Where are Services Going Now?

Big Themes in Recent Services Stories

Here are some stories you might want to follow:

“HP Goes Distance for P&G”, eWeek – This piece describes how “to win P&G’s accounting, HP rebuilt Cincinnati in India”. This piece illustrates how far companies are willing to go to develop and capture business process outsourcing (BPO) work. Not content to move application development and maintenance to offshore sites, we can expect more firms (both US and Indian) to build out more BPO processing centers in low cost country sources. More information available at:  www.blog.eweek.com

“BPO: The Next Frontier”, eWeek – Also, in the same issue, is a piece with IDC (International Data Corporation) statistics on the size and growth rates of the BPO market. Logisitics and Sales/Marketing were the big dogs in BPO with Customer Service a solid third. If you don’t know how big these spaces are (and how small some others like Procurement are), you should check this data out.

Wal-Mart and Dell also announced large planned increases in offshore workers.

M&A activity is hot in BPO. R.R. Donnelley picked up OfficeTiger for $250 million. OfficeTiger provides a number of back office BPO services to firms. Accenture’s acquisition of assets of Savista is maybe more noteworthy that a quick glance would suggest (see story at http://www.finextra.com/fullpr.asp?id=8311 ). 

Behind all of these stories is something much bigger. First, the services space is evolving and service providers are adapting – rapidly. The most immediate change underfoot is the creation of true global delivery models (GDM). High concentrations of workers in one (e.g., India or China) or a few countries is no longer economically viable or is unresponsive to end-customer needs. Service buyers want the flexibility of using blended groups of people in nearby/lower cost, remote/very low cost, and local/high cost countries. This flexibility in locales allows them to tailor which service professionals will be used to solve specific customer needs. This only makes sense as an all-U.S. solution is too expensive and an all-India solution may be lacking in certain functional, culture or other sensitivities. Choice is what’s driving some of this change. With choice comes the ability to offer more tailored solutions to service buyers.

But, another force is driving the rollout of GDM: diversification. In a speech I gave this week to procurement and supply chain executives, I discussed how one company’s, one industry’s and one country’s over-reliance on one country as its source of key products or services is potentially ruinous to a company. When Enron collapsed, those employees who put all their retirement savings into Enron stock were effectively wiped out. Buyers of services need a diversified approach to services acquisition if only to better manage risk.

The other big thing afoot is the growth of BPO and BPO into new markets. We can reasonably expect BPO to take off for some back office functions (e.g., Finance, HR). Furthermore, BPO into the mid-market is ripe for an explosion, too. Let’s see what happens once the M&A dusts settles.

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