BPO Decision Making

A typical BPO contract is six years in length, with major BPO contracts often involving terms of ten years or more. Should the organisation make a mistake it is likely to be a very expensive one to rectify. Major BPO undertakings are consequently best regarded as irreversible.

Accordingly, it is critical that senior executives are involved in BPO adoption and vendor selection decisions and NelsonHall research shows that the CFO is highly involved in the decision to purchase business process outsourcing services.

Together with the CEO, he forms the main decision-making unit on whether to continue with in-house service provision or adopt business process outsourcing. The functional director is typically less involved in the decision at this stage.

CHOOSING A VENDOR

Once the decision to outsource a process has been made, the operations director, relevant functional director, and the CFO form the principal decision-making unit in the choice of vendor, with operational personnel principally judging vendor operational expertise and functional capability and the CFO evaluating the vendors and deal structure from a financial perspective.

The reasons for this are relatively straightforward. The decision to adopt BPO for an individual process is based on a combination of the cost and service effectiveness of in-house processes together with their long-term importance to the business.

Accordingly, the CFO plays a key role in measuring the current cost base of in-house processes and benchmarking the current cost base against the organisation's main competitors and possible service providers.

The CFO should also be involved along with the CEO and operational management in assessing process service levels. Finally, the CFO plays a vital role in building the business case.

Does the organisation wish to invest its own funds to reduce process costs and improve service quality in-house in this area or does it have higher priorities for internal investment?

These judgments depend both on ROI or NPV calculations and the future priorities and strategy of the business; all key areas for CFO involvement.

WHAT IS BPO?

BPO is the transfer of operational responsibility for a process to a third-party supplier.

The market is emerging strongly and BPO has already overtaken IT outsourcing in terms of new contract value in North America, if not yet in Europe. The BPO is market is currently valued at $70bn in North America and $37bn in Europe, where it is growing at 9% per annum.

Contrary to much of the talk, BPO is not primarily about HR or finance and accounting. Indeed these functions accounted for less than 20% of BPO contract activity in Europe over the past three years.

Instead BPO is primarily concerned with the outsourcing of industry-specific silos such as life policy administration and claims processing in the insurance sector, card and mortgage processing in the banking sector, and revenues and benefits in the public sector.

Again the reasons for this are reasonably clear. A BPO procurement decision is rarely going to take less than six months and is often going to occupy a period of years.

In order to justify this high level of senior management attention the processes being investigated need to be both a significant element of the cost base and worthy of management attention. Both these factors tend to tilt the focus of BPO away from support functions towards major external service delivery and customer-facing functions.

SUPPLY CAPABILITY

Since the market is still at an embryonic stage, the pattern of supply capability is hugely fragmented by process and geography.

In F&A outsourcing the leaders in Europe are currently Accenture and Xansa, with HP and Capgemini emerging strongly, while in the banking sector, for example, the leaders include companies such as First Data in card processing and Unisys and Siemens Business Services.

At present, it is not possible to evaluate possible suppliers of BPO services in isolation from the process being considered for outsourcing.