Articles and White Papers
Excerpt of article published on October 21, 2008 in CRMBuyer.
By Ned Madden
In 2006, small and medium-sized businesses (SMBs) accounted for just 7.8 percent of a $50 billion business process outsourcing market, according to Gartner. Those numbers are expected to grow; however, many SMBs are still wary of farming out parts of their businesses. Some BPO specialists are trying to change perceptions as they cater to smaller firms - businesses which may need their services the most.
Good news for the economy: Small business outsourcing has gone mainstream thanks to the increased use of automation technology - computers, software and the Internet are powering cost-efficient outside service provider teams.
Bad news for outsourcing service providers: SMBs are proving to be slow on the uptake.
The basic premise of business process outsourcing (BPO) is that companies focus on their core competency and move their non-core business processes to outsourced services providers, thus allowing for optimal use of a company's time and resources. Outsourcing reduces the costs involved in maintaining trained employees in-house as well as the costs of systems and software needed to process various functions.
Outsourcing is a familiar practice to corporate America. For example, enterprises have been outsourcing some or even all of their information technology functions for years. And beginning with payroll in the 1960s, sub-contracting internal (back-office) processes to outside third parties has been a fixture of corporate business strategy, one readily adopted by SMBs. After payroll, the most commonly outsourced business processes among SMBs are human resources and accounting.
Tasks that are repeatable or generate high labor costs can be outsourced with ease, according to Shekhar Chitnis, CEO and President of Chisk, a provider of outsourced support services for law firms and corporate legal departments.
"The process that's going to be outsourced, if proprietary, needs to be well defined. If not, then the end result needs to clearly identified," Chitnis told CRM Buyer. "All processes that are not core competency and can be managed remotely should be outsourced. Another aspect is the skills available outside of the company. If these skills are rare, then the cost benefit may not be attractive. If the above criteria are met, all departments can outsource to some extent."
Significant Cost Reductions
Properly implemented, Chitnis said, an outsourcing program can provide anywhere from 10 to 80 percent in cost reductions. However, SMBs need to understand the outsourcing service provider's needs as well, and success depends on what Chitnis considers to be the most important issue regarding SMB outsourcing:
"From the perspective of the outsourcer, the need to manage the transition and developing remote management skills are the main issue," he said.
SMB BPO 2.0 -- Automated Outsourcing
Gartner (NYSE: IT) estimated in 2006 that companies with 100 to 499 employees accounted for just 7.8 percent of a US$50.5 billion BPO market. That number, however, was expected to grow to more than 8 percent of a $78.8 billion market by 2009.
"For most SMBs, there is an unfamiliarity with outsourcing that dictates that when they make technology buying decisions, the first thing they are going to think about is buying hardware and software, and then trying to integrate those through internal resources and staff, as opposed to turning to an outsourcer to help," said Robert Brown, a research director at Gartner.
Enter "next-generation" BPO - BPO 2.0. Combining elements of BPO and ITO (information technology outsourcing), BPO 2.0 essentially means driving innovation and introducing new services based on using technology to better deliver support services to clients. BPO 2.0 focuses on the utilization of cost-effective, advanced technologies, stressing quality of deliverables and customer satisfaction through the use of multi-channel communication systems and fully automated customer interaction hubs.
In these tough economic times, SMBs need to look for every competitive edge they can gain. There are obvious steps they can take, such as streamlining processes and slowing headcount growth, yet true gains will come through adoption of proven business practices like outsourcing that provide significant benefits. But detractors can utterly derail outsourcing initiatives. Executive commitment is essential to achieving outsourcing success. Some of the most successful outsourcing projects are ones where executive leadership drove and, in some cases, forced adoption. The good news is that as outsourcing initiatives gain traction and demonstrate tangible benefits, detractors invariably become supporters.
© 2008 ECT News Network, Inc. All rights reserved.
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