes.
2. Tough economic conditions forcing organizations to closely evaluate
their core processes.
These two drivers are making it worthwhile for organizations to outsource their
non-core processes to external service providers for cost savings and/or more
efficient process management and delivery.
The need for optimizing internal as well as external business operations has led
organizations to look for ways to reduce the cost of transaction processing in
non-core areas. Also, the definition of what constitutes a “core” process is
regularly being questioned by organizations and as the market gets tougher, the
sphere of core processes which they are compelled to manage on their own is
getting smaller, leading to a bigger addressable market for BPO. This has led to
the forecast of BPO related services as the fastest growing IT segment in the
coming years.
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Nike is an example of an early
adopter of this view, its core
competency being brand
management, with all other
activities carried out by external
service providers.
“I am absolutely convinced that
the integration of people,
business processes &
technology, reengineered
through a BPO approach is the
way of the future….. I see
partnerships where they rely on
somebody else to invest in
support & create ideas for
them. This new management
style is a company that knows
its strategic objectives & asks
what it needs to do to become
more competitive in the
market.”
- Charles Gibbons
PwC
Business Process Outsourcing – What next? Jan’ 2003
Classification of Processes within an organization
1. Core Processes:
3 - Patient Care – doctor interaction
- Manufacturing Products
- Representing Clients etc.
2 2. Non-Core, Business Critical
- HR Admn.
- Accounting
1 - Supply Chain Management etc.
3. Non-Core, Not business critical
- Cafeteria Services
- Laundry
- Landscaping etc.
(Listed in increasing order of an
organization’s willingness to
outsource.)
Market pressures reducing the scope of CORE processes
BPO Growth Factors
1. Budget constraints causing enterprises to increasingly look at
outsourcing their non-core business.
2. Increasing cost pressure and competition is putting pressure on
enterprises to optimize their internal operations by reducing the cost of
transaction processing in non-core areas.
3. Industry consolidation drives outsourcing of back office functions, as
they tend to get redundant after a merger or acquisition.
4. Globalization is driving multinational enterprises to outsource business
processes to local service providers to gain local expertise, for e.g. in
finance and human resource management local expertise helps a lot.
BPO Growth Inhibitors
1. Common misconception that outsourcing is a high cost alternative.
2. Enterprises doubt whether external service providers will improve
service levels.
3. Concern for loss of control of processes.
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Business Process Outsourcing – What next? Jan’ 2003

Vendors are increasingly using benchmarking as a means to compare process

improvements and convince customers regarding the qualitative benefits of
BPO. Enterprises are also increasingly relying on independent benchmarking
data to analyze efficiency and effectiveness of their internal operations, external
service providers can use this same data to validate the improvements their
solutions offer in terms of reduced costs and access to best-in-class processes.
For e.g. Six Sigma, ISO 9000 and TQM are some of the more popular ones.

Also, innovative contracts are increasingly being developed with sufficient

checks and balances to virtually “guarantee” significant cost reductions to
enterprises. Enterprises are increasingly letting external service providers be
responsible for the “how to deliver”, while retaining responsibility for strategies
and policies. These developments reduce the fear within enterprises of losing
control of their processes.

Business Functions eligible for BPO

Various Business functions where business process outsourcing can be used are
as follows:

1. Supply Chain Management

Asset based
- Warehouse / Inventory management
- Direct Procurement operations
- Transportation Administration

2. Sales Marketing and Customer care

- Customer Selection Call-Center
- Customer Acquisition based
- Customer Retention operations
- Customer Extension

3. Human Resources
- Payroll
- Benefits
- Education and Training
- Hiring and Recruiting
- Personnel Administration
Back office
4. Business Administration based
- Other Administration: Claims administration,
operations
document management, other vertical admin.
processes
- Financials
- Billing
- Indirect Procurement
- Payment Services: Credit Card processing
and check processing.

