The Rational Outsourcing Blog

Thursday, October 26, 2006

American companies spending less on BPO?

I prefer not to quote from press releases, but I will make an exception for this one from NelsonHall because it is a treasure trove of interesting data. Couple of quotes:
The value of BPO TCV (total contract value) awarded has declined by approximately 50% in North America from a peak of $15.4Bn in the 12-month period ending September 2004 to $7.5Bn for the 12- month period ending September 2006.

Eighty percent of U.S. sourcing managers state that lack of process operations knowledge within the vendor has led to rejection of BPO.

Recently a senior US executive told me that "the outsourcing debate is over." He was convinced that outsourcing was a way of life and that any businessperson questioning it must have something wrong in his head. Others I have talked to are almost in the Lou Dobbs camp and see outsourcing as evil. We need to get beyond these extreme positions and realize that while outsourcing is a very valuable tool for achieving our business goals, it is not a goal in itself. If we are not realistic about the shortcomings of outsourcing and proactively address them, then we will end up failing both Americans and Indians and jeopardizing the gains we have made in the global economy.

The NelsonHall article goes on to say:
Sourcing managers expect that the level of BPO contract awards arising from sourcing evaluations will increase in future. However, in order for this increase in activity to occur vendors will need to meet sourcing manager expectations by improving their BPO delivery capability. In particular, they will need to meet the following conditions:
-- Improved process operations knowledge
-- Proven cost reduction capability
-- Improved offshore location mix and delivery capability

I agree with NelsonHall's core points, but I disagree that these are problems that the vendor alone needs to solve. Outsourcing can not be successful without true partnership between the customer and the vendor. While vendors need to do more on each of these counts, customers also need to step up and better manage their outsourcing relationships, unambigously document their process operations before outsourcing, and sign contracts that reward vendors for value creation, not just unit cost reduction. As my mom used to say: "you can't clap with just one hand."

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