Q&A from the Alsbridge front line

Q&A from the Alsbridge front line

Alsbridge Senior Manager, Ted Webb, talks about trends and developments in the F&A outsourcing market.

Q: The economic crisis has reshaped the F&A BPO landscape, as the exponential growth registered immediately before it has come to a halt in the last couple of years. What’s your view on this?

A: Actually to me it was a bit of a surprise, one always felt the recession was an opportunity for BPO as it is primarily cost reduction driven. I think in the early parts of the recession, say the first 6 months, what happened was that people were very uncertain about the future, thus delaying decisions. BPO does require a large amount of expenditure and you take some time to get the payback, so not knowing what the future holds held off decision makers. But why has it continued? Well, one should bear in mind that F&A is not the place to look for really big cost savings. Cost savings you are going to realise tomorrow will really be in Operations, Supply Chain and Procurement in most businesses. F&A in a decent sized business only accounts for 1% of the turnover, therefore is not so obvious an area for cost reduction. BPO is more about getting to a good stable low cost base for ongoing operations and people still want to realize the big savings immediately. But as we start to come out of the recession, this may be the opportunity where people will say: well, I can see the future now, and we need to make sure we are not spending money unnecessarily on cost base, and that’s where BPO kicks in. In a way, this recession has been so deep that people were searching for something much more immediate and larger than a BPO deal.

Q: So with the green shoots emerging from the economy and recovery setting pace, will the F&A BPO also start rising?

A: I think they have been spotted by some but it is really too early to tell yet, and I think it is still going to be a pretty hard year or so ahead of us. I think that BPO F&A will move gradually into growth but it will still take time to pick up.

Q: And how are the service providers coping with the current situation?

A: Primarily I think Service Providers always have an inbuilt steady stream of cash revenue, which are obviously the existing outsourcing deals, and that is always ticking over day to day, month to month, etc. They also find it a lot easier to sell into their existing client base. I have just came across one example recently where a client in the Travel industry spotted an opportunity to move more of their delivery offshore, which is a clear and straightforward opportunity to save costs, obviously with some complexity in getting it into place, but not as much as with the full selection process involved in a new deal. Basically it is the same as before but being delivered from a cheaper location. So things like that show the opportunity to sell to existing client base by increasing the scope or extending those deals.

Q: So the sizeable deals we were used to seeing are not really happening as often as we have been used to?

A: Yes, that is undoubtedly the case.

Q: Would you say it is a buyers market out there?

A: Very much so, and increasingly so. We have seen in the course of the last 5-6 years the standard base of 5-6 suppliers grow quite rapidly within F&A BPO. We now have about 20-25 viable suppliers. Then what happens is they have the need to differentiate themselves. They have to really concentrate on what makes them different from one another, and that tends to be things around verticals, so they would know everything about a particular industry, e.g. Travel, Financial industries, etc. This is not so much because you need to know an industry deeply to do F&A BPO but because that it the way you make yourself a bit different to competitors. Going for a cost play is OK but it is very difficult to maintain that over time.

Q: And technology?

A: Potentially, there are things in technology, platforms, alliances, which can play a role as differentiators. Probably the verticals differentiators have a stronger impact with clients, in my view.

Q: A few years ago Indian providers were still lagging behind the likes of IBM, Accenture, Capgemini, etc.- has that gap narrowed or not?

A: I think it has disappeared, to be honest. I think now, for instance, many of the Indian providers are able to offer just as good, just as resilient services as any global player and give you the same sort of credentials. They also now possess a very good client base and sizeable deals. I would say the old distinction has really disappeared.

Q: How would you categorize the suppliers between:

    1. those who are margin / profitability driven
  1. those who are revenue / growth driven?

A: I think that there is definitely still a distinction. Mainly the Indian providers are still interested in growing their client base, that is still a big motivator. On the other hand, the more well known the suppliers are the more they push for client profitability.

Q: In the UK specifically, do you believe the recent election will bring any dramatic changes in the F&A BPO space?

A: I would hope it does because there are clear opportunities out there. There are many opportunities through shared services or outsourcing which are really big from a cost savings perspective. There is a great deal of opportunity for sharing, or to bring in outsourced providers, as one of the skills the outsource providers have if properly engaged is helping with transition. Outsource providers will have to bring deals which are low investment and low risk, platform solutions for particular departments such as police forces, schools, etc, I think that is the way forward and with the change of government this is a time of opportunity

Q: Would you dare to predict what the next few years will look like?

A: I think next year is still going to be a hard year, but I see F&A BPO certainly here to stay. Looking back to the shared service centres (SSC) widely stablished 6-7 years ago, the idea was to setup something internally that was able to function like a business but with service defaults in it. Now the end state is really for those business units to be fully outsourced, so you now see captives being sold and suppliers coming from all across the globe. BPO is the ultimate correlation of the idea of SSC on consolidating services and yet providing a service focus.

Q: And how do you see the European market evolving?

A: I think that is one of the areas where there is a lot of opportunity. It also presents a great deal of obstacles and difficulties, obviously because of language, culture, politics, etc, but essentially the model still works so with time more people will start adopting pan-European F&A BPO.

Source: Alsbridge

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