BPO Market Statistics

Various sources have projected that the worldwide BPO market could reach
approx. $200 to 240 billion (by 2005) growing at a CAGR of approx. 10-15%. It
is a highly fragmented market with no vendor holding more that 5% of the

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Business Process Outsourcing – What next? Jan’ 2003

market share, this is typical of a relatively new and dynamic industry where
customers are also learning at the same pace as the vendors.
Business Process Outsourcing was estimated to have a worldwide marketsize of
$143 bn. for 2002.

Fig.2 Geographic BPO Market Break-up 2002

Japan
Europe
4%
26%

Asia Pac.
5%
Others
3%
North
America
62%

(Source: Gartner Dataquest)

Fig.3 Worldwide BPO Services Market Size - 2002

Payment Supply Chain

Services Mgmt.
18% 20%

Finance
Sales Mktg. &
10%
Cust. Care
11%

Business
HR Admn.
29% 12%

(Source: Gartner Dataquest)

BPO Competitive Landscape

As enterprises seek to continually reduce and make more predictable their

internal spending, many support activities, particularly those that are
nonindustry-specific will represent a huge potential market for service providers.

The Business Process outsourcing market includes a huge diversity of service

offerings that span business processes from logistics, to virtually any enterprise
internal support function to customer care and service. Some BPO offerings,
such as payroll processing, payment processing and claims administration are

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ADP’s recent move to acquire
ProBusiness stems from the
following facts:
1. Its core business (payroll)
faced increased competition
and reduced margins due to
the commoditization of the
payroll services market.
2. Difficulty in upselling non-
payroll services like HR and
benefits services
3. Difficulty in client retention
very mature, almost to the extent of being commoditized (incidentally, ADP was
no.1 in terms of revenue within the BPO space in 2001).
On the other hand, since this market is relatively new as compared to traditional
IT services – suppliers are still creating and offering solutions ahead of time,
making a classic case of a supplier driven market. For the more mature offerings
we see new entrants into the space, driven by the fact that there is a significant
amount of enterprise spending linked to these activities.
The BPO space is thus fast becoming a complex marketplace of suppliers, each
with their own value propositions. Broadly, they can be classified as under:
Pure Play IT Outsourcers Consultants

ProBusiness has strong This type of a provider was
capabilities in managed payroll formed solely as a BPO
services with the average size of firm, offering services
around a specific process.
clients much bigger than that of Typically most of their
ADP. revenues come from BPO
services. In many cases they
have been formed as joint
ventures, with deal based
equity from prospective
clients. Success of pure play
players will go a long way in
impacting the growth of the
BPO market.
E.g.: Exult, e-peopleServe,
Xchanging, SourceNet etc.
IT Outsourcers were players
who got into this game via
the IT services and the
transaction based processing
areas like credit card
processing / claims
processing. Almost all of
them tend to have a formal
BPO division.
E.g.: ACS, EDS, CSC etc.
This group has got into the
market based on their strong
financial and accounting
backgrounds, and with the
early adoption of BPO
within Finance, Accounting
and HR, these firms are
leveraging on a strong
competitive advantage. Their
primary strengths are
process expertise and
business consulting.
E.g.: Accenture, IBM/PwC,
CGE&Y, KPMG etc.

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Business Process Outsourcing – What next?
Process Specialists
These providers were
formed because they had
offerings focusing on a
specific or a single business
process (payroll, benefits
admn. etc.). Their in-depth
process expertise has been a
key factor in the gradual but
increasing adoption of their
service offering. As the
market matures to the level
of multi-process outsourcing
these players will expand
their service offerings to
meet those needs.
E.g.: Payroll/Benefits/HR:
ADP, BrassRing, Intuit,
Convergys, Fidelity etc.
Finance & Accounting:
Creditek, Equitant etc.
Logistics: Ryder, UPS etc.
E-billing: Metavante etc.
Software Providers
As the name suggests, these
providers are leveraging
their software product
expertise to gain access to
the BPO service pie.
Software products would
include CRM interface
products like: computer
telephony interface (CTI),
contact center products.
Finance and accounting
software and others.
E.g.: Genesys, Flexi
International, ORCOM etc.
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Jan’ 2003
Business Service Providers
This group of providers has
emerged as a mix between
the ASP model and the pure
play BPO model. The ASP
model offers a one-to-many
application centric solution,
whereas the BPO pure play
offers a relatively complex
process centric solution.
This particular method of
providing BPO services is
closely been watched as the
lead runner within the mass-
market space when the BPO
market matures.
E.g.: HR: Employease,
Administaff etc.
Fin. & Accounting:
itAccounts etc.
CRM: SalesForce.com
Offshore Providers
The need for increase in ROI
of the IT investments had
already forced the traditional
IT services players to
leverage the Offshore
delivery model. The same
holds true for BPO services,
so much so that we find
strong well-positioned
offshore players being able
to deliver very competitive
offerings, which directly
compete with onsite
providers.
E.g.: Progeon (Infosys),
Spectramind (Wipro), Ma
Foi, Daksh etc.
8
Business Process Outsourcing – What next? Jan’ 2003

