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Webinar Deck: Next Generation of BPO Relationships
 

Webinar Deck: Next Generation of BPO Relationships

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Nearly US$20 billion worth of business process outsourcing (BPO) contracts across HR, finance & accounting, and procurement are up for renewal in the next three years. In a maturing BPO market, ...

Nearly US$20 billion worth of business process outsourcing (BPO) contracts across HR, finance & accounting, and procurement are up for renewal in the next three years. In a maturing BPO market, organic growth has been the major contributor to different segments of the BPO market in the last two to three years. In fact, contract extensions and renewals accounted for more than 65 percent of finance & accounting outsourcing (FAO) and more than 50 percent of procurement outsourcing (PO) market growth in 2012.

This is the presentation deck used during our one-hour webinar that provided insights on how BPO clients can drive further value in their next generation of BPO relationships.

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    Webinar Deck: Next Generation of BPO Relationships Webinar Deck: Next Generation of BPO Relationships Presentation Transcript

    • Next Generation of BPO Relationships June 26, 2013
    • Proprietary & Confidential. © 2013, Everest Global, Inc. 2 Introductions Abhishek Menon Practice Director abhishek.menon@everestgrp.com Rajesh Ranjan Vice President rajesh.ranjan@everestgrp.com
    • Proprietary & Confidential. © 2013, Everest Global, Inc. 3 Scope of today’s discussion Strategic Processes Judgmental Processes Transactional Processes Human resources Procurement Finance & accounting  Analyses in this presentation include multi-process contracts with a minimum of three processes, over US$1 million in Annualized Contract Value (ACV) or buyer employee size is more than 3,000  Includes all multi-process contracts signed as of 2012 HR strategy F&A strategy S2P strategy Recruitment & selection Training & development Comp & benefits Payroll Fixed assets Accounts receivable Accounts payable T&E processing Day-to-day purchasing Customer service Procurement systems Performance management Information mgmt. Performance mgmt. Regulatory & compliance Budget/forecast General accounting Mgmt. reporting & analysis Treasury & risk mgmt. Spend data mgmt. Strategic sourcing Demand management Vendor management
    • Proprietary & Confidential. © 2013, Everest Global, Inc. 4 Discussion points for today Capturing additional value leveraging Strategic Engagement Review (SER) End-of-term activity in BPO Emerging next generation BPO solutions
    • Proprietary & Confidential. © 2013, Everest Global, Inc. 5 When is your BPO contract up for renewal? 33% 3% 17% 10% 37% Not in a BPO contract 2013 2014 2015 2016 or later Source: Live polling conducted during the “The Next Generation of BPO Relationships” webinar on June 26, 2013
    • Proprietary & Confidential. © 2013, Everest Global, Inc. 6 In 2012, nearly 70% of the market growth across FAO, PO, and HRO was attributed to extensions/renewals Extensions/ renewals 7.3 ~0.2 1.5 0.7 9.3 1.4 ~0.2 Components of BPO ACV growth in 2012 US$ billion 2011 ACV Terminations New contracts 2012 ACV 8.7 Organic growth contributed 67% to the ACV growth in 2012 Inorganic growth contributed 33% to the ACV growth in 2012 Contracts that completed term in 2012 Mid-term terminations End-of-term terminations Sample size: 1,690 multi-process contracts (across FAO, HRO, and PO) signed up to 2012 Note: Only FAO, HRO, and PO contracts are considered 7% YoY growth
    • Proprietary & Confidential. © 2013, Everest Global, Inc. 7 37% 16% 11% 10% 8% 18% 100% Up to 2012 2013 2014 2015 2016 On or after 2017 Total End-of-term activity in BPO will significantly influence market growth in the next 3 years Contracts worth US$22 billion (in terms of TCV) will be up for renewals in the next 3 years Share of BPO relationships up for extension/renewal Percentage of contracts Sample size: 1,690 multi-process contracts (across FAO, HRO, and PO ) signed up to 2012 Note: Only FAO, HRO, and PO contracts are considered
