Modeling the Procurement BPO of the Future (Part 1)

The offshore BPO industry is in the midst of a gradual (some might argue more rapid) transformation from delivering low-to-moderate value services and results for commensurate costs and returns to serving as the process equivalent (or better) for in-house functions in Global 2000 companies. A recent column in India's Financial Express highlights this emerging evolution of the BPO market as well as offering a perspective on how procurement BPO might change as part of this migration to higher-value areas. Overall, the future of BPO growth is bright indeed, and despite the "Uncertainty" of the current economy, "the industry view is that double digit growth will still happen and the estimate that the addressable global market for BPO will grow from $200 billion today to over $900 billion by 2020." For the same period, the "optimistic view" holds that "Indian BPO revenues can grow nearly fourfold to a $50 billion level in the same period."

The column goes on to argue that in the coming decade, it will be critical for "offshore leaders" to demonstrate three key capabilities: business savvy, process expertise and "optimization through judicious deployment of technology to improve overall productivity of horizontal and vertical processes." As an example, the author turns to procurement as a BPO area, suggesting that, "To put this into perspective, a company which takes over the procurement process of a large diversified manufacturing firm will have to discuss business metrics for sourcing, purchasing and payment sub processes, show an intimate knowledge of the critical success factors for each stage and be aware of all technology solutions feasible to automate and transform the process for better business efficiency."

Moreover, they'll need to do it internally: "While this could be done by BPOs partnering with ERP specialists or Six Sigma process optimization boutique firms, the next generation of global business process and knowledge process outsourcing firms will have to provide solutions to move complex processes to their campuses." Are offshore BPOs ready for this? Yes and no. Some of the more sophisticated offshore procurement BPOs including Genpact, Infosys and Wipro certainly have some of these capabilities in-house today, but I'd argue that only a handful of broader players -- even in the global landscape -- have come close to assembling the entire process, expertise and technology picture. Even North American-based BPOs have often had to work with specialists in key areas (e.g., technology enablement).

Stay tuned as we continue to investigate the procurement BPO market in more detail, including the concluding column of our analysis looking at Genpact's capabilities and relative place in the market, which we'll publish next week.

Jason Busch

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