Now that 2010 has come to a close and the ink is dry on the flurry of year end deals, many of us can now sit back . . . draw in a long, deep breath . . . relax . . . and start to focus our vision on the opportunities that lie ahead for 2011. What would the start of a new year be without some predictions on the future of business process outsourcings (BPO). Here’s some of our projections for 2011:
Importance of Cost Reduction – Cutting Measures
The debates continues as to whether or not we are starting to come out of the economic recession. Regardless, most of us will agree that we are not quite out of it yet. This is having some definite effects on outsourcing transactions, whether the ink on the deal is dry or not. Clients are looking for ways to extract cost and value from their outsourcing deals. Some deals are being completely renegotiated, while others are just trying to do things differently through their governance and change order processes. There is one common thread that we see emerging – vendors are being asked to partner with the clients to come up with creative ways to drive down deal costs. This is a trend that we expect to see continue throughout 2011.
Innovation – Deal Value
Clients are increasingly looking for vendors to come forward with innovative technologies and solutions to drive value from the deal. This is linked to the shift in focus towards cost reduction (as discussed above). Vendors are expected to come forward with better, cheaper, faster ways of performing, with some emphasis on the “cheaper”. It’s a bit of a double-edged sword as innovation typically requires capital investment. If the outsourcing isn’t priced to accommodate innovation (and the corresponding capital investment), then there could be a conflict between a client’s desire to have ongoing innovation and a vendor’s willingness to provide it without additional funding.
What clients mean by innovation is something that warrants further discussion between the parties, preferably during the negotiation phase of the outsourcing (instead after the deal is signed). For example, we all know that virtualization isn’t new as it has now been around for a few years. Nonetheless, virtualization in one method that is gaining popularity for both innovation and cost cutting (although some may say that it is no longer innovative). One key element of innovation will be coming to a common understanding between the parties as to what it means as innovation will be different depending on the life cycle and technical maturity of the outsourcing. Given that we are not out of the rescission yet, we expect to see the “innovation” trend to be used as a cost reduction throughout 2011, for existing deals and for new outsourcings.
Security of Data
With Wikileaks on everyone’s mind, and the focus on keeping sensitive information confidential, we expect to see a tightening of technology and other protocols around the security of data. Its no longer good enough to worry about the main technology system supporting an outsourcing – thought now has to be given to all of the peripheral devices that are used in day-to-day business from basic blackberries to iPads and whatever the next greatest thing will be. We expect this to manifest itself in 2011 through a tightening of internal controls, corporate policies, specialized training and technical safeguards, to name a few. We also expect that stringent data security controls will become a cost of doing business and that the luxury of doing just “enough” will no longer be afforded to industries dealing with sensitive data or personal information.
Continued BOP Opportunities – Growth Bundling One Comprehensive Approach
2009 projected into 2010 indicated that BPO was still really strong. For 2010 projecting into 2011 we are seeing more bundling of IT delivery with BPO. This is a trend towards holistic solutions that clients can use in numerous applications. For example, some tools with multiple functionality will replace multiple BPO outsourcings for each distinct service, giving a holistic solution to the client from one service provider. What does this mean? Perhaps we will see some rationalization of the number of different service providers used by any one client. This will put service providers with the competitive edge in the forefront. We expect that the competitive edge could fall to service providers with a broader experience base, the ability to innovate and cost cut, and who can survive and ride out the economic recession.
Several industry leading vendors have gone through their own merger activities in the last few years. While this consolidation inevitably results in “synergies”, new opportunities, the shifting in market reach (and market share) result in changes to the competitive landscape that make it difficult for the smaller vendors to survive, particularly in slow economic times. This will create challenges for some vendors and opportunities for others. It may also result in some unexpected mergers of vendors as a defence strategy for survival. For clients, this may mean some disruption to the status quo as the landscape changes, but it could also bring about opportunities for changing the status quo for clients who are looking for more value, cost savings and innovation.
2011 will be a dynamic interesting year for BPOs, both existing deals and new ones. We expect to see many changes in the landscape with a growing and continued emphasis on deal value, costs savings and innovation at a time when the vendors are going through a lifecycle of consolidation and change. While this year promises new challenges, we expect to see positive outcomes from the growing trends that may change the shape of outsourcings as we move through 2011 and into 2012.