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What the CFO Needs to Know About the Convergence of ITO and BPO

Many organizations have turned to outsourcing to help with cost reduction, and to improve operating efficiency. Historically, we thought of two types of outsourcing – IT Outsourcing (generally referred to as ITO) and Business Process Outsourcing (generally referred to as BPO).  For some organizations, ITO and BPO are treated as separate initiatives, with separate business owners.  But a new generation of outsourcing, fueled by experience, technology trends, and economic factors is causing a convergence of ITO and BPO.  The lines between process and technology have blurred. The silver lining is that this can be good news to the CFO, and business executives.

Pioneers in leveraging the convergence of ITO and BPO outsourced IT and one or more business processes at the same time, frequently to the same provider. Examples include outsourcing the company’s ERP, finance applications and finance & accounting processes to one provider. They quickly realized that the contract structures could be identical, the value of outsourcing both the IT and the process at once brought them benefits faster, the structure was less expensive to operate (i.e., one governance organization, one contract manager, and one bill) and there was typically only one provider to deal with if there were issues (i.e., less finger pointing).  The primary challenge was that IT, Finance, Procurement, HR, and other business organizations had to agree to one provider, one contract structure, and one governance organization.

If leveraged correctly, ITO/BPO convergence can result in lower cost and better control—two priorities on the CFO’s agenda.  Lower cost is obtained through both simplification and standardization of outsourcing deal structures and ongoing outsourcing provider management.  For example, standardization of outsourcing agreements reduces the cost of negotiating the contract and allows companies to leverage their experience in contract structuring across multiple agreements. Essentially, we’re seeing that the more comfortable and experienced an organization gets with outsourcing, the easier it is to go through the process of outsourcing other areas of IT or business process.  Cost reduction also results from the convergence of ITO and BPO deals in the management of the agreement.  Fewer employees are required to manage multiple agreements due to their common structure, and better still, these fewer employees can conduct a more consistent analysis of agreements costs, service levels, provider performance, and value to the organization.

Further Reading: Learn more about WGroup's perspective on 5 disruptive trends impacting business and IT strategy

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John W. (Bill) Fowler, Principal Consultant at WGroup, works with some of the world’s largest Fortune 500 outsourcing agreements to ensure they are market competitive and supported by contractual language, pricing structures, and service quality.
 

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