Sourcing Strategy Drivers: ITO+BPO Synergy?

By Peter Allen, Partner & Managing Director, TPI

Is there significant value in ITO-BPO synergy?  Or, should you think about the transactional processing of a business operation distinct from the technology platforms and enabling tools?

This topic is especially important for sourcing strategies as companies look to gain benefits beyond wage arbitrage.  Much of the work moved to captive offshore operations and even offshore outsourcing is related to operations.  That is, outside of the realm of applications-related development and support tasks, BPO took the form of transaction processing. 

The underlying technologies used to do the work were managed separately.  Sometimes those technologies were managed internally and sometimes they were contracted to a different service provider.
There were many reasons for the delineation of responsibilities in this way, not the least of which was the fact that many of the leading offshore BPO-oriented providers weren’t the strongest players in providing managed services for infrastructure operations. Sure, many providers talk about remote infrastructure management, but that’s merely a wage arbitrage approach.

Other than a few of the multi-national providers that walked on both sides of the ITO/BPO line, the market simply didn’t have the maturity of capabilities to bring real synergy into play.

I think the times have changed materially, and this trend will accelerate.

Many of the providers are making significant investments in technology enablers for their BPO offerings.  They are helping to drive efficiency in the integration of technology and operations. This is a good thing!
Interestingly, it’s the BPO-oriented providers that are adding technology management capabilities, not the other way around.  Most of the ITO-oriented providers aren’t showing the ability to climb up the stack into BPO.

From the vantage of a sourcing strategy, finding the synergies – in costs, capabilities, and capacity – through integrated ITO/BPO depends on the business process at hand, and the existing landscape of internal/external delivery resources.  The answer steers the consideration of internal/external sourcing options and the candidacy of the providers. 

I believe that these synergy opportunities are more real today than ever before, but they vary by industry segment, process, and provider.  The best way to test it is to engage provider around end-to-end solutions as this could enable output based pricing and risk transfer to provider. 

It’s coming … but it’s not yet a take it to the bank proposition.