Back office outsourcing is entering a period of significant turbulence and flux. Beset by declining benefits from labor arbitrage, a shift in focus amongst clients from cost savings to process improvement and value-added capabilities, and the accelerating maturation of a raft of intelligent automation (IA) technologies, these cumulative changes especially those driven by IA technologies, is shaping the future of back-office outsourcing.
The results are working their way through industry and surfacing as being both positive and negative on both the client and vendor sides.
Recent findings from KPMG highlight the declining interest among buyers of both ITO and BPO services, as shown in Figure below.
While traditional outsourcing models are certainly declining, new models of next-generation outsourcing are emerging. Fully understanding the nature of this growth requires different measurement techniques beyond simple deal size.
Trends That Are Re-Defining the Back Office
Eight major trends are driving change across the back-office outsourcing space:
Social Media Adoption
Before 2000, the global customer service industry was entirely dependent on websites and Interactive Voice Response (IVR) for transferring a call to the correct representative.
This trend has been upended completely. Now around 81 percent of the U.S. population has at least one social media account. Consumer behavior has changed with browsing social media emerging as the third most popular online activity.
Companies increasingly understand social media is changing the consumer landscape. Brands are leveraging the vast volumes of data social media generates to identify latent trends, enabling them to be more agile and responsive.
Seeing this trend, BPO service providers are investing in dedicated social media teams. Working in tandem, customer representatives and social media teams are solving customer complaints and queries more speedily.
Virtual Firms in the Professional Industry
Outsourcing enables virtual companies to take their business model to market without upfront investment in human and physical capital. This competitive advantage is propelling more efficient Pilot scale-ups, product development, and rapid commercialization.
Historically, virtual firms made the mistake of adopting a piecemeal approach to outsourcing using “one vendor at a time” strategy. The results were frequently time-consuming, and disappointing.
Virtual companies are finding a specialized external project management partner capable of identifying, coordinating, and managing all aspects of the outsourcing process, is a more reliable, faster path to success and at a lower cost.
Mindset Change: Value-Oriented Revenue Model
One of the biggest issues confronting BPO service providers was the shift in client focus from price to value-based service selection.
Cost Saving Vs. Process Improvement and Value-Added Capabilities
PIP assists companies in three ways to ensure they are optimizing these operations:
- Advise companies on their optimal operating structure be it in-house versus outsource or offshore versus onshore.
- Improving operational service efficiency. PIP assists companies to enhance their operational efficiency, delivering higher customer service and unlocking additional cost reductions.
- Partnering between outsourcer and client. PIP unlocks value at the “border” between the two organizations. It explores avenues for operational improvements through a partnership approach to streamline services in the background.
Improving Back Office Processing Productivity
PIP’s systematic approach delivers low-cost, high-quality, productive operations. First, we diagnose the opportunity. Evaluate current operations to identify candidates for improved staff efficiency and greater utilization, simplify/fix current business processes and smooth out the workflow potentially through offshoring.
Once the key services or issues have been diagnosed and the best way to add value identified, we focus on working collaboratively to improve productivity. Typically, outsourcing firms look to reduce costs by 20 to 40 percent via a renewed focus on efficiency and service levels.
PIP works directly with Team Leaders, and management to ensure they proactively train their team to drive sustainable performance improvements. PIP also works to establish a savings pipeline to generate, track and implement savings ideas.
Having expanded exponentially in revenue and industry employees by positioning itself as a BPO ‘destination of choice’ over the last decade, India’s BPO industry has arrived at an inflection point.
The back-office outsourcing sector faces collective hurdles to maximize its market opportunities to establish its role as a value-added end-to-end business partner. Outsourcing is not a new phenomenon. It has been adopted in a different form in different industries in a variety of operational contexts. So successful has it been that some terms are now used interchangeably to describe the outsourcing phenomenon.
From Outsourcing Low-Risk Functions in the Past to More Strategic Functions in the Future
A recent Outsourcing study conducted by the London School of Economics revealed nine out of every ten enterprises plan to increase or maintaining their present reliance on outsourcing and shared services over the coming three years. The key lies in identifying those factors influencing these increasingly aggressive global sourcing strategies at an industry level.
The shock of the new is driving organizations within industry verticals experiencing fundamental shifts to their economics to explore beyond their present organizational boundaries to ensure their business operations remain competitive
Changes within industry environments are producing more radical behaviors from executives already under pressure to continue delivering productivity improvements.
