Capgemini and IDC have unveiled "From Transactional to Strategic BPO: Putting the Evolution in Context," a coauthored report contending that while business process outsourcing (BPO) can lower costs and improve productivity, it's gaining traction as a strategic tool for process and business transformation. The report is based on the results of pulse surveys with a combined total of more than 100 executives at the March 2006 and September 2006 IDC Forums.
Not surprisingly, respondents tapped reduced costs as the most important driver for incorporating BPO into their corporate strategy, with 68.2 percent. Focusing on core competencies secured the second position, albeit garnering a substantially smaller percentage than reducing cost--22.7 percent.
"There will always be an accelerating pressure to drive down costs, but fueling innovation requires shedding non-core activities to maintain focus, thereby freeing up cash to continuously invest in core competencies and focus on driving a better return on capital across the enterprise," Capgemini's Viewpoint states. Other drivers ranked include supporting growth (9.1 percent), and driving innovation and accessing best practices, both tallying 4.5 percent.
"Early on a lot of companies experimented with IT outsourcing and had seen results in terms of cost reduction but also flexibility in their operations, supporting M&A and growth areas, and also being able to focus on their core business," says Maureen Barry, director of global marketing and communications for Capgemini and an author of the report. "So they're looking at aspects of their SG&A or their company operations and how they can do the same in other areas such as finance and accounting, HR or customer care."
Survey results also revealed that 85 percent of respondents have saved at least as much as they invest in outsourcing, while 26.4 percent noted that they've saved at least twice the size of their investments. When it comes to how companies are using savings from outsourcing, however, most--63 percent--have invested savings amassed as a result of outsourcing back into the company to enhance operational performance, drive innovation or support growth, according to the report. Slightly less than one third--31.6 percent--noted that the savings went to their bottom line, improving shareholder value. The report also contends that 5.3 percent used the savings to cover the cost of outsourcing while improving flexibility or agility. It is important, though, that companies keep in mind that potentially hidden or overlooked expenses like travel costs have the potential to reduce expected savings.
One of the main issues that companies must be aware of when evaluating BPO providers is that the company has industry-specific experience. "Technical competence alone is not enough in BPO," Capgemini's Viewpoint states. "To deliver the full value of BPO, a provider must understand the challenges, best practices, and business issues driving a particular industry."
1/19/2007
Slow BPO, ITO Markets Growth in The First Half of 2007
Overall outsourcing demand is generally growing, but at a slower pace than in previous years, and points toward slow Business Process Outsourcing (BPO) and IT Outsourcing (ITO) markets growth for the first half of 2007, unveils the results of EquaTerra’s 4Q06 Outsourcing Pulse Surveys — conducted among its own advisors and a wide variety of leading service providers to reveal in-the-field insights into ITO and BPO activity during October through December 2006.
The Everest’s survey findings also illustrates that contrary to popular views and portrayals, the prevalence of outsourcing contract re-negotiations, re-competes and re-structuring are not a widespread sign of “deals gone bad” or the demise of the outsourcing industry. Rather, buyers, service providers and outsourcing advisors alike view them, in most cases, as a catalyst and opportunity for improving the deal.
The survey result also show that outsourcing of non-traditional functions such as document and imaging services, legal processing, Knowledge Process Outsourcing (KPO) and logistics services is on the rise, which signals an increase in both supply and demand.
According to the survey, a continuing increase in multiprovider sourcing that can benefit buyers if it allows them to engage the best service providers for each of the processes being outsourced, but can also be more complicated and expensive to manage than sole-sourcing, finds the survey. Most buyers continue to underestimate the cost and complexity associated with performing Outsourcing Management and Governance (OM/G) activities, and shortcomings in: The staffing of the governance organization; costs associated with the use of third-party services such as lawyers, advisors and benchmarking firms; and the costs for software tools to support OM/G efforts are often one of the root causes for problems with outsourcing transitions and dissatisfaction with ongoing outsourcing.
The Everest’s survey findings also illustrates that contrary to popular views and portrayals, the prevalence of outsourcing contract re-negotiations, re-competes and re-structuring are not a widespread sign of “deals gone bad” or the demise of the outsourcing industry. Rather, buyers, service providers and outsourcing advisors alike view them, in most cases, as a catalyst and opportunity for improving the deal.
The survey result also show that outsourcing of non-traditional functions such as document and imaging services, legal processing, Knowledge Process Outsourcing (KPO) and logistics services is on the rise, which signals an increase in both supply and demand.