    • Proprietary & Confidential. © 2013, Everest Global, Inc. 8 This significant end-of-term activity is spread across different BPO and buyer segments Relationships up for renewal by Number of contracts 51%48%46% 31% 20% FAO HRO Large-size1Mid-size1 PO 35% 15%10% 8% 4% 28% 53% 30% 15% North America APAC Manufacturing Energy and utilities EMEA Latin America (2%) Financial servicesHi-tech and telecom Retail Others2 1 Mid-size companies have revenue less than US$5 billion, large-size companies have revenue greater than US$5 billion 2 Others include Healthcare, hospitality, logistics, and media Sample size: 948 multi-process contracts (across FAO, HRO, and PO) ending term during the period 2013-2015 Note: Only FAO, HRO, and PO contracts are considered BPO segment Buyer size Signing region Buyer industry
    • Proprietary & Confidential. © 2013, Everest Global, Inc. 9 Buyers increasingly look to align their next generation BPO relationship to some of their key imperatives How do I capture value beyond cost from my BPO relationship? How can I simplify my BPO partnership and what are the potential obstacles? How do I better align my service provider’s interest to my business needs? How can I take my BPO relationship to a strategic level? To what extent my BPO relationship is aligned to market best practice?
    • Proprietary & Confidential. © 2013, Everest Global, Inc. 10 Discussion points for today Capturing additional value leveraging Strategic Engagement Review (SER) End-of-term activity in BPO Emerging next generation BPO solutions
    • Proprietary & Confidential. © 2013, Everest Global, Inc. 11 Majority of the contracts approaching end-of-term were signed more than three years ago Share of BPO relationships up for extension/renewal by signing year Percentage of contracts Sample size: 948 multi-process contracts (across FAO, HRO, and PO) ending term during the period 2013-2015 Note: Only FAO, HRO, and PO contracts are considered 58% 28% 19% Signed more than three years back Signed two years back Signed in 2012 Nearly 550 contracts (up for renewal in the next 3 years) were signed in or before 2010
    • Proprietary & Confidential. © 2013, Everest Global, Inc. 12 The BPO market has evolved significantly since the original contracts were signed. End-of-term event provides an opportunity to align with emerging best practices In the past Emerging Delivery Technology Performance Value creation Scope  Arbitrage  Continuous improvement  World-class-lift-shift-and fix  Analytics and business insight  Functional and piecemeal  Regional/local geographic coverage  End-to-end process-driven  Global Business Services (GBS)  Offshore-centric model  Balanced delivery (offshore-nearshore-onshore) model  Tie-and-run  Augmentation (add-on tools)  Platform-based BPO  BPaaS / Cloud-enabled solutions  Efficiency  Productivity  Effectiveness  Business outcomes
    • Proprietary & Confidential. © 2013, Everest Global, Inc. 13 World-class lift-shift-and-fix BPO value creation is expanding beyond labor arbitrage and continuous improvement Stages of evolution of the BPO value proposition The past The current state The emerging trend Stage 3: World-class lift-shift-and-fix Service provider focuses on improving business outcomes vis-à-vis best-in-class benchmarks and not just existing/past performance Pre- outsourcing Post- outsourcing Process performance Process performance Costof function Costof function Process improvement Target world-class performance Cost arbitrage Pre- outsourcing Post- outsourcing Process performance Process performance Costof function Costof function Similar process performance Cost arbitrage Pre- outsourcing Post- outsourcing Process performance Process performance Costof function Costof function Process improvement Cost arbitrage Stage 1: Lift-and-shift Service provider essentially performs at buyer’s existing process level but at a lower cost Stage 2: Lift-shift-and-fix Service provider focuses on improving efficiency and/or effectiveness vis-à-vis existing performance, thus adding value beyond just cost-arbitrage Value creation
