1. BPO will increasingly contribute to the “C-level” vision and not just fine tune operations
2. BPO will increasingly morph into “business services”
3. BPO governance will become more partnership-oriented as BPO is incorporated within client Global Business Services organizations
4. BPO will necessitate wider country coverage
5. Cost will remain “king” with pricing becoming more transactional in nature
6. Vendors will build labor arbitrage within labor arbitrage
7. Automation be “front-of-mind” with buy-side organizations
8. Analytics will increasingly address business insight as well as process improvement
9. Web chat and social media will continue to increase in importance in support of CSAT and revenue uplift
10. There will be a resurgence in emphasis on front- and middle-office BPO.

The principal trend for BPO in 2014 is the need to move beyond addressing short-term process excellence in the narrow context of the process outsourced and to provide a vision and a roadmap, and ongoing execution, in a wider business context. The need for external process expertise has always been a key driver for BPO as organizations have sought process excellence and standardization alongside achievement of upper quartile cost performance. However, this need for external expertise has now moved beyond a short-term view of improved global process models, with organizations expecting vendors to lead with a long-term vision of how the outsourced process, whether finance & accounting, or HR, or elements of supply chain management, or customer service, will contribute to the wider goals of the overall business within their industry.

For example, recruitment process outsourcing should demonstrate how it can contribute to the wider talent management goals of the organization including succession planning and performance management. Similarly F&A BPO should, for example, demonstrate how it contributes to more effective allocation of capital to value-creating opportunities or shareholder value creation. Supply chain management BPO should demonstrate, for example, how it contributes to increased customer retention and cross-selling to existing customers as well as improving joint innovation with suppliers.

This need to demonstrate to ‘C-level executives’ that they are being taken on a transformational journey that transcends the immediate process or sub-process being outsourced is also leading to a change in the service mix within BPO, with an increasing need for consulting and systems integration skills to be deployed in conjunction with operational delivery. Nonetheless, these consulting skills need to be routed in the capabilities of “operational consultants” with shop-floor level domain expertise and be less top-down than those found in traditional consulting organizations.

Successful BPO has always been about partnership and the ability of the client and service provider to work together. Nonetheless, this has traditionally remained something of an arm’s length relationship. This is now changing as major organizations increasingly establish internal Global Business Services organizations. Indeed one NelsonHall survey indicates that the proportion of major organizations implementing GBS will double between 2014 and 2016. Besides assisting in cost reduction, the adoption of GBS operating structures will lead to improved control and change management and be more responsive to business change. In particular, GBS operating structures will lead to improved communication and more collaborative working, with the majority of major organizations adopting GBS also adopting a mixed economy for service delivery. Consequently, it is highly important for BPO vendors to adjust their governance models to assist organizations to achieve a step change in their KPIs by contributing to the process vision within a GBS environment.

The requirement for BPO country coverage is continuing to expand. Even where processes such as finance and accounting or HR have been widely standardized on a regional basis, there have typically been a wide range of countries that were too small to service within the framework used for the client’s mainstream countries. These have traditionally been served by specialist or local vendors, often acting as subcontractors. However, the more mature BPO adopters have now moved beyond the standardization of processes in their major countries and are seeking to apply standardized processes to the next level of geographies. This is increasingly being supported through SaaS-enabled services using software such as NetSuite and Microsoft Dynamics. However slimmed down processes and software are insufficient in themselves, vendors also need to demonstrate that they are “a safe pair of hands” and have thorough knowledge of the compliance requirements for each specific country.

Despite all the discussion of BPO being about wider business value, and it is, the ultimate metric for many BPO processes remains cost reduction, and many buyers will continue to judge vendors on their ability to deliver year-on-year cost reduction. At the same time, many organizations want to move from static fixed price and per FTE pricing and these will increasingly transition to a transactional pricing structure. While organizations are increasingly talking about outcome-based pricing, the majority of the reality behind “outcome-based pricing”, once these models are deconstructed, will in 2014, as previously, continue to be a variant on transaction-based pricing.

Notwithstanding increasing use of automation and all the talk of non-linear costs and pricing, labor-arbitrage will continue to deliver the bulk of cost savings in 2014. Accordingly, while considerable marketing will be geared to automation, it will also be important for vendors to build labor-arbitrage into their existing labor arbitrage and continue to develop an n-tier location portfolio incorporating both lower cost onshore locations and lower cost offshore locations into their global delivery models. And these global delivery models must incorporate seamless interoperability and a strong business continuity component across centers.

Nonetheless, with many organizations having already derived considerable cost benefit from low cost locations, buy-side organizations are now placing a higher than ever emphasis on process automation. While fears of wage inflation and unfavourable and volatile exchange rates have receded for the time being, buyers do worry about these factors and view automation as a means of risk mitigation against both these factors and staff turnover. Accordingly in 2014, buyers will increasingly prefer an automated approach over people-based service delivery. Indeed, new technologies such as robotics are increasing the perception that vendors should be able to help organizations to automate even if the means of automation is frequently unknown to their clients.

