I’ve blogged often in the past few months (here, for instance) about the emerging platform operations model and how it creates a more intimate, dynamic relationship between the tech stack and business operations. Just like the IT and engineering services marketplace, this new relationship between technology and operations because of platform operations is now increasingly dominating the business process services (BPS) outsourcing space.
In my blog last week, I discussed the changing market dynamics in the IT and engineering marketplace. Now, let’s look at the changing market dynamics in the business process services market.
BPS is the name for a category of outsourcing services and capabilities in functions such as finance and accounting, HR, claims processing, or call center and customer experience functions. BPS often deals with strategic enabling services for a company.
At Everest Group, we now see a steady uptick in demand for BPS. As I mentioned in my blog last week, companies face an impending recession and the need to cut costs, yet they are still committed to a digital transformation journey. So, the market sentiment is to pivot into a more pragmatic solution. In other words, companies now look for immediate value.
A lot of that value resides in their business processes or functions. Hence, the significant uptick in activity in which companies are looking at their business processes for ways to reduce the cost to serve. This leads them to look to offshore, nearshore, and onshore outsourcing service providers. But unlike outsourcing in the past, this time around, they also look to invest in technology that increases automation to improve their operational efficiency.
Labor Arbitrage Movement
So, there is a big appetite in today’s BPS market to invest in technology, often combining that investment with labor arbitrage to save money. Pipelines and business are growing rapidly for third-party service providers in the BPS arena today.
This movement also contributes to the significant growth I called out in my blog last week regarding offshore locations and nearshore Global Business Services (GBS) centers, sometimes known as captives.
However, the digital transformation story is playing out at the same time. While companies are looking to cut costs, they also need to implement labor arbitrage along with technology to drive costs out. Hence, we see the BPS sector growing fast and providing a lot of opportunity for third-party service providers. It also contributes to the technology demand that I discussed in my blog last week about the changing dynamics in the IT and engineering market.
Labor outrage in BPS is not new. What is new is the degree to which technology now drives this strategy. Enabling most of this new activity is companies investing in digital transformation technologies. That transformation changes the talent mix, which then leads to the movement offshore, either to a captive or GBS center or a third-party service provider. Hence, the BPS outsourcing market is expanding.
At this point, most business processes have had an ongoing investment in automation and digital technology. But because of the platform operations model, the operations and tech stack are in a much more intimate and much more dynamic relationship.
The benefit of technology investments is more efficiencies or lower cost to serve. But because of platform operations, companies now need to manage the tech stack and operations together rather than independent of each other. Third-party service providers are also combining technology and business process operations much more intimately than in the past. This results in significant savings for clients and often a significant reduction in cost to serve as well as a much better business impact in value to the customer or other stakeholder experience.
Example Of Impact of Platform Operations in BPS
To see how this works, think of the call center space, for example. For the last 20 or 30 years, companies have undertaken the process of decomposing the call center process components into separate functions and then created standard operating procedures (SOPs). Then they added cheaper and cheaper labor into the process.
That process is reversing today. As companies invest more technology into their call center functions, they automate many of the functions that used to be conducted by people. In addition, the remaining labor is much more skilled than before. This reversed the call center trend of having less and less skilled labor. Now, companies have a large, sophisticated operational platform, and it requires much more skilled labor.
The lesson for companies in this reversing trend is remarkable. Through platform operations, companies advance down this technology path and set up a set of ongoing changes. This fundamentally challenges how they operate their call center work because they now substitute expensive labor for cheap labor.
This sets up a set of challenges. Can a company find this new higher-skilled labor in a constrained market? Can the company find this talent in the country in which it operates? If not, it often forces the need to move to other markets (often India) where that skilled labor is more easily attainable. Skilled laborers are not only more readily available in such locations, but they are also cheaper.
Hence, BPS is undergoing a fundamental change to reinforce the intimate, dynamic relationship between the tech stack and the business due to platform operations. This change is increasingly dominating the BPS space.