Industries experiencing dramatic shifts in their operating environments are leading the drive for aggressive long-term outsourcing strategies:
Media, Publishing, and Entertainment Web 2.0’s impact on printed newspapers and network news, is stimulating radical new business and distribution models
Technology Impact of Cloud computing on licensing and pricing dynamics, rapid commoditization of packaged software models, flight to India, China, and low-cost countries to drive down development costs.
Energy & Chemicals Endemic price volatility, high oil exploration capital costs, chronic talent shortages, and an aging infrastructure plus ever-changing compliance legislation
Banks Unprecedented debit and credit pressures, re-regulation sentiment, massive de-leveraging.
Insurance Solvency II, ObamaCare compliance measures driving up administrative costs and workload, a chronic shortage of actuaries and risk analysts.
Industries with Past Change Experience Are More Focused on Shared Services Framework Investments
These businesses are culturally comfortable with being reactive to market pressures rather than proactive. Hence, radical long-term change in the face of faced with uncertainty doesn’t fit with their mentality.
Many of them have already aggressively reduced their operating costs, making extracting additional productivity gains through outsourcing a challenging proposition. A mistake could prove fatal for their low-margin business.
Outsourcing has always been an option explored previously, primarily to drive costs savings rather than engineering the enterprise. Their focus has been on short-term cash-flow making a radical overhaul of their operational infrastructure an unappealing option.
Utilities are another sector with a well-earned reputation for being conservative in pursuing outsourcing, mainly through a shared services lens. While many larger utilities were among the earlier adopters of shared services and hybrid outsourcing models, most escaped the fallout from the 2008 crash and did not feel compelled to enter into a root and branch review of their operating model.
Hence, it’s hardly a surprise that these organizations adopted a conservative approach to their long-term operational plans. Many utilities are already heavy outsourcing adopters and are expected to remain focused on their current outsourcing initiatives with an increased focus on improving, and expanding, their internal shared services competencies.
Emergence of Modularization
Organizational structures evolve over time. Often switching from a full-service integral mode to a more modular form before revisiting the earlier integral mode, depending on its technology.
Component production tends to be vertically integrated initially since components are low-volume and bespoke. Hence, production costs are high. Brands looking to compete on costs will attempt to standardize their components. Moreover, as firms compete to define industry standards, speed to market is a strategic imperative. Modularization facilitates these strategies.
Functionality also encourages modularity and component disintermediation to improve speed to market. If a dominant design emerges with component standardization, firms opt for disintermediation as the product becomes more modular.
If firms outsource when their product architecture is integral, they risk becoming dependent on suppliers. This risk is alleviated if a modular product architecture is adopted.
Environmental Conditions Supporting An Outsourcing Market
The emergence of an outsourcing market or growth on the supporting supply side an outsourcing service is dependent upon the disintermediation of business activities based on TCE.
Many firms believe they should focus on their core business activities. Therefore, an outsourcing market is only viable when clients opt to disentangle their businesses from their noncore activities.
In choosing to outsource, a firm’s goals are usually driven by either knowledge or capacity constraints. Many industries begin with a vertically integrated mono-structure but become increasingly disintegrated as market demand rises.
In the later stages of the life cycle, as demand plateaus or declines, industries tend to reintegrate. Depending on their products’ life cycles’ characteristics, firms strategically trade-off control for flexibility to maintain their competitive or comparative advantage.
If their internal capabilities fail to match best-in-class suppliers firms can turn to an efficient market or supplier forge a strategic trade-off between their current in-house production model and outsourcing service offerings.
Automation of Back-End Services: Technology Adaption
As Robotics Process Automation (RPA) evolves and matures, it is highlighting the need for standardized processes to be developed and automated to facilitate the introduction of robotics to perform these tasks. Humans are moving from a service delivery model to managing and servicing exceptions. The emergence of RPA is creating a compelling cost deferential to conventional outsourcing engagement models.
As RPA technology accelerates, it is emerging as one of the most disruptive forces driving benefits spanning the dimensions of accuracy, efficiency, scalability, cost savings, and compliance. Cognitive technologies that learn; recognize and process languages, designs and imagines by automating elements of highly skilled knowledge work are poised to transform businesses globally.
The implications of these capabilities are expected to unleash revolutionary transformation across every industry, especially BPO and IT. Analysts predict the global RPA industry will reach $5 billion by 2020, growing at a CAGR of 60.5 percent.
While the transformational effect of robotics and cognitive automation are in their infancy, automation is expected to impact the work of more than 100 million knowledge workers globally over the next decade.