    • Proprietary & Confidential. © 2013, Everest Global, Inc. 14 End-to-end process definition A process approach versus a functional approach is emerging Judgment-intensive Transaction-intensive Develop (Learning) Retain (Performance Management; Compensation & Incentive planning) Manage (Workforce administration; Employee data management; Global mobility, payroll) Retire (Pension benefits) End-to-end process driven definition of Hire-to-Retire (H2R) End-to-end process driven definition of Source-to-Pay (S2P) Day-to-day purchasing Accounts payable and T&E Performance management Sourcing support & catalog management Vendor management Strategic sourcing Demand management Spend data management Billing Dispute & deduction management Aging and collections Accounts receivable End-to-end process driven definition of Order-to-cash (O2C) End-to-end process driven definition of Record-to-Report (R2R) Treasury and risk management Management reporting & analysis Fixed assets Budgeting and forecasting Regulatory compliance & taxation General accounting & reconciliation Scope Order management Hire (Recruitment)
    • Proprietary & Confidential. © 2013, Everest Global, Inc. 15 The BPO delivery-location landscape now has a truly global footprint North America (Onshore) Latin America (Nearshore) Delivery locations servicing F&A processes ILLUSTRATIVE Delivery Africa & Middle East (Offshore) China & S.E. Asia (Offshore) East Europe (Nearshore) West Europe (Onshore) Morocco South Africa Kenya USA Canada Mexico Argentina Guatemala Chile Uruguay Costa Rica Brazil Ecuador India Philippines China Thailand Romania UK Slovakia Norway Hungary Bulgaria Netherlands Spain France Germany Italy Ireland Czech Republic Poland India
    • Proprietary & Confidential. © 2013, Everest Global, Inc. 16 1 Limited role of technology where service provider plugs into the buyer’s existing system to deliver services 2 Service provider tools that serve as “add-ons” around the periphery of the existing systems to address specific gaps 3 Pre-integrated applications and pre-built processes, owned by service provider (pricing built into the FAO contract) Sample size: 642 multi-process new FAO contracts signed as of December 2012 Source: Everest Group (2013) Invasive role of technology in BPO Tie-and-run solutions are giving way to augmentation and platform-play Adoption of technology models in FAO contracts Number of contracts 49% 45% 31% 39% 41% 54% 12% 14% 15% Up to 2008 2009-2011 2012 364 219100% = Tie-and-run1 Technology augmentation2 Platform-based3 59 FAO EXAMPLE Technology
    • Proprietary & Confidential. © 2013, Everest Global, Inc. 17 High Low Impactdelivered Cost/efficiency impact Business/effectiveness impact Strategic/broad impact Time  Cost reduction  Process efficiency  Scalability  Basic reporting  Improved quality and effectiveness of services  End-to-end process harmonization  Improved compliance  Predictive analytics  Faster time-to-market  Increased employee productivity  Prescriptive analytics Table stakes Increasingly important Aspirational today Illustrative target outcomes Effectiveness based performance metrics With the inclusion of judgment intensive processes into BPO contracts, more emphasis is being given to effectiveness Performance
    • Proprietary & Confidential. © 2013, Everest Global, Inc. 18 Is value beyond cost being captured from your BPO relationship? 32% 21% 47% Yes No Maybe Source: Live polling conducted during the “The Next Generation of BPO Relationships” webinar on June 26, 2013
    • Proprietary & Confidential. © 2013, Everest Global, Inc. 19 Discussion points for today Capturing additional value leveraging Strategic Engagement Review (SER) End-of-term activity in BPO Emerging next generation BPO solutions
    • Proprietary & Confidential. © 2013, Everest Global, Inc. 20 A comprehensive evaluation of the existing relationship is essential to align and capture next generation imperatives Everest Group’s Strategic Engagement Review (SER) framework Operations metrics and insights directly impacting win-win commercial and efficiency discussions:  Staffing mix  Utilization  Productivity  Attrition etc. Differentiated approach that yields benchmarks:  Normalized to client nomenclature  Provides buy and supply side context to metrics  Includes analysis of benchmark drivers Identify improvement opportunities in contract versus market norms:  Pricing structure and implications  Service levels and performance metrics  Review of common T&Cs Understand solution vis-à-vis industry best practices across:  Scope assessment  Technology leverage  Global sourcing leverage  Governance structure 4. Delivery metrics assessment 3. Cost and price benchmarking 5. Overall implications for relationship 2. Contract assessment 1. Solution review