BPO market trends

Business process outsourcing increasingly is being considered as a business

strategy by enterprises that want access to best-in-class processes and cost
predictability. In 2002 four market trends clearly emphasized this
transformation.

1. Shift from transactional BPO to Strategic BPO

BPO engagements are characterized by varying levels of process ownership,

from mere administration to full process management (e.g., payroll processing
v/s payroll process management). The difference between the two is the degree
of the service provider’s ownership, responsibility and liability for the process.
The depth of BPO engagement is a function of the customer’s size, budget and
its willingness to let go of its business processes and make a BPO provider
responsible.

The emphasis on business value and outcome, is driving some BPO customers
towards a more strategic outsourcing relationship, thus BPO is evolving over
time for some enterprises from pure transaction processing to full process
management.

For a higher level of delegation to a provider, a strategic involvement of the

service provider is required in the design and management of the business
process. This is also known as “Strategic BPO” or “transformational”
outsourcing. These types of megadeals in a relatively new market are currently
being initiated by bigger enterprises (typically the Global 500), and the success
or failure of which will significantly affect the growth of the “strategic” BPO
market post 2002.

2. Single process to multi-process outsourcing

The integration of complimentary applications and web-based technologies into

BPO offerings has made multi-process outsourcing a logical move towards
using synergies, which are generated from delegating several processes to one
provider (payroll and benefits outsourcing to one provider rather than multiple
providers). This allows seamless integration of data generated from multiple
process interactions.

Having said that, the BPO market is still relatively immature and only a few
market-setting enterprises are willing to give up control over several processes
at once. In most cases the evolution towards multiprocess outsourcing takes
place in a phased approach, through several contract extensions rather than the
one big outsourcing engagement.

The emergence of providers that are delivering BPO services across a range of
processes, or acting as general contractors for multiple BPO providers, confirms
this trend.

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3. Emergence of offshore BPO

Over a period of time since the “need for Y2K bug fixers” created awareness for
the offshore model, enterprises are increasingly relying on external service
providers with offshore capabilities for more complex, sophisticated service
needs. In the past, enterprises had already used the offshore model of delivery in
areas such as accounting transactions management, payment processing, medical
transcription and contact center services, all of which are labor-intensive
business processes.

Service providers are beginning to position themselves to offer offshore BPO

services by making investments in delivery centers in countries with a strong
pool of skilled labor, labor cost advantage and relatively sophisticated
telecommunication and network infrastructures. Thus, countries such as India,
Philippines, Mexico, Canada, Ireland, Poland etc. are a proving to be good
destinations for offshore outsourcing of even BPO services. Enterprises have
taken advantage of this model, as evident by internal operations established by
GE Capital, American Express, British Airways and HSBC in India.

4. Shift from BPO to BSP

In a large scale BPO engagement, enterprises select a holistic solution that

includes multiple IT services such as, upfront consulting engagement, followed
by business process re-engineering, IT consulting, application development,
systems integration, IT outsourcing, change management and process
management. Also, the primary buyers of BPO services are business buyers,
typically the CEO or the CFO, rather than the IT department. Thus it could take
anywhere from six months upwards to many years to negotiate a deal and then
transition the business processes.

