Is BPO Ready for Disruption

State of the Industry: Is BPO Ready for Disruption?
John Willmott, NelsonHall
Outsourcing Institute BPO Innovations Conference, New York
October 30, 2014
john.willmott@nelson-hall.com
© 2014 by NelsonHall.

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Topics
NelsonHall-Proprietary – Not for distribution without permission 3
1. How have BPO Client Needs Evolved?
2. Disruptive Forces Impacting BPO
3. High Velocity BPO

BPO Buyers Get More Demanding
as They Mature
Important in 1st Generation BPO Important in 2nd/3rd Generation BPO
Attaining, or improving position within,
top-quartile operations cost
Integration into Global Business
Services organization
Ongoing ability to deliver innovation
within operations
Increasing automation of operations
Supporting full geo coverage of
organization, incl. supporting entry into
new countries and markets
Improving controls, compliance, and
standardization of operations
Ability to support the client in their
business vision
Client expectations of BPO vendors
generally much higher generally than
they used to be, e.g., of their:
• Process knowledge and process
analytics (increasingly seen as a
hygiene factor)
• Knowledge of the client’s business,
combined with the ability to support
them on a journey
• Ability to deliver transformation and
contribute to C-level vision

It’s No Longer About Cost Reduction. Is it?
Most Important Objectives in Next BPO
(Top Four: Prompted)
High Importance
in Supplier
Selection
(%)
High Importance in
Differentiating
Between Suppliers
(%)
Commitment to deliver ongoing year-on-year
cost reduction in operations
93 97
Commitment to delivering business
outcomes
86 97
Ability to amortize initial transition costs as
ongoing service charges
79 76
Willingness to flex cost down as well as up in
agreed timescale
45 83
Cost-Related BPO Vendor Differentiators
Challenges for buyers & vendors
• Operating end-to-end across
operational silos
• Who drives change?
• How do I still make a profit?

Disruptive Forces Impacting BPO
Some Examples

The Robots are Coming: Is this the End of BPO?
Where is RPA Currently Being Deployed
Implications for vendors:
• Getting to client first
• Rapidity of change - short
cycle-time for
implementation
• Maintaining revenues and
margin
• Maintaining deep
understanding of standard
operating procedures
• Make or buy?
BPO Activity Proportion of RPA Activity (%)
Data extraction & enrichment 50
Performance analysis &
reporting
25
Self-help query resolution 15
Multiscreen integration for users <10
Compliance <10

Analytics Becomes All-Pervasive
…and increasingly predictive
Analytics used to be an add-on to identify process issues
as part of a LEAN Six Sigma project but now increasingly
embedded in process and predictive
• Real-time drill down
dashboards need to be built
into all services
• Performance against
benchmark & goals
• Increasingly focused on
business actions and not
just process improvement
BPO Activity Areas where analytics being applied
Contact center Speech and text analytics
Next best action/propensity engines
Social media monitoring & lead generation
Marketing operations Price & promotion analytics
Campaign and media mix analysis
Store performance
Financial services Model validation
KYC/compliance
Procurement Spend analytics

Labor Arbitrage is dead – long live labor
arbitrage
Reports of my death were greatly exaggerated
• Serving emerging domestic
markets requires greater
fragmentation of delivery
centers as does moving up
the value chain
• Agent diversity continues to
increase
• The contact center refuses
to die
In spite of automation, mature “International BPO” services
now being transferred to tier-n cities
• Labor arbitrage is good
• Reduced attrition is even better
• Rural centers in mature markets
Growth in domestic markets:
• Small now but opportunities in emerging economies are
growing especially in areas like customer management
services
• Bangalore and Cape Town are great for “International
BPO”
• Jamshedpur and Port Elizabeth more appropriate for
domestic markets

