Business process outsourcing: IT takes the helm

The writing is on the wall. If your company hasn't outsourced an entire business process yet, bodies and all, there's a good chance it will in the near future. According to IDC, worldwide spending on BPO (business process outsourcing) will grow to $US641.2 billion by 2009, from $382.5 billion in 2004. Moreover, in the future, BPO won't be limited to today's typical segments, such as customer care and logistics; IDC expects procurement and training to grow in double digits annually. And companies that typically outsourced discrete processes, such as payroll, will increasingly outsource larger chunks of the business.

Does BPO simply fall under the heading of yet another factor outside of IT's control? Or is there a definite role for IT in the BPO process -- from deciding which functions to outsource to choosing a provider, including all the negotiations, maintenance, and transitions that ensue? Think of it this way: if IT doesn't have a seat at the table, it risks calamitous fallout from business decisions that gloss over technology implications.

Just about everyone we spoke to about BPO, including major vendors, their customers, and analysts, agree that IT's role in the BPO process is increasing. "For every $100 spent on BPO in 2003, about $12 was spent, on average, on IT related services," says IDC's Vipul Bhargava, author of Who Let the Processes Out, a report on the impact of BPO on IT. "We expect the IT services component to rise to $20 by 2008. If organizations spend more money on the IT component of BPO, then IT's role in BPO will inevitably increase as well."

Jack Caffey, managed services BPO solutions director at Hewlett-Packard, agrees. "Two years ago we might walk into an RFP meeting with a potential client and have to insist on speaking with the IT manager. The finance guy would say, 'I thought you guys would handle all that.' That doesn't happen much anymore. With all the questions around security, terms, and future strategy, they understand that IT has to know how we're doing things."

What should be outsourced?

One critical reason IT should be included in the BPO process is its long experience with outsourcing arrangements. "IT usually has much more experience with outsourcing than the business units, and lots of lessons learnt that could be very valuable," says Gartner research director Robert Brown. "IT best knows how to manage multiyear outsourcing contracts and relationships and how best to resolve problems that come up. And they have long experience making multiple outsourcing vendors work together."

At the first stage of BPO, where the business actually decides what to outsource, IT still may not be invited. But that can be a costly mistake.

"It may make a lot of sense to outsource a certain process from the business point of view, but business owners are often not aware of which systems relate to which processes," Bhargava says. "Certain processes may be so tightly coupled that it would be very difficult to outsource one of them. This can end up being a big pitfall if IT isn't there to think about it from the beginning."

Thomas Koulopoulos offers similar counsel. "First work with internal IT to define the process and the scope better, then get a partner," says the CEO and founder of Delphi Group, the technology and management advisory division of Perot Systems (and author of the upcoming book, Smartsourcing). "It's a real risk having someone else figure that out for you."

At NewPage, a spinoff of MeadWestvaco and one of the largest producers of coated paper in the US, the CIO played an advisory role on the leadership committee deciding what to outsource and on the steering committee in charge of HR BPO. "Our leadership team consisted of the CIO; the CFO; the vice presidents of operations; sales and marketing, and HR; and, more recently, the general counsel," says NewPage CIO Dan Clark.

NewPage was left without an HR department after the spinoff. "We asked ourselves whether HR was really a core competency and how we could get the most traction the quickest." NewPage decided it would be faster and more cost effective to outsource HR than to build a new staff and new systems. It also lacked its own data centre and outsourced, that as well. Both went to Accenture, and Clark took charge of the data centre outsourcing project.

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