Business Process Outsourcing (BPO) Companies Face a Commoditizing Market…How Will They Drive Future Profits?
...How Will They Drive Future Profits?
The BPO industry has played out its natural advantages and is now struggling to eke out continuous productivity gains to protect slim margins. For more than two decades, outsourcers took advantage of labor arbitrage, operational excellence, and modest economies of scale to create customer value and shareholder profits, but that model is now largely commoditized.
A next-generation business model is required if an outsourcer is to achieve attractive, sustainable margins and drive exciting growth in shareholder value. Every outsourcer has the opportunity to transcend incremental cost savings by climbing the “value-stack” to provide customers with true solutions to critical business problems. A solution is an offer (a combination of products, services & expertise) that comprehensively addresses a significant, recurring, and common customer problem to deliver measurable and meaningful results. Equally critically, solutions use the discipline of modular design to improve efficiency even as offers attack more complex problems. A mass customization delivery model creates substantially better economics and provides future flexibility over a purely bespoke model, without sacrificing the ability to customize the last mile for individual needs.
Business solutions providers must shift the risk of results and the complexity of outcomes management from the client to the outsourcer. To be profitable, a business process outsourcer must possess deep expertise in problem-solving that is superior to the client’s and should also possess an advantage in the products and services they choose to retain (rather than a contract from sub-outsourcers). A scale player with a broad array of platforms can create an advantage if it learns to integrate across traditional BPO platforms to create offers that access these new sources of value. Every outsourcer should begin now by determining which capabilities provide opportunities for repeatable high-value solutions – including looking outside of existing single market applications.