BPO strategies more than cost-cutting exercise

Companies that obsess over cost reduction and don't understand how to create sustainable cost efficiencies weaken their business process outsourcing (BPO) strategies.

Most enterprises are missing the point when it comes to BPO, according to Gartner Consulting director Christopher Ganly.

He said organisations go through the pain of cost cutting and reducing budgets just to see expenditure return in some other part of the organisation, and in a way that is not controlled.

A key way to achieve sustainable cost reduction in BPO is benchmarking: measuring service performance and monitoring the cost of maintaining that over a period of time.

"What gets measured gets done," Ganly said.

"If you're measuring the cost, you're understanding the cost. You're taking the effort to ensure cost isn't seeping back into some other part of the organisation."

When trying to lower operational costs by outsourcing a whole business function including processes such as HR or accounting then organisations manage to cut immediate costs by reducing the size of their IT budget.

However, they do not take the time to fully understand how to reduce costs over time, Ganly said.

"A lot of organisations which outsource their business processes get stuck in a position where they've reduced cost, but their ability to continue to deliver services essential to the business suffers," he said.

Enterprises that find themselves in this rut need a holistic approach to how they outsource their business processes. IT and service managers are responsible for helping their organisation understand what services IT is delivering to the business, the business value of those services, and what those services are costing the business, Ganly said.

They must also identify within those processes what tasks are needed and not needed, which of them are duplicated, and which of those help the business improve its operational efficiency.

After analysing the business processes in terms of business strategy, companies should then take more tactical actions, such as evaluating sourcing options, cancelling discretionary spend, and exploring different ways of buying and sourcing IT in such a way that there is no ongoing damage to operations in the process.

Corporate interest in BPO is strongest in the Australian and New Zealand markets, followed closely by Singapore and Hong Kong, according to Gartner.

The BPO market was valued at $US110billion in 2002. It is expected to grow steadily by 9 per cent over the next four years, reaching $US173 billion by 2007, Gartner predicts.

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