Sal’s six stages of sourcing: BPO’s Generations

“We did our BPO deal in 2005 and now we’re reaching our 7 year-itch”, confided a client governance executive last week. “Essentially, it’s operational – it works – but we’re now trying to focus on the what next. How can we find new value and new ways to tie our BPO operation to our company’s growth and renew the enthusiasm and passion of our staff?”.  No single sentence has reinforced how far the BPO has come – from tales of woe and messy delivery in the mid 2000’s – to clients today complaining they’re getting bored?

The BPO industry has been going through such a remarkable evolution since the first major deals were cast barely more than a decade ago, that it’s high time we took stock and considered the phases – or generations – through which our industry has progressed.

Mike Salvino is Group Chief Executive, Business Process Outsourcing, Accenture

And there are few people who have lived and breathed these generational shifts more closely that Accenture’s BPO leader, Mike Salvino (or “Sal” to those who know him).  Having begun his career with Accenture’s ITO business in the late 80’s and 90’s, Mike spent time on the BPO front lines with one of the industry’s first pureplay BPO providers, Exult, before leading the HRO sales organization post their merger with HR services giant Hewitt.  Mike rejoined Accenture in 2006 where he led their F&A business before taking full responsibility for the company’s entire BPO function.

We managed to grab a few moments with Sal to discuss these generational shifts in the BPO industry before he had to run off to coach his kid’s basketball team…

PHIL FERSHT: Mike, when we spoke two years ago, our discussion focused on what you termed third generation BPO, which is a vernacular many others in the industry are now using. But I know your thinking and Accenture’s delivery model, has evolved quite a bit since then and you’re now talking about fourth, fifth and even a sixth generation. Please talk us through this evolution and these new and upcoming generations of BPO.

MIKE SALVINO: Third generation BPO, where some of the providers and their clients are a bit stuck, was focused on global delivery of end-to-end processes using either operational excellence or Six Sigma-type techniques on those processes to achieve what I call “silent running.” For the most part, providers can now do third generation BPO, but it’s a very commodity-based business, it’s very price competitive, and very competitive in terms of differentiating yourself as a provider.

So we set out to define what we at Accenture call fourth generation BPO, which is focused on business outcomes, either helping a client increase its revenue or further decrease its costs. To do this, we applied analytics to all the transactions we were processing in our global delivery network. And by looking at the past to try and predict the future and showing real-world examples to our clients, we were able drive tangible business value. Very few providers are delivering fourth generation BPO.

The fifth generation, which Accenture is into right now, is taking the investments we’ve made in the cloud, in analytics, in social media and in mobility and applying them to BPO to build business platforms. Our best example is what we call our Accenture BPO Navigator, which is built in private clouds and allows our clients not only to see the end-to-end service level performance but also the business results and the business outcomes we’re driving for them on a regular basis. Access to the BPO Navigator is also enabled for mobile devices so they can carry it around with them…it makes a big impact in terms of how they are managing their businesses.

But the whole overarching concept around fifth generation BPO is creating a more flexible and scalable delivery model so our clients can really do what for 10 years they’ve been asking for – to start small and scale fast.

Sixth generation is creating learning communities of clients around these fifth generation business platforms using social media technology to create a force for future innovation and a glue between those clients and providers.

If you look at the colored columns in this graphic, you’ll get a solid idea of our perspective on each of the generations:

PHIL:  Mike, my read on this is that you have clients that have been doing this for a very long time, where you’ve been able to help them evolve along this path as they’ve become more mature, more in control, and have more visibility into how they want to perfect their processes. Do you feel the experienced adopters are going to be the first ones to progress to these fourth, fifth and sixth generations, or do you think there are going to be a lot of clients – new to BPO adoption – coming into play?

MIKE:  I think it’ll be a combination of the two. Our existing book of business is the most intuitive group to move directly into fourth generation in terms of business outcomes because they’ve seen us process their transactions for years and they’re asking the same questions we asked when we developed the concept for the fourth generation BPO…what can you tell us about our business, given that you process our transactions every year?

The new clients want to move into it more quickly. I haven’t spoken with a new client that doesn’t want to try to start small, scale fast, and use the latest and greatest technology, whether regionally or globally.

The sixth generation is a very new concept where we invite people into those communities to do business, exchange insights and to further advance the standardized platforms and processes that actually do the work. And while the fourth and fifth generations are realities today, the sixth generation is what we’re shaping now.

PHIL:  Our new research has shown that, for eighty percent of today’s buyers (see link), standardizing on best practice process flows is now one of their major BPO drivers. So in terms of that, how are you building your future business around this willingness to standardize more and adopt these “pre-packaged” best practices?

MIKE:  So that’s where we partner with our management consulting and with technology experts. You’re exactly right. We’ve seen this movie before in terms of people saying that there’s a product out there that’s all of a sudden going to standardize everything. Are there better products out there? Absolutely. Are people more willing to go to them? Absolutely. Our strategy is clear. We want to own those platforms, especially for the industry-specific areas. We will take our clients to platforms, much like we have taken them into our centers to do the work. The reality is that the platform discussion is no different than the debate we had five years ago about whether service providers do the work at the client’s site or can actually take the work into their own delivery centers.

