Webinar Deck: Next Generation of BPO Relationships

Next Generation of BPO Relationships

June 26, 2013

Proprietary & Confidential. © 2013, Everest Global, Inc. 2

Introductions

Abhishek Menon

Practice Director

[email protected]

Rajesh Ranjan

Vice President

[email protected]

mailto:[email protected]



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


Discussion points for today

Capturing additional

value leveraging

Strategic Engagement

Review (SER)

End-of-term activity in

BPO

Emerging next

generation BPO

solutions

https://sharepoint3.everestgrp.com/sites/marketing/Everest Group Website Photos/Photo Library/Light Tunnel Motion Blur.jpg


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


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


37% 16%

11%

10%

8%

18%

100%

Up to 2012 2013 2014 2015 2016 On or after2017

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



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 utilitiesEMEA

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


BPO segment Buyer size

Signing region Buyer industry


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?




value leveraging


Review (SER)


BPO

Emerging next

generation BPO

solutions



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


58%28%

19%

Signed more than

three years backSigned two years back

Signed in 2012

Nearly 550 contracts

(up for renewal in

the next 3 years)

were signed in or

before 2010


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


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

Pro

cess

perf

orm

ance

Pro

cess

perf

orm

ance

Cost of

functio

n

Cost o

f

functio

n

Process

improvement

Target

world-class

performance

Cost

arbitrage

Pre-

outsourcing

Post-

outsourcing

Pro

cess

perf

orm

ance

Pro

cess

perf

orm

ance

Co

st o

f

functio

n

Cost of

functio

n

Similar process

performance

Cost

arbitrage

Pre-

outsourcing

Post-

outsourcing

Pro

ce

ss

perf

orm

an

ce

Pro

ce

ss

perf

orm

an

ce

Co

st o

f

functio

n

Co

st o

f

functio

n

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


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 assetsBudgeting and

forecasting

Regulatory

compliance &

taxation

General

accounting &

reconciliation

Scope

Order management

Hire

(Recruitment)


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

SpainFrance

Germany

Italy

Ireland

Czech Republic

Poland

India


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


High

Low

Imp

act

deli

vere

d

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


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




value leveraging


Review (SER)


BPO

Emerging next

generation BPO

solutions



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 andinsights directly impactingwin-win commercial andefficiency discussions:

Staffing mix

Utilization

Productivity

Attrition etc.

Differentiated approach thatyields 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


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


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


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, [email protected]

– Abhishek Menon, [email protected]

Q&A

Websites

www.everestgrp.com

research.everestgrp.com

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@EverestGroup

@Everest_Cloud

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Finance and Accounting Outsourcing (FAO) – Annual Report 2013: Increasing Market

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Procurement Outsourcing (PO) – Annual Report 2013: Expertise and Technology Driving

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https://research.everestgrp.com/Product/12090




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