Business Process Outsourcing (BPO) today has come a long way from where it started more than 20 years ago. Accenture has identified six distinct generations that cover the past, present, and future of the industry. Companies that want to get the most out of their BPO relationships should seek to understand this evolution and make sure they are at the forefront of the next generation of BPO.

The Past

Back in the early 1990s, the first generation of BPO was focused on cutting costs. Companies tended to outsource what were perceived as non-core operations, often around human resources, or finance and accounting. This outsourcing was characterised by the rebadging of organisations’ people and technology from client to provider in the same locations.

The second generation of BPO was focused on offshoring, as global labour arbitrage made it possible to move jobs to where they could be done more cost effectively.

A third generation of BPO saw companies outsourcing an increasingly wide range of functions with providers focused on industrialization and process efficiency. Leading providers began to use process methodologies like Lean Manufacturing and Six Sigma to bring standardisation to their operations.

The Present

While cost-cutting remains a valuable outcome from the early generations of BPO, many executives believe BPO can be a more sophisticated tool for driving innovation and business value.

In fact, a survey by Horses for Sources and The Outsourcing Unit at The London School of Economics in 2011 demonstrated the gap that exists in achieving cost reduction and driving innovation. Respondents felt that 46 percent of outsourcing initiatives were effective at reducing operational costs. Yet only 11 percent of initiatives were seen by respondents as effective in providing new and creative methods of achieving business value.

Today, in the fourth generation of BPO, leading providers are addressing this gap, mining vast quantities of client data and using analytics to extract actionable insights. This added value includes everything from accelerated speed to market, and stronger customer loyalty, to savvier talent management, and top-line growth.

This generation of leading BPO providers are combining deep industry expertise with descriptive, and more importantly, predictive analytics to help executives understand exactly what is happening in their businesses at the moment, and what possibilities the future holds. Strategies can then be developed off the back of this insight, and the BPO provider becomes an active partner driving a client’s success.

Out of this value-creation model, a fifth generation of BPO is emerging. It’s one that embraces not only analytics but software-as-a-service and mobile technology to provide a more flexible, on-demand BPO service, supplied across multiple clients through flexible software platforms. This generation of BPO is evolving and developing at the speed of the technology that supports it.

The Future

The history of BPO has been one of progress and development. But what does the future hold for BPO? What is the next generation?

We believe that the continued adoption of social networking will help BPO move into a sixth generation. Business people are increasingly using such technologies to build networks where members share best and worst practices, and discuss solutions to problems. We envision using social networking as an extension to the fifth generation platforms centred on BPO-provided processes. The platforms created in the fifth generation would be supplemented by integrated online networks linking clients and providers.

While many BPO providers are still stuck in the third generation, viewing BPO solely as a cost-reduction tool, this is increasingly out of step with what client organizations want from BPO. To get the most value for clients today, providers need to actively bring together the capabilities of fourth and fifth generation BPO to make a difference.