Fear of taking the outsourcing plunge is unfounded
European organisations cannot delay on business process outsourcing decisions if they are to remain competitive
24 June 2004
24th June 2004 - Companies who fail to make major process and operational changes through the implementation of business process outsourcing (BPO) could delay potential payback by up to five years, according to the latest report from Capgemini. Organisations are failing to realise immediate benefits despite the availability of new BPO services and more sophisticated process automation and remote support technologies that can deliver cost savings within just one year.
The findings come from a survey conducted with CFOs, COOs and CEOs from 346 companies across Europe and across a broad cross-section of industry sectors.
The outsourcing market for administration processes is still maturing in Europe. The survey shows that currently around 10 per cent of European companies are evaluating BPO. Of the companies that currently outsource or are considering outsourcing, the majority (87%), say that keeping costs down was the most important reason to do so. This was followed by improving service delivery (78%) and keeping pace with technological innovation (61%). But there is still a huge misconception that in-house process automation is a viable alternative to BPO. In reality, outsourcing gives greater visibility and control back to the company through having contracts with pre-agreed service levels.
Hubert Giraud, Global BPO Head, at Capgemini says:
“The desire not to lose control of the business or to dispose of in-house expertise are also cited in our research as key reasons for being nervous about outsourcing. While process automation is a key facet in cost reduction the best results in a shorter time frame come from full adoption of BPO. Process automation is only one part of the formula that includes outsourcing economies of scale, process specialisation and standardisation, technology optimisation and labour arbitrage.”
The research highlights that historically most companies took an evolutionary approach to BPO. Five years ago, an internal shared service centre path was the only option. The BPO services which are now available were simply not possible. Now however there are a large number of suppliers with the skills to fast-track process, technology and change management through BPO, making a big difference to their clients.
While some companies are clearly missing out on the possible benefits of BPO in its entirety, others miss out on combining BPO with IT outsourcing (ITO). Analysis of contracts and analyst reports shows that ITO has been growing at a compound annual rate of over 20% over the last decade. Companies that understand the economics of the outsourcing model are more likely to be receptive to BPO. Almost half (43%) of respondents to Capgemini’s survey who are considering BPO already outsource their applications management.
“Where companies make the connection between ITO and BPO, and link processes with the IT function in a single outsourcing agreement, there is huge potential to increase speed to value and information flow for management decision support. Our major clients in North America, which include the biggest BPO contracts over the last two years, are already doing this. We expect this trend to move to Europe,” says Giraud.
“However, we are concerned that only one in ten European organisations is considering or evaluating an outsourcing initiative in the next 12 months. More BPO ‘champions’ are needed on the board to encourage organisations to take a faster and more direct route that will ultimately fuel a more competitive and productive European business environment,” concludes Giraud.
The report demonstrates that there is great potential for European companies to exploit the business process improvement and cost savings of BPO as the market continues to mature in the next two to three years. Currently the European market for BPO is around half the size of the US. If it continues to follow the same maturity curve, organisations will learn from the experience of early adopters avoiding the pitfalls and short cutting to the benefits achieved by those early pioneers.
BPO Adoption & Perspectives in Western Europe provides an understanding of companies that currently outsource, are implementing or are considering doing so, and it looks at the opportunities that exist to expand through BPO.
For a copy of the report please go to: www.capgemini.com.
About the Capgemini Group
Capgemini, one of the world’s foremost providers of Consulting, Technology and Outsourcing services, has a unique way of working with its clients, which it calls the Collaborative Business Experience. Through commitment to mutual success and the achievement of tangible value, the company helps businesses implement growth strategies, leverage technology, and thrive through the power of collaboration. Capgemini employs approximately 55,000 people (as of January 1, 2004) and reported 2003 global revenues of 5.754 billion euros.
More information about individual service lines, offices and research is available at www.capgemini.com
