“In rightshoring, each interaction is sent offshore only after a thorough analysis of how best suited it is for a particular locale or region,” says Frost & Sullivan senior analyst Katrina Howell. “For example, while India is excellent for technical support queries, sales-oriented interactions can remain in North America.”

The outsourcing of certain business processes, along with the outsourcing of such functions as manufacturing, research and development, has become a standard practice for most enterprises.
But a series of new studies tracking the latest trends suggest that there is a shift in the landscape causing businesses to rethink their strategies when it comes to outsourcing key process and functions.

Bigger and Bigger

Worldwide business process outsourcing, or BPO , will reach US$133.7 billion in 2005, an 8 percent increase from 2004 revenue of $123.8 billion, projects Gartner, which is holding its annual outsourcing conference next week.

The growing demand for BPO service providers to take over functions will necessitate certain changes in buying behavior, Gartner says.

“A year ago, BPO providers and prospective buyers held many discussions, but few deals were signed,” said Lisa Stone, research vice president. “The level of activity that we are seeing now reflects the fact that the value proposition behind BPO has been accepted by buyers. Through year-end 2005, prospective buyers will be energized, creating a seller’s market.???

Game Plan

As more deals are completed, Stone said, vendors will be compelled to focus attention on their new operations and will be less inclined to bid on further projects unless they are highly likely to result in winning deals. The window of opportunity will not stay open indefinitely.

“If a company is considering new BPO projects, it must begin to develop a BPO strategy and make decisions soon,” said Robert Brown, Gartner principal analyst. “The sooner prospective buyers can start meaningful discussions with providers, the more likely they will be to get the BPO vendor’s attention.”

At the same time, Gartner notes, prospective buyers need to make sure that the BPO provider in question has qualified personnel, especially as new firms set up operations to meet the growing demand for BPO services.

The ‘Rightshoring’ Strategy

Frost & Sullivan also details the growth of outsourcing — in particular the trend to outsource functions to overseas locales — in a recent report. Revenue in the outsourced contact center totaled $19.6 billion in 2004 and is projected to reach $21.6 billion in 2011, says Frost & Sullivan.

Ironically, service providers in the outsourced contact center markets are beginning to worry about their clients’ growing reliance on offshore services, Frost & Sullivan reports. Despite the cost savings, outsourcers are advising clients to adopt a more selective approach. This strategy, dubbed “rightshoring” or “bestshoring,” entails sending only well-defined and routine customer service operations offshore.

“In rightshoring, each interaction is sent offshore only after a thorough analysis of how best suited it is for a particular locale or region,” says Frost & Sullivan senior analyst Katrina Howell. “For example, while India is excellent for technical support queries, sales-oriented interactions can remain in North America.”

Manage the Process

Rightshoring is still an emerging concept. The majority of firms still believe that shipping certain processes overseas is better for the firm automatically since it saves on costs. Yankee Group predicts the trend will continue, and the current 40,000 contact-center seats in India will increase to 110,000 by 2007. For companies committed to offshoring, the focus needs to be on improving management of the processes involved in handing over operations to a third-party provider.

The issue, according to Yankee’s Art Schoeller, is not the cost savings. Rather, it is how well firms manage the process. Companies that choose offshoring must learn to use the services effectively and understand the impact that legislative changes may have on their operations, he cautions.

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