BPO Is Not an Industry! | Sherpas in Blue Shirts

Everything that is not IT Outsourcing is often called BPO! This over-generalization and over-simplification was perhaps fine when the BPO market was in its infancy but not today.

I like to refer to BPO as an amalgamation of multiple markets that include horizontal business process services (such as F&A, HR, procurement and supply chain, contact center) and industry-specific business processes (such as banking, insurance, healthcare, utilities).

In fact with increasing maturity, BPO is getting more specialized. You can look at BPO specialization across three dimensions:

  • Specialization by industry. Industry-specific BPO services are growing at a much faster pace than horizontal BPO services. Even horizontal BPO services are developing an industry angle. For example, meter-to-cash in utilities and revenue cycle management for healthcare providers are industry-specific versions of the horizontal order-to-cash process.

  • Specialization by process. Instead of big-bang HR outsourcing, specialized HR outsourcing across recruitment, benefits, multi-country payroll is witnessing significant growth. And, similar to the specialization by industry, even within industry-specific BPO, specialization by process is emerging. For instance, banking BPO involves cards processing, mortgage processing, retail operation, and commercial operations. Each of those represents a different line of business within a bank and with very different outsourcing drivers and objectives.

  • Specialization by category. A new dimension beyond the process dimension is emerging in BPO services. This manifests itself differently in different BPO segments. In procurement, it is the spend category (direct versus indirect). In capital markets, it is the asset class (equity or Ffxed income or FX or OTC).

With this increasing level specialization in BPO, the underlying characteristics of each BPO segment are becoming very different from one another.

  • Value creation levers are different – sourcing and category expertise are the key to drive value from procurement outsourcing as opposed to arbitrage or operational cost reduction

  • Role of technology changes – while technology is playing a more invasive role across all BPO segments, the nature of technology leverage in each segment varies. Platform-based BPO services are the norm in HR outsourcing while most F&A outsourcing solutions involve add-on tools that wrap around client’s existing core technology

  • Delivery approach varies – procure-to-pay services are largely offshorable but source-to-contract requires significant onshore component

  • Pricing structures are different – F&A services are largely FTE-based, HR services are priced per transaction, while procurement is often a combination of managed service fees with some gain-sharing

  • The service provider landscape is also very different – TCS, Wipro, and Cognizant are the leading L&P insurance BPO providers (in terms of market share) while EXL, Genpact, and WNS are the leading ones in P&C insurance BPO

As a result when making BPO-related decisions, it is very important to understand the market dynamics of the specific segment in question. When multiple BPO segments are in play, make sure to draw out contrasts and comparisons between different segments. You don’t take the same pill for every health issue – do you? And unfortunately there is no magic pill that cures everything or we would never need to visit a doctor. (Read “I won’t have a job!”)

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