Ephor Group Philosophy
Ephor Group’s continued focus on the evolution of the outsourcing industry is driven by several key trends including:
- The need for all organizations to outsource multiple business processes and functions to remain both cost competitive and to gain access to capabilities/expertise/resources/tools otherwise unaffordable;
- Evolving market dynamics such as the increased need for technology and analytics solutions, mobility, risk management and governance requirements;
- Highly complex industry vertical sector specific requirements;
- Economically efficient long-term recurring revenues (long-term contracts increases valuations because of high switching costs);
- Operational performance driven by people performance;
- Increased dissatisfaction with service levels from legacy vendors who refuse or reluctantly invest in infrastructure upgrades.
Read more about the Ephor Group philosophy and approach to growth and wealth creation.
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The Mid-Market Outsourcing Marketplace
The outsourcing marketplace is a highly competitive and fragmented industry that is poised for enormous growth in the next few years as the application of technology and analytics bifurcates the market into leaders and laggards.
The outsourcing marketplace is a multi-hundred billion dollar industry encompassing tens of thousands of providers selling hundreds of different products and services. When you consider that virtually every business outsources some business process, you can appreciate the total size of this unique marketplace. If you are an outsourcing provider, aggressively growing s, it is critical to secure your position of this marketplace.
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Outsourcing Market Opportunity
In the early days, the term "Outsourcing" typically meant that a single process, such as payroll or benefits, was handled by a 3rd party. Today, the small business and mid-market outsourcing market encompasses almost all business functions and processes; essentially anything not deemed to be core or a competitive advantage can (and perhaps should) be outsourced.
Currently, outsourcing takes many forms as some organizations contract outsourcing service providers to handle distinct business processes, such as benefits management or marketing. And many organizations outsource entire functions. In fact, the majority of businesses outsource to three or more business processes ranging from very common (payroll, benefits, staffing and information technology outsourcing - ITO) to entire functions: financial and administration (F&A) processes, human resources (HR) functions, call center and customer service activities, procurement (supply chain) and logistics.
Shift from labor arbitrage to BPO solutions.
Significant technology upgrades.
Moving data to the cloud.
- Analytics as a Service.
The addressable mid-market remains large (greater than 50,000 middle market firms in the United States alone) and under-penetrated.
Employers are looking at outsourcing to better control costs through flexible costs structures as well as gain access to immediate capabilities before insourcing every function and business process internally. Technology is also a major consideration as most companies do not want to manage multiple providers and point solutions nor do they want to re-invest in upgrades or replacements.
Aggregate Sizing of the Market Opportunity
The following statistics are from 2009 unless otherwise indicated.
- Outsourcing spending in all business activities has continued to climb at 10 to 20% for the last decade – in good economic times and bad (Nelson Hall).
- The majority of businesses with more than 40 employees outsource at least three (3) of the following functions: payroll, benefits, marketing, lead generation, IT, staffing and recruiting, workforce training and development, and/or accounting.
- TPI reports that the Total Contract Value (TCV) of the global outsourcing industry in 2008 was $93 billion, IDC forecasts nearly 50% growth over the next few years.
More than 150,000 professionals are involved in the $6 trillion global outsourcing industry.
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- Midmarket spending on HR outsourcing should climb from $20.9 billion last year to $22.1 billion this year and $29.6 billion in 2013 (NelsonHall).
- Human Resources Outsourcing (HRO) has grown to be the second most commonly outsourced business function for companies of all sizes. Nearly 42% of mid-sized companies expect to increase the amount of HR functions that are outsourced to third parties in the next 2-3 years. Additionally, 52 percent already outsource payroll, while 45 percent outsource benefits administration and still another 40 percent outsource retirement services. Moreover, 90 percent of mid-sized and small organizations that offer health insurance benefits to their employees utilize a benefits broker or consultant to help obtain coverage (Everest Research Group).
- The global RPO market projected to reach $1 billion level this year and grow to $3.2 billion by 2013 (Nelson Hall).
- The North American benefits administration market is nearly $12 billion currently and will grow by an average 10 percent annually over the next few years, to reach $18 billion by 2011. In particular, the growth in the market is driven by health and welfare and leave of absence administration services, which are expected to increase from a 47 percent share of the market in 2006 to 62 percent in 2011 (Nelson Hall).
- Nearly 40% of small business mangers subscribe to online software (Jupiter Research).
- HR software and technology is growing within the mid-market at more than 20% per year. The fastest growing segments center around performance management with special emphasis on creating a “High Performance Workforce” (HPW).
