My colleague Chris Jock was recently at the Deloitte Annual Shared Services & BPO Conference in Barcelona. Prior to the conference, he caught up with Peter Moller, who heads Deloitte's European Shared Services Team, to discuss the themes most likely to be top-of-mind at the event. They talked about the evolution of shared service models and what a hybrid solution can tell us about the future of outsourcing and here are some of his thoughts.
From the mid-90s, ‘captive centers’ (or shared service models) led the business process outsourcing market. For a long time they’ve been a safe, easy option for businesses looking to reduce cost and improve cycle time. But full-scale outsourcers are starting to gain market share, and here’s why.
If you look around the global market at the moment, you’ll see an increasing number of ‘hybrid’ outsourcing models—models that have both true outsourced activities alongside others that are kept in a shared services ‘captive’ structure.
Typically, higher value activities have been moved to local shared service centers, while lower value activities have been moved further away to a lower-cost market. The reason this model makes sense right now is because there are certain activities that don’t need language capability around them.
Matching invoices, supplier payments and even some intercompany reporting activities can be done anywhere in the world. And if you can do it anywhere in the world, you may as well do it at the lowest cost. Other processes still do require language capability, or skill sets that don’t yet exist in large numbers in some markets, and they continue to be managed in a captive, shared services model.
For these reasons (and others), many organizations now find themselves with one foot in a captive model, and one foot in an outsourced model—but this is changing, and quite quickly.
Increasingly, we see a few large, tier-one players that have the scale and cost infrastructure to be extremely competitive across all industries and sectors. On top of this, we have niche players with specialist, vertical solutions for specific industries. Even if you haven’t got major scale or you’re not a cost leader, you might have an amazing vertical technology solution that people can simply ‘plug into’ to solve their specific problem. The increasing global scale and dexterity of the tier-one players, coupled with the specialization of niche players in the outsourcing market is changing the game.
The global BPO market is in transition—lower cost markets continue to improve their skill sets; tier-one players are increasing their reach and dexterity in multiple markets; and niche players offer ever more impressive technology solutions for specific industries. As a result, the shift towards full-scale outsourcing is again looking attractive.
Ultimately, the popularity of hybrid models is foreshadowing greater change ahead. The scale of outsourcers global delivery networks, and the sophistication of technologies is drawing organizations to ask , “Rather than build this structure in-house, can we just outsource it?” Increasingly, the answer will be, ‘yes’.
