CIO —
The Problem
You’ve got a load of noncore processes that you’d love to never hear about ever again. A plethora of vendors and consultants who are billing themselves as business process outsourcers are eager to help.
The Hype
If your core business is developing the most irresistible stuffed animal on the market, for example, why waste time and resources on such tangential activities as accounts-receivable processing or warehouse administration? You need them done, but it might make more sense to let an expert handle the tasks. Business process outsourcing (BPO) is the hottest thing on the sourcing scene right now. Gartner in Stamford, Conn., predicts BPO will be a $300 billion market by 2004. And if you punch the term into a search engine, vendors boasting of BPO prowess will literally spill off the page. When you really look at what BPO is?engaging a third-party vendor to handle an internal process you’d rather not waste time and resources doing yourself?you realize it’s been going on for years. Just look at payroll processors like ADP. So what’s the big deal about BPO?
The Facts
During the current economic slump, business-starved consultants have?in many cases?simply relabeled plain old outsourcing in order to hype a "brand-new" product for themselves. Worse, BPO’s definition is often so broad that it becomes meaningless. "Depending on how you define [BPO], it can represent the entire economy," says Christine Overby, an analyst with Forrester Research in Cambridge, Mass. For example, a lot of companies offer "outsourced logistics" as an example of BPO. But companies have been outsourcing tasks such as outbound logistics for years to companies such as FedEx and UPS. Similarly, when asked to provide examples of BPO commonly in play today, John Hagerty, an analyst with AMR Research in Boston, included hiring a law firm to handle legal matters instead of having in-house counsel.
Others, such as Jose Cunningham, managing director of the Outsourcing Institute in Washington, D.C., trim the definition to include only IT-intensive functions or processes like, say, benefits administration, call centers and contract manufacturing. But this still doesn’t sound like anything particularly unique. In any event, Gartner Analyst Rebecca Scholl, who views BPO as a distinct, expanding market, acknowledges that a lot of the services that vendors are labeling BPO don’t fit any definition. "Lots of vendors trying to reposition as BPO providers are just doing IT outsourcing," she says. "They’re providing an application. They’re not really responsible for a process."
So what’s the take-away for CIOs? There’s a definite payoff in engaging in many activities that have been labeled business process outsourcing. But don’t go looking for a business process outsourcer?just define the specific process you want handled, and then find someone who can handle it for you.
