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TECH TALK: Tech’s 10X Tsunamis: Outsourcing (Part 2)

August 5th, 2002 · No Comments

Manufacturing is only one of the segments being outsourced and disrupted. Business Process Outsourcing focuses on an organisations repetitive business processes and seeks to outsource them. Writes The Economist (November 29, 2001):

Behind strategic outsourcing’s growth is a realisation that a specialist may be able to provide a routine service at lower cost, and with better technology. There are other benefits. PricewaterhouseCoopers (PwC), an accounting giant, handles BP’s finance and accounting, procurement and computer maintenance. We take their back-office staff and put them into our own BPO company, so that they become our front-office staff, who make the money for us, and are thus more valuable to us than they were to BP, says Ton Heijman, head of PwC’s BPO practice. Ask a chief financial officer how much time he spends on personnel issues, and he will say 50-60%. Outsourcing these saves that lost time.

Now, outsourcing is going one step further, beyond cost savings to create value on a broader front. Writes Nuala Moran in Financial Times (July 3, 2002):

The maxim on which the outsourcing market was built, outsource the non-core activity to focus on what is core is about to be turned on its head. With five to ten years experience of using outsourcing to offload marginal systems and reduce costs, companies are beginning to appreciate how it could help with their most important functions and processes.

As a result, a new type of deal is emerging, called strategic, or transformational outsourcing in which the service provider takes on and runs critical systems. And whereas before companies would outsource individual processes to different providers, they increasingly have the confidence to combine several processes into a single contract.

In the short-term, this is expected to provide the taken-for-granted benefits of lower costs and higher reliability. The transformational element comes in taking the cost savings and using them to fund the design, build and implement a new system.

Little wonder then that IT-enabled services is booming in India. Wipros recent acquisition of call-centre company Spectramind is a signal that BPO is no longer at the bottom of the pyramid of services, but has arrived. The IT services majors are going to increasingly offer BPO as part of their core portfolio of services. It is about partnering with enterprises to take some of their core business processes and do them at a lower cost, but with the same, if not greater, efficiency. It is about building long-term, deep relationships, enabling the corporate client to transform its business processes.

Says Ismail Amla of CSC (as quoted in the Financial Times, July 3, 2002): It is not an outsourcing debate. It is about organisations fundamentally restructuring themselves with flexibility as the paramount objective. It isnt a question of outsourcing non-core activities or getting a service more cheaply elsewhere, but a question of getting the best process, which is a key differentiator from the old model of outsourcing.

Outsourcing is here to stay. IT, IT Services and BPO are just the beginning. The next big thing will be outsourcing computing more on this later when we talk about Grid Computing.

Additional Reading:

  • Tech Talk: Indias Software Industry: The Next New Thing (February 14, 2002)

    Tomorrow: The East: Uncaged Tiger, Rising Dragon

  • Tags: Tech Talk

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