Is the Sun Setting on BPO as we Know It?

I was called to a meeting last week by an organisation that currently has about 500 captive seats in metro-Manila and wants to expand to 750. They are having difficulty recruiting quality staff and wanted my opinion on whether they were in the optimum location and indeed whether they should look at outsourcing the business. 

Let’s look at the second question first, what are the considerations when thinking about outsourcing? Outsourcing is possibly the second oldest profession in the world. Ever since we have been able to get someone else to do something for us that we didn’t want to do for ourselves, outsourcing in some form has existed. Be that contact centres or having your car washed it’s all the same. 

I recall having a conversation with a local union rep a number of years ago who was resisting the outsourcing of a small 150 seat operation, their argument covered occupational health and safety, data security and pay rates. The outsourcer was offering to take on all the staff and beat all current working conditions. Union resistance in reality related to union membership protection. The union won which resulted in the agents not getting a pay rise and the company not getting the benefits of outsourcing which would have included tighter work force management, greater operational efficiencies, access to world class process reengineering capabilities, access to the best technology and of course the resulting financial benefits. You can guess what happened next.

An interesting point is that the perception is mainly about the money and what cost savings will be achieved. The research is clear on this one, if your main driver to outsource is cost saving you will most likely fail. If an outsourcer uses cost saving as a key driver to do business simply walk away. Outsourcing is about getting a business function done better by someone else than you can do and/or freeing up your resources so you can be more productive. Cost reduction can be a byproduct but if your best idea for cost reduction is to outsource then you may have bigger issues afoot. 

In this case the organisation, despite operating in a relatively small niche vertical, has the opportunity to look at outsourcing as a mechanism to expand. They can focus on product development and sales, potentially leaving support to an outsourcer whose sole purpose of being is to operate support engines. The assumption here is that there would be a few global tier-1 CM BPO’s (customer management business process outsourcers) that could offer better headcount resource management that the company itself. I have no doubt that is true but remember a CM BPO’s business model depends purely on headcount growth. That might not always be in your best interests.

I was reading an interesting article a few days ago that quoted a number of BPO stock analysts. Traditionally they measured the health of a BPO by how many heads are added. If you read any of the annual reports of the top BPO’s you’ll see that they all make a big deal out of headcount growth. These analysts were now saying that they were going to measure future BPO stock health on headcount reduction, the logic being that BPO is currently a headcount resource industry but, with RPA (robotic process automation) and cognitive technology, it is moving (rapidly) to a technology resource industry. I’ve read research from Deloitte, KPMG and Oxford University that cite huge percentage of job function removal, up to 47% within the foreseeable future. Whether those numbers are true remains to be seen but one thing is for sure, before throwing headcount at a problem, and in this case before evaluating whether to outsource or not, you should take a serious look at your processes and technology first.

There are two case studies that spring to mind. Firstly a US internet giant that reduced headcount for one function from 600 to 60 via process reengineering alone. Outsourcing 600 heads should give you the economies of scale to get serious benefit, outsourcing 60 however possibly won’t. Secondly a network equipment manufacturer that booked a $1B revenue increase by modifying a single process and applying new technology with the same headcount. Both of these examples are from pre-RPA days so just imagine what the potential impact might translate to in the future. A good consultant can enable optimisation of process and technology, thereafter you can evaluate whether outsourcing will give further benefit or not.

Now for the first question, where is the best location. The rule of thumb is that for low volume high value interactions domestic locations are best due to the skill levels and local knowledge requirements (for Australia one might include New Zealand in this). For low value high volume voice the Philippines is seen as the location of choice although there are signs that the demography might have approached saturation point which makes it increasingly hard to manage attrition and growth. For non-voice and technical support India has the advantage both in terms of demographic reach but also labour arbitrage over the Philippines. South Africa is also seen as a potential ‘left field’ option, there are arguments for and against which I won’t go into here.

The potential reality is that most of the low value high volume interactions will be replaced by RPA and cognitive technology moving forward but this organisation has a need that is here and now. Outsourcing their headcount may well be the way to go in the short term, just don’t sign up for too many years and ensure you have a ramp down/technology adoption plan as part of your outsource partner’s performance indicators. With more analysts measuring BPO success on headcount reduction, the sun might well be setting on the BPO industry as we know it today.