So now that the work is in our centers, we can get them to a standard platform, but that’s old-type thinking. What I think is different is that once we get them to those platforms, we can we get them to fourth and fifth generation BPO by looking at the transactions. We use our management consulting talent and industry knowledge to determine what those transactions mean, and then be as flexible as we possibly can to enable our clients to start small and scale fast.

PHIL:  This takes me back to the ‘90s when companies were pushing ‘buy this suite of enterprise resource software and you’d have best-in-class processes across all these domains, and we ended up with a situation where companies were buying full-scope licenses for products like SAP, but struggled to standardize their processes to conform with the ERP. Isn’t this happening all over again, where buyers are being sold some type of “productized” workflow, however this time the onus has shifted to the providers to take them through the transformation?  Doesn’t this emphasize the need for buyers to rely heavily on their providers’ consultative transformation capabilities, as opposed to solely this kind of just low-cost, productized approach?

MIKE:  Okay, but if we delivered exactly what you just said, that isn’t good enough. That’s just third-generation BPO. As I said earlier, most of what we’re talking about is industry specific because I don’t believe that clients are going to come off SAP or Oracle for the horizontals. So if all we do is take you to a standard process globally based on a new application, all that does is get you to third generation, with lower cost and more efficient end-to-end processes.

But today, when you sell to the C-suite, they don’t care that we process invoices, port telephone numbers or support wellness programs better than anybody else. What they really want is what the analytics data tells us about how we can have a better impact on their business either by increasing their revenue or further decreasing their costs.

I’m not positive you have to go to a new platform. But I am positive that you have to understand what you’re processing and how that’s going to impact your clients’ business.

PHIL:  This is interesting, when we look at how the ITO industry developed – it kind of got stuck in its own version of “third generation” for a very long time, and arguably, a lot of it still is. But I think there’s a much bigger opportunity in BPO, because of the level of depth and intimacy you have with the clients, and their institutional process that you have to learn over time to help them move to outcome-based delivery situations. So I do think that BPO is more uniquely positioned to move buyers towards these fifth and sixth generations than some of the other outsourcing models in the past.

MIKE:  But don’t you think that’s what people wanted out of BPO when we started this? It’s just taken us 10 years longer than we thought. The significant difference between ITO and BPO is that we could finally get into the business. I know it started with taking transactions that weren’t core, and by the time we got to third generation we were certainly doing non-core. But now, with fourth, fifth and sixth generation BPO, we can finally give the industry what it’s been asking for years. Do you agree?

PHIL:  Yes, I think the clients have got a lot smarter over the last couple of years, and they are demanding much more innovation from their relationships. They’re also realizing they’re more accountable and until they play out the agenda, it’s going to get tough for them. So I do think that the industry has really moved on in terms of the conversation, in terms of what it’s looking to achieve.  In fact, we’ve done more in the last two years than the last ten, and these current economic conditions are driving people to look more long term at their businesses, and really try to be a bit more radical with making some changes to their businesses that need to be made.

Additionally, the competitive dynamics are at a point where I think we’re already seeing three or four players break from the rest of the pack quite aggressively now, and I think in a year’s time we’ll really start to see a mature market. So I do feel that this sixth generation you’re talking about is going to happen sooner than we think. I think it’s already creeping in. Our research clearly demonstrates decision-makers are increasingly going to each other – we’ve got the data to show it. Peer experience is more impactful now than anything else, so I do feel the quicker we can get people to the community concept, giving them the ability to share best practices, worst practices, ideas and get better at this, the better off the industry will be.

MIKE:  Again, the purple column on the chart that represents sixth generation BPO is what people have been asking for over the years. We used to call them user groups. We still do an event every year, and bring our clients together because they want to talk to each other about what’s going on, about what they’re dealing with, about how they’re resolving issues, whether old or new. So to be able to set up that community in an invited, exclusive-type way where you can really conduct  business will be key.

PHIL:  We’re in an interesting age where there seems to be a follow-the-leader scenario going on where someone comes up with a great concept and before you know it, everybody else has jumped on it. And with this concept of “generations” that you initially developed, I remember us going through it a while back and we started seeing competitors of yours coming up with similar messages and stories. What goes on in your mind when you see this …and how are you going to win?

MIKE:  I love the fact that the industry has taken on the generations vernacular, as it’s the best form of flattery. And when the industry wins, Accenture BPO wins, and if we’re moving the industry into the fourth, fifth and sixth generation BPO, then clients, as a whole, will expect more from us and we’ll deliver more value. So it’s a win for clients too.

PHIL:  Mike – thanks for taking the time to discuss your BPO Generations with our readers – we appreciate it, and look forward to sharing your insights.

Mike Salvino (pictured above) is Group Chief Executive, Business Process Outsourcing, for Accenture.  You can read his bio here.

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