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Investigate BPO or perish, Gartner warns Australian CIOs

  • 12 July, 2004 14:32

<p>SYDNEY July 12, 2004 ANY CHIEF Information Officer who ignores Business Process Outsourcing (BPO) options in their strategic planning is making a “career-limiting decision”, declares leading Gartner analyst Jim Longwood.</p>
<p>“Organisations can potentially lose 30 to 60 percent of its back office operations to a BPO service provider, radically reducing its spend on IT projects and related infrastructure, if it implements a BPO strategy,” says Mr Longwood, a speaker at the forthcoming Gartner Sourcing &amp; IT Services Summit.</p>
<p>Mr Longwood says BPO companies, including Accenture, Australia Post, EDS, KAZ, Oxygen, IBM, Salmat and Unisys, as well as specialists from countries such as China, India and the Philippines, are “knocking at the doors of Australian Chief Financial Officers right now”.</p>
<p>“Large enterprises have the opportunity to save millions of dollars from BPO, and CIOs must ensure they are part of any negotiations or risk being marginalised in their own organisation,” Mr Longwood says</p>
<p>Not all BPO will go overseas, according to Gartner research.</p>
<p>Global estimates say that only 14 percent of $US173 billion spent globally on business process outsourcing by 2007 will involve offshore contracts.</p>
<p>Mr Longwood says that for most organisations the key question regarding BPO is “not if but when it will happen”; and he predicts the practice will be commonplace among Australian companies within three years.</p>
<p>He says the most common first steps for enterprises are to outsource activities that are “repeatable transactions”. These include:</p>
<p>Call centres;
Bill Payments;
Accounts payable and receivable;
Human Resources and payroll;
Invoicing; and
Creditors and debtors management.</p>
<p>Many local financial institutions are now outsourcing activities, such as mortgage processing, credit card applications, claims processing and insurance renewals.</p>
<p>“When an enterprise outsources repeatable transactions, the number of IT projects and related infrastructure to support and improve those processes goes away,” Mr Longwood continues.</p>
<p>“This serves to further reduce costs to the business, as well as dramatically changing the size and role of IT in the organisation. Even software giants, such as Oracle and SAP, stand to lose a lot of enterprise customers as BPO takes off.”</p>
<p>“However, this is a two-edged knife. While there may be substantial cost-savings, executives must also consider the impact on the delivery of internal and external services. This aspect of change, particularly if it affects customers, is often forgotten to the detriment of the business.”</p>
<p>Globally, Gartner estimates that this year some 65 percent of all offshore BPO expenditure will be dedicated to running call centres in low-wage countries. Another 20 percent will be spent on transaction processing with the rest dedicated to e-mail and chat services.</p>
<p>Analysts also predict 50 percent of offshore centres established by Western companies will be sold to indigenous entities that will then contract-back the services.</p>
<p>Mr Longwood says it is a mistake to assume significant chunks of Australian business activity will move offshore. Initially our privacy legislation will restrict the amount of process work that can go offshore.</p>
<p>“Australia can be a player in this market, too,” he says. “But first, we have to get out of our denial phase with respect to the offshore debate and leverage what we do well.”</p>
<p>He suggests Australia quickly follow New Zealand’s example of promoting its education, technical capabilities and social and geo-political stability as assets to win offshore and BPO contracts from North America and Western Europe.</p>
<p>“Invest Australia’s ‘shared services’ campaign has to be a good starting point for this initiative,” Mr Longwood says. “Australia is very strong on security and it has excellent Intellectual Property laws that guarantee no multinational will come here and then find its IP ripped off.”</p>
<p>A number of financial institutions already provide shared services to their global corporations out of Australia.</p>
<p>He says Australia is also a good value location compared with North American, European and Japanese cost structures, and its multicultural strength is a strong selling point for call centre work. A proven track record on establishing and maintain global data centres, especially in the financial sector, should also be leveraged.</p>
<p>The many different BPO alternatives on offer will be explored by Mr Longwood, together with Gartner analysts from around the world, at the Sourcing &amp; IT Services Summit to be held at the Sydney Convention &amp; Exhibition Centre, Darling Harbour, Sydney, from July 27-28.</p>
<p>Speakers include US-based Linda Cohen, the global head of Gartner’s sourcing practice who will give the opening keynote, “Ten Steps to Mastering Sourcing”. Indian based research VP, Sujay Chohan, will examine BPO options in more depth in the financial sector.</p>
<p>Guest presenters include CEO of Invest Australia, Garry Draffin, who will speak about the ability of Australia to become a centre for offshore outsourcing.</p>
<p>The agenda can be viewed at http://www4.gartner.com/2_events/conferences/srce2a_agenda.jsp</p>
<p>Interview opportunities with Mr Longwood, or any of the Gartner analysts, are available in the lead-up to the Sourcing Summit. To obtain free registration, please contact Jo Lobban on 61 2 9459 4692 or email joanna.lobban@gartner.com</p>
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