BPO providers are realizing the benefits of the application service provider
model (ASP) for speed, reliability, predictability and reuse. Various schools of
thought are now predicting a convergence of the traditional BPO model with
that of the ASP model, giving rise to a new Business Service Provider (BSP)
model, which would enable a faster time to market and rapid deployment.

Thus, although transactional BPO still accounts for the majority of the BPO
deals, emerging trends reflect a move towards more strategic, muliprocess, deals
that will take advantage of global sourcing advantages as well as new service
delivery models such as BSP.

Emerging Sourcing trends

To look at what the IT services and the BPO market will evolve into, lets look at
what the emerging sourcing trends are.

Today, the IT outsourcing opportunity extends far beyond the classical view
based on categories such as:

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- Hardware and Software Maintenance and Support

- Business and IT Consulting

- Development and Integration

- Education and Training

- IT Management Services

- Business Management Services and

- Transaction Processing

This approach is good for measuring how an IT service provider’s revenue adds
up, but does not give us a lot of insight as to how and why an enterprise sources
into these categories in the first place. Hence, the overall evolution of the IT
services industry and more specifically that of Business Process Outsourcing
cannot be predicted by tracking these classical segments. We will have to look
beyond that for emerging critical differentiators. Differentiators which are
exhaustive enough to encompass long term changes in buyer sourcing strategies
and vendor delivery models and capabilities, thereby help us in predicting the
future course of the IT services market.

Let us begin by looking at why there exists a need for outsourcing cutting edge
technology and applications within enterprises. There are 2 basic reasons:

1. Enterprises unable to meet their IT service requirement internally.

2. Continuing need for enterprises to evolve as a part of a connected

economy.

The above two reasons make IT outsourcing a necessity which enterprises are
learning to manage.

Hence, if IT outsourcing is going to be critical for cutting edge technology, it

would not be unusual for enterprises to strategically restructure their IT sourcing
strategies and that’s exactly what they are doing.

Enterprises are more than ever focusing on the IT Services Value Chain to
derive a sourcing strategy.

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Critical Differentiator 1

VALUE generated for an

enterprise in terms of an
aggregated business solution

Business
Outcome Business Solution
Strategy Architect

Business Process
Process Architect

Business Application
Application Integrator

Infrastructure Infrastructure
IT Efficiency Provider

Binds together IT Expertise

components of
the Value
chain Vertical Expertise and Business
Best Practices

1 Critical Differentiator - 1

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The IT Services delivery model will thus have three primary layers bound
together by the binding forces of IT expertise, Vertical Expertise and Business
Best Practices.

1. Common Infrastructure Layer

2. Business Applications Layer
3. Business Process Layer

Thus, IT services will now become the builder for bringing all facets of the
process solution to the enterprise and delivering value in terms of an aggregated
business solution.

A critical differentiator is thereby established. Higher “value” is created from a

business perspective as IT services move from just being able to deliver IT
efficiency to delivering actual business outcome.

Critical Differentiator 2

Let us now look at another change in market and vendor behavior, which is
causing a second critical differentiator to emerge.

The IT service market in the not so recent past had been growing at double digit
growth rates, fueled primarily by two simple concepts:

1. Deliver
Capabilities

2. Repeat the
delivery process

The capabilities-plus-repetition business model has been successful and an

uncomplicated business model to implement for IT service providers.

This model has been successful in the past because of the fact that the US has till
now led IT innovation with Europe following a few years behind. Learning in
the United States and repeating in the rest of the world was an ideal situation for
IT service providers. This delay is fast vaporizing or more accurately has
vaporized due to the connected economy. Today need for implementation
worldwide is in a matter of days not years.

Three strong negative aspects of capabilities selling are emerging in the middle
of an economic downturn and a flat IT market:

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1. Capabilities selling requires an organization that integrates those

capabilities and delivers a solution or service to the client organization
(originally the role of the internal IS department).

2. IT Service capabilities selling does not work for strongly business oriented
buyers or for small and medium businesses, who do not really pay for
capabilities, they simply want a solution to their problem.