- The FAO market is roughly $2 billion (FAO Today)
- 73% of mid-tier firms indicated they outsource some piece of their enterprise business processes In addition, 25% of middle market firms say they use BPO services, such as financial and accounting services. And there is still much room to grow. For example, just 14% use outsourced demand management processes, like customer call centers; and only 13% use supply management services, such as logistics outsourcing with a shipping firm. (Gartner Group survey)
- Over 75 percent of the finance executives plan to expand their outsourcing programs in 2010 (EquaTerra)
- Over 85 percent of the finance executives are satisfied with the benefits from FAO (EquaTerra)
- IBM will spend $130 million on marketing and demand-generation programs this year (2009) to help channel partners expand their midmarket sales efforts.
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BPO Outsourcing Adoption
Most Common Outsourced Functions and Processes
Business processes typically outsourced include information technology, human resources administration, staffing, payroll and benefits, , facilities and real estate management, and accounting.
Many companies also outsource customer support and call center functions like telemarketing, customer service, market research, and web development.
Outsourcing Types & Descriptions
- BPO Frontoffice Contact Center Industry. Major changes are driving growth in the contact center industry including: A) Application of technology and analytics at the point of contact to improve customer satisfaction and operational efficiencies, B) Industry vertical process configuration, and C) growing macro economic demands. Front office contracts tenure is increasing from 60/90 day pilots to 6 month programs for SMB and middle market to multi year contracts with the application and integration of technology infrastructure investments. Front Office BPO is a growing market as organizations now spend more than US $300 billion annually on contact center services and is growing at 8 to 12% annually CAGR. The service provider market is highly fragmented with more than 350 service providers with greater than $5M in annual revenues operating in the US market. No single service provider owns more than a five percent market share and the top 10 firms combined account for less than 25 percent of the market. The technology platforms are in the midst of consolidating among the vendors highlighted in the charts above. New software entrants to the market focus on applications that work within the existing technology platforms. While still evolving, BPO platforms are beginning to be consolidated to a few major players paving the way for global, national and regional service providers to approach the mid-market. Adoption is increasing along with vertical specialization (i.e. focusing on healthcare, or hospitality, or professional services).
- Backoffice Business Process Outsourcing (BPO) also commonly referred to as Financial & Administration Outsourcing (FAO) is driven by the need to improve finance and accounting performance, flexibility, controls, and cost. Some analysts see analytical services superseding the FAO market over the next decade as organizations have data overload yet are short on analytical talent, and ripe with business challenges requiring decision-making information. is the contracting of the operations and responsibilities of a specific business functions (or processes) to a third-party service provider.
BPO is typically categorized into back office outsourcing - which includes internal business functions such as human resources or finance and accounting, and front office outsourcing - which includes customer-related services such as contact center services.
- Human Resources Outsourcing (HRO): Multi-process refers to contracts that encompass more than one outsourced capability but do not rise to the level of covering most or all HR functions. Most of the contracts in the midmarket, therefore, are not end-to-end HRO deals that would be comparable to the comprehensive contracts in the large-company market.
- Payroll Outsourcing: This includes everything from payroll processing companies to companies specializing in specific payroll and compensation services, compensation design, and salary statistics services.
- Compliance Outsourcing: This category includes all the services related to complying with and managing the various aspects of labor laws, labor relations, legislation, litigation, alternative dispute services, OSHA, HIPPA, etc.
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BPO Outsourcing Evaluation
Economic conditions require employers to operate more efficiently and achieve more with fewer resources.
But today's strategic partnerships are also about achieving ongoing efficiencies, innovation and improvement to the mutual profit of both partners. Outsourcing deployed effectively can reduce costs, increase agility, improve service levels.
BPO Outsourcing Vendor Evaluation & Selection Decision Drivers for Comparison:
- Cost/Value ROI
- Technology Capabilities
- Services Delivery Model
- Holistic versus Point oriented total solution
- Flexibility and/or customization requirements
- Success Stories
- Investment history in people processes, the workforce, technology, analytics, reporting, and data
- Company Growth History
- Portfolio Solution Capabilities
- Barriers to Execution for both the pilot and ongoing long-term relationship
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Outsourcing Vendor Key Performance Indicators
What Are the Keys to Creating a Branded Company in the BPO Outsourcing Sector?
- Industry Vertical Solution Portfolio
- Perform Culture of the Workforce
- Solutions Capability
Outsourcing Key Performance Indicators:
"It's difficult for growing companies to find a partner with the right organizational fit and scalability, particularly if they need services onsite in a number of locations; however, forward-thinking organizations have adopted online services delivery models are realizing results." – Garry E. Meier.
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