Is Business Process Outsourcing (BPO) dead?

This week the Dutch based Ordina gave its Business Process Outsourcing (BPO) activities to Centric with a fair amount of money on top of it to keep it afloat (max 32 million Euro), combined with a write off of 72,5 million Euro in 2008). It triggered me to think about the success of BPO in general.

Ordina never was able to make its BPO-practice profitable. The official statement was that the investments in the operational infrastructure required to run the BPO were much higher than expected. Although not privy to other specific reason in this situation, I have observed a few dangers that seem to impact BPO generically.

Yes, it's a boy!

In too many cases BPO has been seen as just a step beyond outsourcing. But there are many more elements to consider. Vertical knowledge of the supported business processes. In-depth understanding on both the selling- and cost price of a business transaction. An organization with the right management and equipped with the right set of KPI's. It is a complete business of its own.

Legacy

Most BPO project were based upon taking over an existing department lock-stock-and barrel by the Business Process outsourcer. Since we are talking mostly about business processes in the finance and insurance sector, giving a heritage of over 30 years of IT to deal with including the people, procedures and culture that go with it.

Efficacy

BPO would bring money based on volume processing by the outsourcer and thus lower costs for the using company. By simple efficiency measures this can't be achieved. Cheaper and more powerful hardware can never compensate for the cost of management of the legacy applications explained before. Real savings only result from scrutinized standardization, lean operational models and transaction based costing.

How unique is a business process

Often the company thinking of outsourcing a business process thinks that it is a unique implementation of business knowledge, experience and trade secrets. Certainly not to be shared with others. In my opinion for most volume business transactions the only differentiator is the price. This is what the end customer is experiencing plus of course the quality of the customer services organization.

Reasons for BPO

The reasons for thinking about BPO mostly have a negative drive: we can't bring the costs down ourselves or we are not able to change the culture. So let somebody else try. I think BPO should be seen as a migration to a next process level: an investment with expected lower costs later. It will give the organization and the outsourcer a joined chance for a successful project.

Will Centric be more successful? Knowing its CEO Gerard Sanderink I think there is a good chance. Although he has not revealed his plans yet, I think he will be by focusing on the part he can standardize at low cost and getting rid of the high cost specials.

So for me BPO is not dead and still a valid option for those who do it with the right intention.

hans.van.nes@results2match.com