3. The service provider organization (capability unit) contains, manages and

develops capabilities on economies of knowledge and scale, and the sales
front end must then find clients that need those capabilities and sell them.
Recent experiences show that this is a very expensive model to sustain.
(The ideal model for such a sale is the one adopted by the big consulting
organizations with the organization model focused at making a high end
consulting sale into the client.)

All of the above, bundled with the fact that the internal IS organization is no
longer the sole IT provider for an enterprise is leading to less differentiated IT
services, setting the ground for the emergence of a shared enterprise
environment. A shared environment, which will be a function of the match
between the provider’s capability and the customer’s business advantage,
derived from this shared environment. Needless to say, enterprises will not seek
a shared enterprise environment if not supported by proven business advantages.

The industry cannot forge ahead in building a single-case architecture for

everything and everyone. Provider driven standardization and service
commoditization will lead to a high volume and low margin marketplace, and at
the same time value added relationships will evolve, based on the need for
differentiation on a case to case basis. This second very different area will have
low volumes and high margins.

And thus, we see the emergence of a second critical differentiator:

2 Enterprise Environment Shared Environment.

Gartner uses these two differentiators to define a new view of the market that is
represented as a continuum of four sub-markets. These four sub-markets
represent the whole IT services market and are formed by the 2 critical
differentiators mentioned above. The VALUE differentiator and the
DELIVERY differentiator.

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A new view of the IT services marketplace

Future of the IT Services marketplace: Two Critical Differentiators at work.

Business Outcome

Optimization Creation

Enterprise Shared
Environment Environment

Management Access

IT Efficiency

(Source: Gartner Research)

The two critical differentiators are used as the two axes:

1. VALUE axis: determines the client objective when buying IT services, the
two extremes being IT efficiency and business outcome.
2. DELIVERY axis: determines the delivery models for these services, the two
extremes are enterprise environment and shared services.

The four market quadrants based on client needs:

a. Management: manage and maximize return on assets.

b. Optimization: optimize internal resources (knowledge and human capital) to
deliver business value. Focus on core competitiveness.
c. Access: Do not want to own technology/assets. Hence, the need to have
“access” to functionality and technical expertise.
d. Creation: Wealth creation, Return on Equity. Need to create business value
beyond “access”.

In the “management” and “optimization” quadrants, capabilities selling will still

exist, while in the other two quadrants capabilities selling will just not work.
This is primarily due to the fact that IT services aimed either at IT efficiency or
business value can be delivered faster within a shared environment. This speed
of delivery and the ability of the clients to adapt to such solutions will over-ride
the capabilities selling cycle in the “access” and “creation” quadrants.

Each provider will need to select the market(s) in which it will be best
positioned to provide IT services. Each market segment is unique and this will
define the right capabilities, relationships, financials and offer models which the
provider will have to bring to the table for succeeding.

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The client’s spectrum of options for sourcing IT services, will thus be a

combination of the above four segments and the option of using in-house IT
capabilities.

The IT services market today is primarily evolving out of the Optimization and
Management quadrants. It is predicted that in the coming seven to ten years it
will be more evenly spread in the four segments. Thus giving high growth rates
to Creation and Access quadrants. (About 90% of the global IT services market,
currently falls in the two quadrants: management and optimization).

The maturity of the IT service market is increasing. Though some service

IBM Global services announced
segments like the “Management” Services have taken decades to mature out of
in Feb’03 that it will provide
infancy, we should expect the newer services especially the two quadrants which
on-demand BPO services. An
are within the “shared services” spectrum, to mature faster. The main reasons
approach IBM has been
would be the following:
championing because it claims
that its generally more flexible
a. Past experience of the IT service industry in the enterprise environment
than traditional outsourcing
would make it easier to develop mass-customized infrastructure services in
engagements, where the service
the “access” and “creation” segments.
terms & fees are more rigid &
thus more difficult to modify as
b. Shared delivery offerings are more standardized than custom-oriented
the needs of clients change.
services, making the move to maturation quicker.
This reinforces their strategy
announced in Nov’02 that it
c. Increased mergers and acquisitions arising from market conditions, reduce
will offer the first e-business
the scope for a large number of IT offerings, thereby reducing the pace of
on-demand applications for
intense innovation and creativity seen not so much in the recent past.
mid-sized businesses for a
usage based charge.
d. The highly fragmented nature of IT services provider market will prompt
new players to be more vertical and process specific, creating niche players
that will be able to deliver reliable services. These new players will be
“best” positioned to deliver this focused expertise via a shared environment.

