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From
a vendor perspective, the business process outsourcing
(BPO) sweet spot among midsize businesses (MSBs) is
clearly in the back office, and will remain so through
2005. In recent user studies, 46% of MSBs that have
experience with BPO are either outsourcing or planning
to outsource a business administration process including
human resources, payment services, finance and accounting,
and administration. For many, the ability to offload
mundane, day-to-day tasks is a huge benefit and the
primary rationale in their pursuit of BPO.
A
common refrain from MSBs considering BPO is the need
for services that “help me focus on my core
business.” Many of the MSBs that Gartner speaks
with are increasingly saddled with regulations such
as union-mandated benefits, HIPAA compliance, and
Sarbanes-Oxley for those that are publicly traded.
A solid, back-office BPO value proposition from a
vendor can be a relief by letting MSBs focus on priority
#1: their customers. Therefore, back-office functions
have become a mainstay of the MSB BPO market.
Among
the subsegments of the business administration arena,
human resources (HR) BPO continues to be the most
popular – including payroll, benefits administration,
recruiting, and training and education. In recent
user surveys, 78 percent of midsize business respondents
that have experience with BPO are outsourcing or plan
to outsource one or more of their HR processes. Beyond
HR, 16 percent of MSBs are either outsourcing or planning
to outsource finance and accounting processes.
Vendors
should then view components of HR outsourcing as a
way to establish a toe-hold from which to further
penetrate midsize business accounts over time. MSBs
often begin their outsourcing relationships in very
focused areas, and over time will expand the relationship
into other, affinity areas. What may start out as
a contract for payroll can often evolve in 9 to 12
months to encompass benefits or payment services.
The majority of Gartner’s midsize business respondents
that renegotiated a BPO contract did so to increase
its scope and for most, the extent of that increase
was between an additional 1 percent and 50 percent
of the original contract value. Vendors with competencies
across process areas should stress the scalability
of their offerings and be able to integrate what the
customer wants, as needed, either alone or through
partnerships.
Vendors
must understand the unique dynamics of the midmarket,
and decide what it means to their short and long-term
BPO business development objectives by focusing on
the following:
• |
Identify
what comes after payroll in MSBs – Vendors
of HR BPO should view benefits outsourcing as
the next step beyond payroll in the development
of their accounts. |
• |
Relationships are necessary – Given that
account development will take time, vendors should
invest in relationship building with MSBs that
exhibit a high likelihood of expanding their HR
needs over time. |
• |
MSB relationships are expensive – Cultivating
relationships with MSBs takes time and money,
and channel partners with direct reach into this
sector may be required. For HR BPO, professional
employer organizations (PEOs) may be a good choice
as many have been providing BPO to MSBs for years.
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• |
Identify the MSB fast-movers – If selling
direct, identify the MSBs that are dynamic-growth
players that will increasingly need to source
external services as their back-office need matures.
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Business administration
value propositions must emphasize that BPO allows
for increased focus on core business, and can offer
competitive or lower prices through the life of the
relationship.
Gain
further insight into midmarket trends that will impact
your business from Gartner analysts – the leading
industry experts – at Midsize
Enterprise Summit. At private One-on-Ones,
the Analysts
Open Forum, and SummitView,
technology vendors have access to Gartner analysts
to discuss their critical midmarket issues. Call 877-619-7956,
x493 for details or e-mail dawn.shultz@gartner.com
now.
Reference
Research Note
BPO is Key Back-Office Strategy for Most SMBs
Publication Date: November 12, 2003
Authors: R. Brown and R. Scholl, Gartner, Inc.
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