Other Outcomes

BPO Competitive Advantage Relies on More than Cost

By Dan Berthiaume
The competitive advantage offered by outsourcing, relative risks of global sourcing, and differences between process improvement and innovation were among the topics debated by panelists in the G6 Under Practitioner Review at the North American Shared Services & Outsourcing Week conference held last week in Orlando, FL. Discussion on all three issues demonstrated the variance of industry opinions about how these issues are affecting the delivery of outsourcing services, as well as differing thoughts on the relative merits and shortcomings of the captive team and outsourcing models.

The G6 panel consisted of Capgemini CEO Hubert Giraud, CSC President of Global Sales and Marketing Peter Allen, Alsbridge CEO Ben Trowbridge, Deloitte Principal Susan Hogan, Genpact President/CEO Tiger Tyagarajan, and KPMG Principal of Advisory Services Bob Cecil.

Cost as the Basis of Competitive Advantage
When presented with the statement “Outsourcing providers sell one competitive advantage: cost,” panelists agreed that cost forms the basis of the competitive advantage offered by outsourcing, but is not enough in and of itself to support the BPO industry.

“When I was a (captive services provider) for the first seven years of my career, that was our statement,” said Tyagarajan. “We said we aligned culture and business objectives. But cost is a starting point with other advantages layered on top. In today’s world, it must be there.”

Trowbridge said that shared services providers must offer their client benefits other than cost. “You must provide points of value based on the needs of shared services organizations,” he said. “(Shared services organizations) need to ramp quickly and quickly transition their assets and resources to a global shared services footprint. You can’t do that on your own. Cost is not the answer to all situations.”

Global Risks Require Management
Panelists also generally agreed that global BPO, shared services and captive team sourcing carries significant risks which must be properly managed. In response to the statement “A shrinking pipeline, new low-cost locations, data security, and economic/political uncertainty make global outsourcing risky,” Trowbridge said there is a “tremendous” risk associated with global sourcing.

“The reason a location is low-cost has a variety of drivers: dramatic differences in GDP, crime and communications,” said Trowbridge. “It’s easy to make a ‘me too’ decision based on where the nearest expat school is to the shared services delivery location, but you can wind up with a risky location. The labor pool can shrink, a new competitor can move in.”

However, Trowbridge said a properly set up captive shared services center can have its location based on a “pure” assessment of local risk. “With a captive center, you can tour the world with a blank slate,” he said.

Giraud spoke in favor of a widespread outsourcing footprint.“The world is changing at a pace nobody can predict,” said Giraud. “All barometers are continually moving. The capability of a big organization with a global strategy is a competitive advantage. Outsourcing spread across the world is less risky than a captive center.”

Agility Key to Innovation
The last topic panelists discussed was innovation, with a debate on the statement “Providers mistakenly confuse process improvement with innovation” leading to discussion about the importance of agility. Trowbridge cited agility, along with growth and market share, as the substance of the lens a shared services client looks through. “The CEO agenda is to place a captive center in a country that wants to grow its business,” he said. “But providers tend to build around process, not the CEO agenda.”

“Innovation is measured by the results of purposeful investment,” said Allen, adding that there is no true innovation unless specific results can be cited.

“If you’re not innovating all the time you’re dead,” said Giraud.

Returning to the importance of agility, Allen said in outsourcing, cost and agility are opposites, while captive service providers can change focus quickly without renegotiating a contract. However, in both BPO models, Allen cautioned that “agility is constrained by the investment that must be recovered.”

“Outsourcing and captive service providers struggler with agility,” agreed Hogan. “Building an infrastructure takes time, investment and focus. But there is no way an outsourcer can be as agile as a captive service center.”

Giraud countered by saying an outsourcing provider with a large base can easily exchange people and move locations, but also said outsourcers and captive service providers offer differing value propositions. “Outsourcers deliver an initial bubble of value. Captives deliver an ongoing innovation value stream.”

“The good news about agility is also the bad news about agility,” concluded Trowbridge. “You are driving a car with lots of controls (in an agile captive services model), but you must make lots of decisions at all value points. You spend a lot of time dealing with routine things.”

This is the second part of a two-part article covering all the topics discussed by the G6 Under Practitioner Review.

Leave a Comment

 Also subscribe to newsletters