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Global Outsourcing Market - 2016 and Beyond

By Deepak Kumar, President - And Enterprise Solutions, And Newgen

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Deepak Kumar, President -

The BPO industry globally is now worth over $100 billion USD in annual contract value (acv) and is still growing by over 5% each year. This figure could probably be doubled if it was inclusive of internal Corporate Shared Service Initiatives. The BPO market has matured over the last few years and is still attracting widespread interest from organisations, due to its potential financial and strategic impact. As the market becomes increasingly competitive, BPO providers are becoming more creative and devising multi-year outsourcing deals while continuing to regard Conditions, Risks and Costs of a location as key when choosing where to outsource to. Global operations must keep pace with the changing business landscape. That means knowing how to harness distributed and flexible talent, leverage new technology, and implement innovative yet robust practices.

Some of the key trends that will dominate the Business Process Outsourcing industry in 2016 and beyond:

1. Innovation

Buyers pushed for innovation from BPO providers for years, and now they are seeing it ingrained into the industry at last. A survey of 100 firms found that two-thirds have innovation incentives built into outsourcing arrangements, and nearly half meet regularly with providers to discuss innovation. Eighty percent said outsourcing partners “actively encourage innovation and ideas.” Buyers have been pushing for more innovative services from their outsourcing partners, and this customer requirement has modified the role of innovation in outsourcing.

2. Outcome-Based Pricing Models

A Vast majority of pricing regimes in BPOs have been largely based on an FTE-based system of pricing. This approach has advantages due to the ease of its application and the transparency of its costs, yet it fails to align pricing with business outcomes. However, the incentives of the supplier are not as symbiotic with the client as they could be. For the client it is important to ensure the incentives of the incumbent BPO provider are aligned as much as possible with those of the organisation. To address this issue, many companies are now seeking a more outcome-based pricing model. Such opportunities are likely to present themselves in more mature client-outsourcer relationships and will provide a sliding scale of rewards for destined outcomes, rather than an all-or nothing scenario. However, this will present opportunities for suppliers to consolidate existing relationships by adapting to a platform that will be increasingly more sought after. Clearly an outcome-based model may not be appropriate to every area of the business, particularly where value is harder to quantify, yet the advantages of rewarding suppliers based on performance clearly mitigates some levels of risk that surround pricing models not linked to performance.

3. Multiple Outsourcing Partners

With the added complexity surrounding all business processes, there will be multiple outsourcing providers instead of just one — Software-as-a-Service (SaaS) and cloud computing both facilitate an environment that is conducive to working with several outsourcing companies simultaneously. Nevertheless, elimination of outdated and duplicate outsourcing services is still advisable.

4.Data-Driven and Analytics-Driven

The era of “Big Data” has entered a critical phase. Most companies now want “much more” than just “data” — they want “answers” and not simply “data.” This introduces the rapidly growing importance of data analytics in the overall data management process. Enterprises without data analytics capabilities will need to add analytics to keep up with both customers and competitors.

5. New InfoSec strategies- Organizations seek help in managing and protecting unstructured data.

In the wake of headline-making attacks and data breaches of Sony Pictures, JP Morgan, Snapchat and others, information security will be of the highest priority in BPO engagements. IT teams will work to not only protect the perimeter of organizations from attack, but will also build “application self-protection” features into made-for- business apps. Companies are realizing that they cannot manage information by buying more servers–they need strong enterprise content management (ECM) strategies and assistance from BPO providers experienced in securely managing unstructured information such as video and audio files, social media posts, and data on employees’ BYOD devices.

6. Companies embrace a mix of SaaS and private cloud

As companies shift to SaaS, on premises software deployment is declining rapidly, expected to drop from 34 percent to 17 percent by 2017, according to Gartner. However, because of security concerns, CIOs are increasing adoption of private cloud more than public. Experienced BPO providers are navigating this new reality, looking for opportunities to offer organizations BPaaS (business process as a service), RPA and secure private cloud infrastructure.

7. Virtual Workforce (Work At Home Agents- WAHA)

The majority of the features and trends for the BPO industry in 2016 are based on using a robust cloud-based software system that takes most of the heavy lifting off premise. As per industry research, 18% of workforce will be cloud based in 2016. Gartner called it a “seamless shift between computing and communicating.” Along with increased interest in BYOD/T, organizations are dealing with more complex architecture and operations, new ways of addressing governance and security and the rise of a remote, cloud-based workforce.

8. Robotic process automation (RPA) is the application of technology that allows employees in a company to configure computer software or a “robot” to capture and interpret existing applications for processing a transaction, manipulating data, triggering responses and communicating with other digital systems. As labour costs spiral, robotics offer the next wave of efficiency to those choosing to outsource. The speed of deployment and the use of specialised software enables the replication of some manual labour tasks in an environment of rising labour costs. The advancement of robotic processes will certainly impact the labour market. Foxconn, the gigantic Chinese manufacturer, has already stated that it will replace 1 million workers with robots. Aecus, a consulting and benchmarking firm, has found that around third of companies have already implemented robotics while nearly half plan to do so over the next three years. Innovative outsourcing is driving a range of benefits in addition to pure cost reduction.

As RPA brings more technologically-advanced solutions to businesses around the world, operating models that adopt automation, whether in-house or offshored, will cut costs, drive efficiency and improve quality.

9. Mobile Based customer service applications- may not need a desktop

Increased adoption of smartphones will cause a shift from IVR to smart visual mobile apps. Activities like Customer Verification- Biometrics based, NFC based etc will help verify the identity of the clients, instead of wading through multiple questions and client verification procedures, this feature alone will shave minutes off of each call, exponentially increasing productivity

10. Domestic Outsourcing and emergence of regional service providers

Economic changes have raised the demand for employing American providers, removing constraints such as language barriers, international law, and currency exchange. Some companies are highlighting home-grown outsourcing as part of their marketing.

By working with U.S. providers, however, there are many operational and cost-saving benefits.Shift in outsourcing activity back to the U.S and its near-shore neighbors- sparked by a series of factors such as rising wages in China and India; increased demand for American-accented English and Latin American Spanish in contact-center services; and companies preferring to work with geographically-closer outsourcing providers within familiar time zones.

Regional service providers are likely to grow providing a stiff competition to outsourcing landscapes such as India, Brazil, Philippines and Poland who lead the ranks of the top 3 most popular outsourcing locations. Regional service providers specialization and availability are likely to play a greater role as competition continues to influence the global ICT services landscape.