According to the survey, a continuing increase in multiprovider sourcing that can benefit buyers if it allows them to engage the best service providers for each of the processes being outsourced, but can also be more complicated and expensive to manage than sole-sourcing, finds the survey. Most buyers continue to underestimate the cost and complexity associated with performing Outsourcing Management and Governance (OM/G) activities, and shortcomings in: The staffing of the governance organization; costs associated with the use of third-party services such as lawyers, advisors and benchmarking firms; and the costs for software tools to support OM/G efforts are often one of the root causes for problems with outsourcing transitions and dissatisfaction with ongoing outsourcing.
BPO unit helps improve operating margins
The business process outsourcing (BPO) division of Wipro Technologies continues to gain traction and is expanding its service line while also helping the software services major boost its operating margins. For the third quarter of the current fiscal, Wipro BPO unit reported revenues of Rs 235.8 crore, showing a sequential growth of 2.5% in rupee terms and 7.1% in dollar terms. On a year-on-year (Y-o-Y) basis, revenues grew by 24%.
During the third quarter, Wipro BPO made a net addition of 1,508 people taking its total headcount to 16,863, while attrition stood at 14.8%. The addition of headcount in this quarter is against a negative of 584 people in Q2 of the current fiscal. Wipro CFO Suresh Senapaty said: “We witnessed a continued margin expansion in our BPO business by 60 basis points sequentially.”
T K Kurien, chief executive, Wipro BPO, said that margin expansion came in despite the full impact of the salary hike effected during the quarter. He said Wipro BPO has been expanding into newer service lines especially in the financial services sector. Currently, it has about 115 service lines, up from 101.
The mix of people being taken into Wipro BPO business has also seen change with the more emphasis on campus recuirtment to creat a more stable employee base. The third quarter also saw people with backgrounds like chartered accountants, MBAs, analytics join the company.
Mr Kurien said that it is taking numerous HR related initiatives which include the top management touching base with its employees every month along with increasing the brand pull of Wipro BPO. In the coming quarters, Wipro BPO is looking at improving its pricing as it has been recording 4-6% increase over the last one year.
During the third quarter, Wipro BPO made a net addition of 1,508 people taking its total headcount to 16,863, while attrition stood at 14.8%. The addition of headcount in this quarter is against a negative of 584 people in Q2 of the current fiscal. Wipro CFO Suresh Senapaty said: “We witnessed a continued margin expansion in our BPO business by 60 basis points sequentially.”
T K Kurien, chief executive, Wipro BPO, said that margin expansion came in despite the full impact of the salary hike effected during the quarter. He said Wipro BPO has been expanding into newer service lines especially in the financial services sector. Currently, it has about 115 service lines, up from 101.
The mix of people being taken into Wipro BPO business has also seen change with the more emphasis on campus recuirtment to creat a more stable employee base. The third quarter also saw people with backgrounds like chartered accountants, MBAs, analytics join the company.
Mr Kurien said that it is taking numerous HR related initiatives which include the top management touching base with its employees every month along with increasing the brand pull of Wipro BPO. In the coming quarters, Wipro BPO is looking at improving its pricing as it has been recording 4-6% increase over the last one year.
ISO27001 Certification For Neusoft's Software Outsourcing
Two of Neusoft Group's subsidiaries have been certified by ISO27001, the specification for Information Security Management System.
The two companies are Neusoft Coompany and Neusoft IT Service Company. The British Standards Institution issued ISO27001 certificates to Neusoft, which makes Neusoft the first of its kind to obtain ISO27001 certification for both software outsourcing and BPO operations in China, opening up vast prospects for further expansion of Neusoft in such two sectors.
According to Neusoft, it has, through acquisition of such certifications, successfully set up standard practices for internal information security management, leveraged company-wide protection against information assets, and enhanced information security awareness of all employees to ensure security of clients' assets, lower down information security risks, and guarantee smooth progress of all business operations.
More importantly is that such ISMS will help protect clients' sensitive information and provide them with secured, reliable service, which will give more confidence to clients in their partnership with Neusoft who will in turn have more instigated initiatives to go global, especially in BPO and software outsourcing.
Neusoft has ranked tops in offshore software outsourcing for two consecutive years in China from 2004 to 2005. In 2006, it has successfully shifted its business focus from ITO to BPO and extended its international market coverage from Japan to Europe and America, making milestone achievements.
The two companies are Neusoft Coompany and Neusoft IT Service Company. The British Standards Institution issued ISO27001 certificates to Neusoft, which makes Neusoft the first of its kind to obtain ISO27001 certification for both software outsourcing and BPO operations in China, opening up vast prospects for further expansion of Neusoft in such two sectors.
