My interest has been piqued by the recent announcement of Sunlife of Canada outsourcing its UK customer services operation to TCS's Diligenta subsidiary in a $200m deal. This comes hot on the heels of some financial services captive buy-outs in India. The financial services sector has long been the problem child of the BPO industry, with operational executives extremely reluctant to relinquish control over business processes - especially finance and accounting. As I have said on record several times, it will only take a few big deals to hit and many others will follow in a domino effect. Bottom-line, the large BPO providers have capacity and are willing to invest in clients to gain an edge in this market. Most of the near-term deals will more likely be captive acquisitions like the two mentioned above, but this is the clear strategy some of the providers are following to build out a global delivery infrastructure. (Hey - I managed to avoid saying lift n' shift).
So why do I think this sector is poised to become a BPO hotbed?
- Competition is too fierce and the incumbents are looking at all options to contain costs and improve margins;
- Decreased shelf life of products;
- Business impacts and high costs of maintaining non-strategic and closed blocks of business;
- Rising wage costs and attrition within captives is proving too costly and taking up far too much management resources - the outsourcing option is becoming increasingly attractive and less risky from a business perspective;
- The sub-prime fiasco has really changed the game with several FSI firms - they are now prepared to take on more risk to remain profitable;
- BPO models can help firms scale up and down quicker - particularly with a looming economic downturn. Having that flexibility could prove vital, especially in times when FSI firms need to get product to market quickly;
- Improved service levels from providers and their willingness to take on more customer risk;
- Improved technology add-ons at no incremental cost, for example analytics tools, that can sweeten the BPO opportunity.
More on this issue shortly....