Cognitive powered RPA will either eliminate or automate routine job outputs allowing workers to focus on higher value tasks, decision-making, and innovation. Rather than tying up talent, businesses can automate monotonous tasks, and unleash their expensive talent’s potential to provide direction and manage exceptions on demand.
RPA will inevitably change the way companies outsource. Automation software removes the outsourced worker from the equation, substituting for roles previously handled by foreign workers.
The effect of RPA will be to retain company expenditure within the country where they do business while eliminating the stigma and turmoil often associated with hiring staff overseas.
Intelligent automation enables organizations to retain local workers on staff to manage the more complex tasks while the technology handles more mundane duties. This will dramatically reduce costs while increasing service quality.
Intelligent Automation (IA)
Intelligent automation is expected to continue flourishing in the coming years. One outcome of this trend is the likely disruption of current commercial outsourcing models a sharp reduction in vendor costs with a concomitant growth in supplier margins.
Artificial Intelligence
AI and advanced big data analytics enable many tasks to be automated that are currently outsourced. Automating tasks currently performed by hundreds of overseas employees will enable businesses to introduce expensive local talent to focus on complex tasks and the strategic decisions that drive business impacts.
Financial services are gaining a reputation as a leader in applying innovative technology to enhance customer experience, mitigate risk and drive down costs. Artificial intelligence (AI) enables insights to be quickly and accurately extracted from the vast volumes of complex data generated.
Predictive Analytics
While some predictive models help businesses identify potential customer preferences for their services and products, others sift through structured and unstructured data to identify customers preferences. Three ways analytics drives business advantage are:
- Uncovering hidden insights
- Revenue-driving innovation
- Operational enhancements
Deep Learning
Auto-learning is transforming computer intelligence by handling tasks once done manually rather than simply correcting data entered by hand. As with the first generation of automation, these cognitive processes take time to learn from the source data such as customer purchases. The system identifies recurring patterns in the data, noting specific keywords frequently associated with each field. The system automatically recognizes the keywords and searches for related data to complete the field.
The Blockchain Effect on Back-Office Outsourcing
This concept has leaped to the forefront of the financial services industry’s consciousness. It carries the potential to transform jobs, reduce existing complexities between organizations, and simplify business operations across the globe. However, to date, this technology’s impact on the back office has been limited.
Economic Growth and Demographic Change
In today’s global economy, back office outsourcing has matured into a driver for economic growth, especially amongst developing nations. Combined, ITO (Information Technology Outsourcing) and BPO (Business Process Outsourcing) in India contribute around 9.5 percent of the country’s GDP and employ approximately 3.5 million people.
Clearly, India and other emerging countries have surfed the outsourcing boom. Now, the question remains, “Can other countries can apply a similar strategy to unlock economic growth?”
One interesting BPO hotspot is the Balkans, which includes Albania, Bosnia and Herzegovina, Croatia, Kosovo, and Macedonia, Montenegro, and Serbia. The region’s low cost IT workers and pool of highly educated, multilingual and experienced IT people make it attractive for outsourcing.
With the youngest population in Europe and European-friendly time zone, the Balkans could be the new India for outsourcing in potentially leveraging a market worth $110 billion.
Back-office outsourcing is allowing the world’s financial sector to manage its transactional processes such as billing, order fulfillment, transaction processing, customized collections and services applications processing while not being locked into expensive and inflexible legacy systems.
Outsourcing back-office services offer banks the increased agility needed to keep pace with competitors as well as the growing ‘Fintech’ sector that is capturing traditional banks’ margins.
Globalization and Commercialization
This chart shows the size of the global outsourcing market from 2000 to 2017. In 2017, the global outsourcing market amounted to 88.9 billion U.S. dollars. Global outsourcing revenue has been volatile over the last few years. In 2016, the market size shrank to 76.9 billion U.S. dollars, the lowest value in a decade.
Further globalization of key business processes in the finance sector and other back-office operations are expected to produce solid revenue growth over the next three years, according to research studies.
Commercialization
Outsourcing back-office functions have been primarily a cost reduction strategy over the past decade. However, some innovative companies see the potential to carve out a role as a supplier in the outsourcing space. Companies including Lloyds of London, BAE Systems, Barclays Bank, and Bank of America, have morphed their back-office functions into commercial enterprises by partnering with key suppliers.
As suppliers, they standardize, centralize, and web-enabled their customer’s back-office processes, while retraining, empowering, and motivating the transitioned back office staff to attract external customers. The results to date are striking, lower costs, improved service levels, and revenue generation.
