Shared services centres a step toward BPO deals
Analysts say the economy has prioritised outsourcing as a means of achieving short-term cost reductions, and that business process outsourcing in some cases is being used to carry out overdue overhauls to back-office and business service delivery models.
Outsourcing advisory firm EquaTerra last month reported that 65% of service providers cite that the economic climate is driving more outsourcing, with pipeline levels up 27% quarter on quarter.
In one of its quarterly market status reports the firm also noted an increase in both demand and supply for outsourcing services, beyond general and administrative back-office functions.
It said that new areas for BPO such as knowledge process outsourcing for functions such as engineering, research and development, analytics and legal process work, and financial modelling and analytics are gaining in popularity alongside the more traditional BPO services of outsourced payroll and benefits, accounts receivables, and application infrastructure support.
Pierre Audoin Consultants, a company that models the market dynamics of BPO services with a sizeable IT element, has numbers showing demand for these more traditional BPO services should remain firm during the downturn, however.
It estimates that in Western Europe the market for BPO will increase by around 10% during the year to touch $18.5 billion by 2010.
Senior Consultant at PAC Nick Mayes said, “BPO deals are less ambitious than they were five or six years ago. They tend to focus on a single function like HR or F&A and on business processes that are pretty much standard across industry like payroll and benefits, or accounts payable and receivables.”
Mayes said the market had matured in that sense over the past couple of years. “By focusing on one or two standard business processes service vendors can start to industrialise a process, centralise and offshore it, and begin to see some economy of scale.”
Mayes noted that Capita in the UK had been doing this longer than any other service vendor. “It has gained a strong foothold in financial services and public sector verticals. Xchanging is another of the dominant players, having won big contracts with the likes of BAe for HR and procurement services, and the German insurance giant of Allianz in insurance processing and accounting.”
Accenture has a marquee account in BT, Cap Gemini has established itself a presence in continental European markets, and Steria has a robust F&A practice in India that serves the likes of BP and the UK NHS, he noted.
“At the moment, there is one real sweet spot in the market” Mayes said, pointing to organisations that have already moved to some kind of internal shared services operation.
“In the current climate these businesses could now see financial benefit in getting their shared service centre assets off their balance sheets,” just as many of them hived off their data centre operations in the past to the likes of EDS or IBM Global Services, he explained.
PAC calculates that the worldwide market for IT-centred BPO services is running at the $65 billion mark, and expects it will hit a level of $82 billion by 2012.