    • Proprietary & Confidential. © 2013, Everest Global, Inc. 21 Here’s how a BPO buyer benefited from SER SER of a leading healthcare equipment manufacturer’s supply chain engagement highlighted the opportunity to realize further cost savings while moving towards a clearer value setting agenda Client situation Issues identified and analyzed by Everest Group  The client wanted to optimize its outsourcing spend and align provider services to business needs  Outsourced supply chain services portfolio consisted of more than 150 FTEs mapped across supply chain functions  10% reduction in overall pricing agreed  Red flag on productivity gain sharing; to arrive at best-in-class gain share and invoicing  5% re-allocation of additional costs such as BCP agreed  “Pay for Performance” inclusion being drafted within the contract for all “value-creation” work  The relationship extended for another 2.5 years, with an agreed roadmap for evolution from cost-reduction to business benefits Everest Group’s assessment of client situation revealed the following inefficiencies:  Fragmented/minimal technology leverage  Inconsistent and sub-optimal pricing model  Skewed gain sharing clause  Inflated pricing  Sub-optimal COLA clause Benefits to the client
    • Proprietary & Confidential. © 2013, Everest Global, Inc. 22 In summary  Significant end-of-term activity in the next three years will influence and shape the BPO market  The BPO market has evolved significantly since the original contracts were signed  The end-of-term situation offers a good opportunity for both buyers and service providers to align their relationship to the next generation considerations leveraging current and emerging best practices  However, end-of-term need not be the only trigger to reshape the relationship  Compared to a traditional benchmarking approach, a comprehensive Strategic Engagement Review helps create and sustain a win-win buyer-provider relationship
    • Proprietary & Confidential. © 2013, Everest Global, Inc. 23 To ask a question during the Q&A session  Click the question mark (Q&A) button located on right side of your screen. This opens Q&A  Be sure to keep the default set to “send to All Panelists”  Type your question in the box at the bottom of the Q&A box and click the send button  Attendees will receive an email with instructions for downloading today’s presentation  For advice or research, please contact: – Rajesh Ranjan, rajesh.ranjan@everestgrp.com – Abhishek Menon, abhishek.menon@everestgrp.com Q&A Websites www.everestgrp.com research.everestgrp.com Twitter @EverestGroup @Everest_Cloud Blogs www.sherpasinblueshirts.com www.gainingaltitudeinthecloud.com Stay connected
    • Proprietary & Confidential. © 2013, Everest Global, Inc. 24 Check out our blog for the latest perspectives on global services www.sherpasinblueshirts.com Experts in the global services terrain
    • Proprietary & Confidential. © 2013, Everest Global, Inc. 25 Related content  Finance and Accounting Outsourcing (FAO) – Annual Report 2013: Increasing Market Maturity Driving Cost+ Value Proposition  Multi-Process Human Resources Outsourcing (MPHRO) – Annual Report 2013: The Sun is Rising in the East  Procurement Outsourcing (PO) – Annual Report 2013: Expertise and Technology Driving Growth
    • Proprietary & Confidential. © 2013, Everest Global, Inc. 26 Everest Group Leading clients from insight to action Everest Group locations www.everestgrp.com | research.everestgrp.com | www.sherpasinblueshirts.com Dallas (Headquarters): New York: Toronto: London: Delhi: info@everestgrp.com +1-214-451-3000 info@everestgrp.com +1-646-805-4000 canada@everestgrp.com +1-416-865-2033 unitedkingdom@everestgrp.com +44-207-129-1318 india@everestgrp.com +91-124-496-1000