e. Willingness of customers to forego IT ownership in favor of IT “access.”

f. The transition from an intra-enterprise view of IT to an inter-enterprise view

and extra-enterprise connectivity.

g. The increasing attractiveness of the Small and Medium Business segment

and its compatibility with the shared services model.

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The Maturity Life cycle

Each IT service line has its own maturity life cycle. Where each of these fall in
the four segments of the new IT services model is a function of their maturity.

Infancy Adolescence Mid-life Maturity

- Initial phase of - More providers - Providers can - World of best

offering start addressing leverage on practices and
the service line economies of commoditization
- Single-client scale / knowledge
experience - Slight increase - Serious price
in competition & - Service is competition
- Strong on price pressure repeatable and
marketing to scaleable - Additional
drive value - Early provider
methodologies - Differentiation consolidation
- Lack of are defined between
understanding of providers in - Highly stable
service - Offering is for terms of and standardized
the first time – methodologies, service offerings
- New offering defined technologies
tested on friendly - Mass
customers - Early signs of customization
consolidation manages the
- Heavy may occur needs of different
customization clients

High RISK Low

Hence as IT services mature, commoditization increases and thereby reducing

risk in terms of cost and delivery failure. Thus, as IT services within the
“optimization” and “management” quadrants mature we should expect these
services to move to a shared environment of delivery as shown below.

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Business Process Outsourcing – What next? Jan’ 2003

Business Outcome

Optimization Creation

BPO BSP
TODAY FUTURE

Enterprise Shared
Environment Environment

ASP
TODAY

Management Access

IT Efficiency

There are different predictions as to the rate of growth of the four quadrants,
Gartner Research’s predictions are shown below to give an indication of the
trends expected in the industry:

2000 2010
Management 51% 25%
Optimization 38% 35%
Access 8% 30%
Creation 3% 10%
(Source: Gartner Research)

BPO – what next?

Needless to say the same is expected of BPO, which resides today in the
Optimization quadrant. It has increasingly been predicted that the maturing of
BPO services and the need for the stagnant ASP model to evolve will actually
promote a new class of provider, viz. BSP – Business Service Provider or also
known as Business Utility Provider. This class of providers will merge offerings
from both the ASP as well as the BPO models to deliver business value on a
shared environment.

IT services in all the four quadrants will appeal to different segments of

customers with varied needs. BSP will address a unique set of clients and so will
BPO and ASP. One thing is for sure, the move to a shared environment will
definitely open the doors to the SMB (Small and Medium Business) market. For
e.g. Primarily, bigger clients due to the larger engagement commitments
required are currently pursuing BPO. Also, the time involved for a BPO
engagement to materialize and deliver results is long, making it unattractive to
the SMB segment

Mustafa Shehabi 18
musrash@hotmail.com
 Business Process Outsourcing – What next? Jan’ 2003

Conclusion

After going through 3 years of stagnant (at best) growth rates, providers are
realizing that tweaking their business models to deliver growth will not help. In
an industry where by the time a trend is recognized, it has already passed, when
buyers have changed, new types of competitors have arrived and technology is
more reliable and simple, many providers are sending their entire company back
for re-design and reinvention.

Providers willing to do business in the new IT service marketplace, have to use

new solution delivery models, which address the customers new sourcing needs.
Providers who can innovate their business models to effectively position their
services as part of the “IT services value chain” will be able to deliver their
“capabilities” as solutions and leapfrog over their competitors. Others will
struggle increasingly in a declining growth market.

“To exist is to change, to change is to mature, to mature is to go on

creating endlessly.”

Mustafa Shehabi 19
musrash@hotmail.com