By popular demand, we coraled mega-analyst Phil Fersht, CEO and Founder of HFS Research, to tap into his vast knowledge of BPO.
Phil is a leading expert in emerging technologies, automation, and digital business strategies and is trusted as one of the world's top analysts and advisors in the services industry.
In this chat, Phil gives us a candid view of the future of the industry, suggesting that labor arbitrage alone won't help companies survive the Great Services Transition.
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Q: What is the Great Services Transition, and how is it reshaping strategic priorities for the industry?
A: BPO has enjoyed double-digit growth since the ’90s with scalable people, a good mix of locations, and suppliers. The difference today is that the old labor arbitrage model has slowed down for larger providers, who are trying to eke more growth out of selling low-cost labor.
The real issue now is how to deliver arbitrage savings through technology—supported by people—without relying on constantly adding more people to increase profitability and revenue.
This shift to technology arbitrage is starting to take off, and we're at the start of a five-year journey where the whole BPO industry is being turned on its head, particularly in terms of deals, pricing, partnerships, and outcomes.
Q: How might service providers justify a shift to performance-based pricing and tech arbitrage when clients are so attached to traditional labor arbitrage?
A: In certain traditional industries, clients like to buy this way—it’s easier for them to measure and understand, and they can move BPO areas into procurement categories. Some companies will have a BPO leader who sits in procurement and is only interested in keeping costs down. This means enterprises are under pressure to make their relationships more profitable while scaling and taking advantage of AI to get more personalized, predictive, and productive capabilities.
We’re seeing a new wave of client engagement fueled by technology platforms as the primary route to value and engagement versus people. Accenture has already signed US$900 million in GenAI deals, for example, and this wave of technology value versus people value will continue to evolve.
I’d say around 10% of enterprises are looking to reconstruct existing relationships, basing them more on outcomes, value, and data value rather than cost reduction.
Q: What disruptive strategies have you seen service providers experiment with recently, and what were the results?
A: Enterprises are experimenting with providers on how to exploit GenAI value. In the call center world, one client I spoke to was able to reduce its staff quota by 50% by replacing its call center capabilities with GPT 4.0 while simultaneously reducing the number of Salesforce licenses needed.
We’ve also seen deals signed around inventory management, data forecasting and predictability, and traditional algorithmic AI, each driving a longer-term outlook and a different approach to how to charge for services—the industry hasn’t figured this out yet. The difficulty is in positioning this for clients and expecting them to compensate us down the road if we’re not delivering X amount of bodies to deliver the service.
I think BPO should be called BDS (Business Data Services) because we need to rethink how we account for value and outcomes and reconstitute relationships that deliver more quality and value to the clients.
Q: What opportunities do BPOs have to support clients as this transition takes place?
A: We need to focus on simple things, like delivering value, skills and training for our people and relieving debt in technology, data, and processes. Services and processes that can be automated should be automated, and we need people to focus on adding value beyond that.
Emerging skills include the ability to help clients improve processes, support customers, get better data, and understand changes in the industry. As GenAI becomes more capable of performing sophisticated tasks for clients, they will need someone to support that at scale.
In India, a lot more investment is going into global capability centers and away from the outsourcers because many clients want to build out in-house teams to manage this. Still, they need support, too, so it’s changing the nature of the relationship between buyer and provider.
Above all, the services industry needs to move towards a more realistic conversation about real outcomes, real value, and a lot less meaningless jargon.
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