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Jan 22, 2008


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Great topic, Phil.

At least for the established BPO providers, there is not sufficient strategic value for a merger. Client-specific processes and applications do not create acquirable intellectual property. Large companies already have taken advantage of significant economies of scale in administrative areas The future value of client contracts, who normally have 2-4 year contracts, is challenging to value because of so many poor operational results, changing faces at client organizations, or clients who are getting more strategic and are therefore willing to competitively bid work. Simply put, what's left to extract value from?

Regarding Partha's comment on "integrated services model" (aka technology + process), there's very little chance for this coming in the near future because companies have so many completely different technologies, integration points, business process/rules, and business dynamics. The only place this will happen is in payroll because the service is so darn similar and the integration points are minimal (but even that is changing as HR departments try to get better data). The best chance is in the call center world, where the entire infrastructure (ACD, call recording, WFM, reporting) can be bundled and sold independently from services - if the software vendors allow it (which means lots of "home brew" suites of applications). However, in the back office world, companies process even AP so differently that the 2nd most outsourced business process and most mature offering hasn't been integrated well. With the advent of many strategic sourcing/contact compliance technology suites, integrated AP offerings may never come to fruition... unless vendors are willing to offer the entire suite of strategic sourcing, category management, travel/business expense management, and accounts payable.


Interesting points.... have rarely seen an example of a successful merger between two outsourcers. They lose key talent and gain little beyond extra scale at a lot of added cost,



Spot on here! We will see more merging between product / technology firms and the outsourcers and much less between the outsourcers themselves. The Indian providers are expertly developing their global delivery infrastructure through captive acquisition and not resorting to acquiring other providers.


As such the differentiation among the (offshore) vnedors across Tier 1 and Tier 2 is very limited. As we have seen the emergence of IT in the first generation offshoring and BPO in the second generation offshoring, the market is ripe for a significant shift into an integrated services model. In this the technology and operational process frameworks are combined to provide a homogenous engagement model, which results in synergy thru integration of technology and business processes.

I will add more to this approach in the coming days.

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