Digital Renews Opportunities in
Customer Management Services
The need to combine people skills and digital skills
gets ever more pronounced
• Need single-view of the customer & linked multi-channel
delivery
• Need to be able to analyze and optimize customer
journeys
• Need to recommend next best action both to
agents & through digital channels
• Differing channels need differing skills
• Agent recruiting & training & motivation more
important than ever
• The web site is becoming a critical part of customer
service
Channel Proportion 2014
(%)
Equivalent 2017
(%)
Voice 56 41
Non-voice 44 67
Customer requirements
• Combined CSAT improvement and reduced cost to
serve
» Reduced customer churn
» Increased first call resolution rates
• Reduced levels of shopping cart abandonment
• To enable voice agents to focus on complex or high
value interactions
• To be taken seriously as an online business

Will Software Destroy the BPO Industry? or
Will BPO Abandon the Software Industry?
Pros and Cons of COTS Software vs. BPO “Components”
Questions for vendors:
• How do I maximize my IP?
• Will “make” be more cost-effective
than “buy”?
• Can I get a much more coherent
combination of processes,
dashboards, and analytics this
way?
• Where do key tools not exist?
• Can I maintain the focus on
services and not be tempted by
software sales?
COTS Software BPO “Components”
High brand acceptance No brand value
Tool-up quickly A relatively slow build
Licenses are expensive as is SaaS BPO companies always built key tools
like workflow to reduce cost
IP is shared/handed to software
company
IP retained in-house
Difficult to integrate with process
models and dashboards
Process models and dashboards can be
built-in – less “Heath Robinson”
Hard to sell BPO as an add-on to
software
Easier to sell BPO service with embedded
enablers
Facilitates move to BPaaS

The Internet of Things: Is this a New
Beginning for Industry-Specific BPO?
Where is the Internet of Things Currently Being Deployed
• Often not the traditional
BPO buyer
• A high element of 24/7
services
• Strong analytics capability
likely to be a pre-requisite
• Potentially takes the
meaning of risk/reward to a
whole new level
Sector Examples
Telemedicine Monitoring heart operation patients post-op
Insurance Monitoring driver behavior for policy charging
Energy & utilities Identifying pipeline leakages
Telecoms Home monitoring/management -
the next “big thing” for the telecoms sector
Plant & equipment Predictive maintenance
Manufacturing Everything-as-a-service

High Velocity BPO
What the client has always wanted

Accelerated Timescales of Transformation in F&A
Standardizing
processes on
transition
Yesterday
Labor Arbitrage
Process
Improvement &
standardizat’n
Tools &
Automation
& Robotics
Business &
Process Analytics
14
Months
Years
Greater automation;
Analytics embedded in
specific processes
Previously
Today
Business
insight

The Future: High Velocity BPO
Why take years when months will do it?
Attribute Traditional BPO High-Velocity BPO
Objective Help the purchaser fix their processes Help the purchaser contribute to wider business goals
Measure of success Process excellence Business success, faster
Importance of cost reduction High Greater, faster
Geographic coverage Key countries Global, now
Process enablers &
technologies
High dependence on third-parties Own software components supercharged with RPA
Process roadmaps On paper Built into the components
Compliance Reactive compliance Predictive GRC management
Analytics Reactive process improvement Predictive & driving the business
Digital A front-office “nice-to-have” Multi-channel and sensors fundamental
Governance Process-dependent GBS, end-to-end KPIs

Impact of Disruptive Forces on BPO
More opportunity than threat
Disruption Short-term impact Long-term impact
Robotics Gives buyers 35% cost reduction fast
Faster introduction of transaction pricing
No significant impact on business models or technology
Analytics Already drives process enhancement Becomesmuch more instrumental in driving business decisions
Potentially makes BPO vendors more strategic
Labor arbitrage on labor
arbitrage
Ongoing reductions in service costs and
employee attrition
Improved business recovery
“Domestic BPO markets” within emerging economies become
major growth opportunity
Digital Improved service at reduced cost Big opportunity to combine voice, process, technology, & analytics
in a high-value end-to-end service
BPO “software
components”
Improved process coherence BPaaS service delivery without the third-party SaaS
The Internet of Things Slow build into areas like maintenance Huge potential to expand the BPO market in areas such as
healthcare
GBS Help organizations deploy GBS Improved end-to-end management and increased opportunity

Q&A
John Willmott, NelsonHall
Outsourcing Institute BPO Innovations
Conference, New York
October 30, 2014
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