In 2014, the primary role of analytics will remain in support of process fine-tuning. However, analytics will increasingly provide wider business insight into customer and supplier behaviour and not just process optimization support.

In customer service, web chat has been the fastest growing channel in 2012 and 2013 and this will continue in 2014, with the timely and informal nature of the channel lending it, if not to cost reduction, then definitely to enhanced CSAT and increased sales in support of online commerce. Social media has so far been a minor part of customer service, principally being used for offline customer insight and some brand protection. However, social media agents are increasingly being used in support of sales in specialist areas of the retail industry and in 2014, the usage of social media agents will increase in support of sales outreach in a wider range of industries.

Overall, the adoption of BPO will accelerate in 2014. BPO has been through a period of relatively low growth during the downturn, with organizations unwilling to commit in a period of economic uncertainty. However, as demonstrated by NelsonHall’s quarterly BPO Index, the level of BPO contract activity has steadily built during 2013, and BPO is entering 2014 with strong activity in Europe, growing activity in “growth markets” and some resurgence in the U.S. In particular, resurgence in the financial services sector, with capital markets firms increasingly looking for creative approaches from BPO vendors and contract activity once again increasing in retail banking, is driving a renewed focus on industry-specific BPO. This trend is being reinforced by increased emphasis on supply chain support within the manufacturing sector.

This might sound like the traditional IT-led role of consulting and systems integration. However, while the desired goals may be broadly the same, there is a fundamental difference in the background and approach of the “consultants” involved. Traditional consulting and systems integration was always strong on “vision” but often had inadequate understanding of operations at the agent level and tended to place IT ahead of process with a consequently high failure rate. Conversely, traditional BPO delivered a high capability to incrementally improve existing processes and deliver relatively narrow process excellence but typically lacked the vision to achieve strategic business change.

The emerging expectation of BPO is that it will finally combine these two virtues, with “operationally-oriented” consultants bringing both a knowledge of existing processes and current process excellence together with a vision of how future process models can lead to a step change in key business metrics and performance. In the short-term, complementing this longer-term process vision, organizations are additionally looking for one-off sub-process improvements led by process and analytics consultants. Accordingly the level of consultancy within BPO engagements will increase significantly but using consultants well-grounded in operations and process analytics to implement global process models, to deliver sub-process reengineering, and to support the longer-term business vision.

The level of IT-related delivery within BPO will also increase. Buy-side organizations are now placing a much greater emphasis on eliminating use of people altogether, with automated processes rather than people-based processes being seen as delivering greater long-term cost certainty and reduced operational risk. This renewed emphasis on automation will accelerate the deployment of vendor and third-party tools around client core systems. There is a particularly high emphasis on using these tools to facilitate use of mobile and digital channels and analytics, and in 2014 a high proportion of these tools will be hosted by the vendor, even if typically still in single instance rather than multi-client mode, leading to more rapid adoption. In addition, there are increasing opportunities to utilize application management services to hasten modifications to client ERP and core systems to hasten process change.

Accordingly, BPO has now come full circle, moving from being an operational adjunct to consulting & systems integration and IT outsourcing services led by a high level business vision, to being the operational vision increasingly supported by consulting & systems integration and IT outsourcing services. In commercial terms for vendors, this means that consulting & systems integration and IT outsourcing are now necessary adjuncts to protect BPO revenues, instead of BPO being the vehicle which helped to protect consulting & systems integration and IT outsourcing revenues as in the past.

There are some clear positives in Wipro’s performance this quarter:

• Revenue just topped prior guidance ($1,620-$1,630m), and the constant currency growth of 7.9% was the highest for five quarters
• This is the first quarter since Q3 FY 2012 when Wipro has reported revenue growth across all its vertical units, with even media and telecoms achieving low single digit growth
• Operating margin is the strongest it has been since FY 2011, albeit boosted by currency benefits
• Utilization has picked up after being below 72% for three quarters - though it remains significantly below that of Wipro's peers
• Revenue growth in the top 10 clients continues to outstrip overall growth.

The Americas (essentially the U.S.) continue to be the weakest region at Wipro in terms of overall topline growth. Elsewhere, Wipro continues to see double digit growth in APAC and other emerging markets, which together crossed the $200m revenue mark this quarter and accounted (by NelsonHall’s estimate) for ~35% of the overall y/y revenue growth, with EMEA accounting for another 40%.

In terms of service line, Technology Infrastructure Services and Business Application Services continue to be the growth engines for Wipro, although the rate of growth in the former is slowing slightly. Encouragingly, two weak areas, ADM and R&D services (the latter exposed to softness in the telecoms market) are showing signs of stabilization.

The revenue guidance for next quarter indicates we should expect to see similar, or slightly stronger growth next quarter.