According to Neusoft, it has, through acquisition of such certifications, successfully set up standard practices for internal information security management, leveraged company-wide protection against information assets, and enhanced information security awareness of all employees to ensure security of clients' assets, lower down information security risks, and guarantee smooth progress of all business operations.
More importantly is that such ISMS will help protect clients' sensitive information and provide them with secured, reliable service, which will give more confidence to clients in their partnership with Neusoft who will in turn have more instigated initiatives to go global, especially in BPO and software outsourcing.
Neusoft has ranked tops in offshore software outsourcing for two consecutive years in China from 2004 to 2005. In 2006, it has successfully shifted its business focus from ITO to BPO and extended its international market coverage from Japan to Europe and America, making milestone achievements.
Asia-Pacific Outsourcing Market Bucks Global Trend
The outsourcing market in Asia-Pacific grew strongly in 2006, according to TPI, the world's largest sourcing advisory firm. In its first, semi-annual 'TPI Index' for the region, TPI reported that the number of deals signed in Asia-Pacific valued at more than US$25M had increased by 43%. The total value of these contracts has increased 67%, representing a five year high in outsourcing activity.
This level of activity contrasts sharply with the global trend. Although the number of contract awards globally increased by 3%, the value of these awards declined by 8% compared to 2005.
Arno Franz, Managing Partner of TPI Asia-Pacific, commented, "2006 was a stand-out year for outsourcing in Asia-Pacific. The region accounted for 13% of the global outsourcing market in 2006, the first time its market share has exceeded 10% since 2002. However, because the relative immaturity of the Asia-Pacific market makes it prone to spikes in activity, it remains to be seen if this is the start of an on-going growth trend."
Asia-Pacific is also showing consistent year-on-year growth in annualised revenues, the total revenues available annually to the service provider community. The Compound Annual Growth Rate (CAGR) for the region stands at 10.5%, more than double the global rate of 4.5%
Arno Franz continued, "Despite the 'lumpy' nature of the Asia-Pacific market in terms of yearly contract awards, the sustained growth in annualised revenues since 2002 suggests that there is strength in the Asia-Pacific outsourcing market."
At the same time, competition in the region has been heightened. The Big Six of outsourcing (Accenture, ACS, CSC, EDS, HP, IBM) are winning a decreasing proportion of those deals valued at over US$25M. This group won 40% of Asia-Pacific total contract value, compared with a 60% share in 2002.
Arno Franz concluded, "The increasing level of competition confirms that clients in Asia-Pacific are following the global trend and are becoming more receptive to doing business with non-Big-Six Providers. Alongside the global giants of outsourcing, there is clearly room for smaller, specialised service providers who can address specific client needs. As the market matures, we should see this level of competition increase significantly. At the moment, success for service providers in Australia, India and Japan seems to be the determining factor for success in Asia-Pacific."
This level of activity contrasts sharply with the global trend. Although the number of contract awards globally increased by 3%, the value of these awards declined by 8% compared to 2005.
Arno Franz, Managing Partner of TPI Asia-Pacific, commented, "2006 was a stand-out year for outsourcing in Asia-Pacific. The region accounted for 13% of the global outsourcing market in 2006, the first time its market share has exceeded 10% since 2002. However, because the relative immaturity of the Asia-Pacific market makes it prone to spikes in activity, it remains to be seen if this is the start of an on-going growth trend."
Asia-Pacific is also showing consistent year-on-year growth in annualised revenues, the total revenues available annually to the service provider community. The Compound Annual Growth Rate (CAGR) for the region stands at 10.5%, more than double the global rate of 4.5%
Arno Franz continued, "Despite the 'lumpy' nature of the Asia-Pacific market in terms of yearly contract awards, the sustained growth in annualised revenues since 2002 suggests that there is strength in the Asia-Pacific outsourcing market."
At the same time, competition in the region has been heightened. The Big Six of outsourcing (Accenture, ACS, CSC, EDS, HP, IBM) are winning a decreasing proportion of those deals valued at over US$25M. This group won 40% of Asia-Pacific total contract value, compared with a 60% share in 2002.
Arno Franz concluded, "The increasing level of competition confirms that clients in Asia-Pacific are following the global trend and are becoming more receptive to doing business with non-Big-Six Providers. Alongside the global giants of outsourcing, there is clearly room for smaller, specialised service providers who can address specific client needs. As the market matures, we should see this level of competition increase significantly. At the moment, success for service providers in Australia, India and Japan seems to be the determining factor for success in Asia-Pacific."
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