Many companies pursue business process outsourcing to trim costs. But it can evolve into much more.
The number of companies that outsource critical business processes to outside suppliers has been growing significantly worldwide. In 2012, companies outsourced some $309 billion of services — activities including finance and accounting, human resource management, procurement and legal services — and the overall volume has been growing at a rate of around 25% annually.
Although many organizations initiated business process outsourcing (BPO) as part of an effort to reduce costs or acquire new skills, it has since evolved into much more. In relationships companies classify as high-performing, service providers deliver substantial long-term improvements to the client’s operating efficiency and strategic performance.
These types of innovations require companies and service providers to work together. BPO providers do not need incentives to improve their own revenue or margins, but they do need them to focus on the client’s performance. While partners may incentivize innovation by using mechanisms such as productivity targets, allocating innovation days and agreeing to gain share on innovation projects, innovation won’t happen unless clients and providers implement a more comprehensive process that combines acculturation across different organizations, an engaging method for generating ideas, adequate funding and a system for managing change.
Many companies look to business-process outsourcing to save money. But the most successful clients concentrate less on cost savings and more on achieving innovation.
See on sloanreview.mit.edu