|By Clinton Jones||
|July 25, 2012 04:06 PM EDT||
Business process outsourcing (BPO) of shared services centers (SSC) is not really something new, but lately BPOs and SSCs have become particularly popular as discussion topics in large organizations with complex and simple business processes.
In reality, the BPO function is nothing more than the contracting of specific business tasks, typically back office business tasks, to a 3rd party service provider. Companies like a payroll bureau and recruitment agencies have been effectively performing these kinds of services for decades. In the late 1990's improvements in computing technology, the internet and global communications allowed an explosion in outsourced customer services centers. This in turn led to an increased focus in businesses not just looking at the BPO function but also in the breaking down of traditional organizational processing silos and the creation of aggregated back-office functions in the form of shared services centers.
Lately there has been a large amount of business and research focus on the optimal combinations of outsourced processes and shared services and some of the trends in this area. Of particular interest was the recent Deloitte Consulting 2011 Global Shared Services Survey. InformationWeek's Chris Murphy says "Business Process Outsourcing (BPO) is the fastest growing worldwide outsourced market segment". According to analyst firm NelsonHall, the global BPO market valued €217.8 billion in 2007 and is expected to reach €323.6 billion in 2011, showing an average growth rate of 10% per year.
BPO is catching up with industries like medical transcription services that have effectively provided a BPO service for more than a decade. Moreover, it is not just India or the Philippines that are booming with BPO services; Central & Eastern Europe are aggressively chasing near-shore outsourcing for Europe and the North America.
A 2005 combined study by InformationWeek magazine and EquaTerra, an outsourcing advisory services firm, showed that 73% of BPO customers surveyed believe BPO improves processes, demonstrating that principal drivers for BPO are efficiency and effectiveness.
With median revenue of $12bn among the Deloitte survey respondents, shared service centres were identified as largely distributed between APAC, LATAM, Western Europe and North America. Roughly half of all SSC's being based in North America (29%) and Western Europe (23%). Many of these organizations (38%) operated out of just one SSC and 71% operated with three or less. However as the size of the organization grows, the trend is for the number of SSC's to increase with companies with revenue of $25b or more, having on average 4.3 SSC's.
Key drivers for SSC selection unsurprisingly focus on quality, ramp-up-time, labour costs and language. Unsurprisingly, relatively unimportant factors were physical proximity to operations and HQ, regulation riskiness and sustainability. The U.S. has the most well-established Shared Services market with over 44% of all centers that are over 10 years old. 51% of SSC's support only 1 language. The U.S. also has the highest concentration of multi-language centers serving multiple continents.
In terms of the costing profile for SSC's since 1999 at least, services charged based on volume continue to be the primary chargeback model used by respondents. The respondents cited that the primary modes for effective management were site visits, leadership meetings, SLA's and continuous improvement initiatives.
Probably the most important discoveries were that the bulk of SSC activities are centered on financial operations (93%), human resources (60%) and IT (48%). 53% of respondents only serviced one process area with a SSC. In the financial processes space, 84% of respondents indicated that they handled AP processing, 72% Fixed Assets and General Accounting and 70% Travel and Expense management. In human resources, almost half were running payroll and time administration (40%) out of the SSC, 36% Employee Data administration and 33% benefits administration.
Of all the SSC respondents, 87% indicated that workflow was important to effective operations, with 67% already having workflow in place. Electronic Document Management was considered important by 88% with 52% already having EDM in place. Although relatively low in the adoption stakes, Vendor Self Service featured as important to 65% of respondents with 1 in 4 already having a vendor self-service solution in place. There was over a 35% increase in respondents that have implemented workflow and call center since the 2005 survey.
Timeliness of response to requests was stated as a key driver for 96% of respondents and that measurement was being driven by process based KPI's it is unsurprising then that products like Winshuttle Workflow are focal to BPO's in ensuring SSC performance optimization and effectiveness. For 91% of the respondents, SSC's resulted in cost reductions and for 85% levels of control increased with 87% reporting that they saw process efficiency.
In order to deliver services with quality and stability, BPO providers have to have a service methodology, and the requisite infrastructure, people and reporting metrics capabilities. Leveraging technological and communication advances are the fundamental factors that lead to the success for Business Process Outsourcing. The internet and the low cost of data and voice communication, in addition to the move to standardized applications, flexible IT platforms, and more integrated systems give BPOs the tools needed to advance and spread. Adoption of technologies like Workflow and collaborative solutions built on SharePoint reduces operational risk, increase accessibility and transparency, all the while improving process quality and lowering costs
When considered collectively, SSC's combined with BPO's seem to suggest a perfect opportunity for cost savings and business process optimization. When a business shifts SSC operations to a BPO the Terra survey indicated that 53% felt that they were able to focus their attention on more critical business issues than daily data processing. In addition, using a BPO meant that businesses could be assured of a more predictable (45%) and reduced (44%) operational cost structure for back office data processing.
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