Full operational commercialization extends beyond customer-facing teams to embrace target-customer profiling, back-office data management, sales operations, analytics, program execution, and project management and compliance.
The future of back office commercialization is viable due to the expanding market for business process outsourcing.
Shifting Data Usage
Which Back Office Data Processing Tasks Can Be Outsourced?
Today’s modern enterprises generate data at every point in the organization. From accounting data to marketing’s customer feedback and loyalty forms, orders in the sales department, purchase orders from procurement, data is the beating heart of our contemporary enterprises.
Outsourcing data processing tasks have gained traction due to the complexity of these operations. The following forms of data processing tasks are candidates for outsourcing:
Image Data Entry Sorting, image capture, image indexing, and editing, image conversion, and image data entry.
Product Data Entry Adding product descriptions, features, specifications, images categorizing products, adding prices and data entry for online catalogs.
Sales Invoice and Purchase Order Data Entry Invoices and purchase orders, credit and debit memos data entry, CMS updates, business application software, and document management systems.
Manual Data Entry Printed, unstructured or handwritten documents, CMS or CRM application data entry.
Form Processing Transferring form-based data for medical, legal, market research, enrollment, loyalty, insurance, registration, and transport sources into an electronic system.
Document Formatting Technical guides, manuals, and reports inserting bookmarks, hyperlinks, headers and footers, caption numbering and labeling, and generating a table of contents.
Data Conversion HTML and XML conversion, eBook conversion, document and PDF conversion.
Data Cleansing Periodic database maintenance, removing duplicates and invalid records, adding missing information, interlinking multiple data sources, and correcting values.
Where to Grow Your Back Office
This schematic depicts a Feasibility study from a technology and resource perspective.
The solution should integrate with multiple applications, manage the business and automate back-office technology, services, and human resources functions. It should also facilitate effective back office management by enabling managers to:
- Identify real productivity by analyzing data on application usage and processes completed by employees to finish a task
- Forecast work volumes, plan capacity, and schedule resources
- Manage backlogs
- Track schedule compliance in real time, driving productivity
- Improve employee performance through root cause analysis
- Give employees personal KPIs and ownership of their schedule
- Improve engagement by increasing employee collaboration
- Eliminate employees cherry-picking work by prioritizing and distributing work.
Things to Plan and Prepare in the Coming Days
Outsourcing has seen a sustained boom over the past few decades. 2018 is proving to be no different regarding outsourcing industry trends in sustaining outsourcing’s exponential growth, and this growth trend is expected to continue.
As new technologies emerge, the outsourcing industry’s growth prospects look bright. Increasingly, companies are outsourcing their core functions to efficient and reliable external service providers.
Today, companies are looking for outsourcing services that add value to their business, rather than simply reducing their cost base.
Top 8 Outsourcing Trends Expected to Govern 2018 and Beyond.
Some of the key trends likely to propel this offshoring growth are:
- Security Is Prioritized Data security will continue to top the priority list when it comes to outsourcing. As the Internet of Things (IoT) and telematics expand, security risks are poised to increase.
- Intelligent Automation Reduces Outsourcing Costs Intelligent automation and robotic process automation will flourish in the coming decade, disrupting the current commercial outsourcing model and further driving down costs
- Call Center Demand Decreases As automated chat-bots and self-service tools are embraced, the demand for call centers is expected to decrease drastically. Automated contact centers will handle higher volumes with fewer agents.
- Smarter Robotic Processes Expect contextual awareness, natural language processing and computer vision to be embedded into the robots of the future.
- Cognitive Strategies Gain Traction Recently a wide-range of cognitive platforms has been launched onto the market. Moving forward, providers are expected to drive adoption by focusing on specific success stories
- Cloud Demand Rises: Increasing demand for cloud platforms will lead to an increased demand for value creation from the cloud providers in driving transformation in their businesses.
- Machine Learning Adoption Increases Unlocks cost savings, speeds up process completion and improves service quality. Machine learning fills the gaps left by automation to offer efficient services within short turnaround times.
- Virtual Work Stays Telecommuting is here to stay. Companies find it easy to interact with other team members and integrate seamlessly via remote meetings and real-time monitoring tools to deliver quality services.
The case for back office outsourcing is compelling. Companies are expected to engage service providers who can add value to their business rather than simply providing services at a lower cost. Outsourcing companies will increasingly partner with service providers who offer innovative services, and in-depth industry knowledge within a modern, cutting-edge infrastructure environment.
– Back Office Pro
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