Business Process Outsourcing Challenges Web Hosting

• By The WHIR, August 20, 2004

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Business Process Outsourcing Challenges Web Hosting

By Rawlson O'Neil King

August 20, 2004 -- (WEB HOST INDUSTRY

REVIEW) -- Business process outsourcing, the delegation of IT-intensive

business processes to an external service provider, has emerged as a

challenge to the traditional Web hosting paradigm. Service providers

manage selected processes, based on defined and measurable performance

criteria.

BPO providers can offer a wide range of

end-to-end solutions including customer interaction, payment services,

supply chain management, finance and accounting services, human

resources and data mining services. Many offer these services through

their own data center facilities, which also offer typical Web hosting

services.

Large enterprises stand to gain from

outsourcing business processes on a number of fronts, including cost

advantage, economy of scale and business risk mitigation. The approach

is particularly appealing to Fortune 500 firms since it facilitates the

management of an entire business process, rather than a single

component.

The BPO model can be seen as a challenge

to Web hosting providers, since a competing BPO provider could easily

handle all aspects of a large customer’s e-business operation: from

programming, product fulfillment, payment processing and live call

center support, in addition to management of the technical

infrastructure. Many hosting firms, however, are limited to providing

their customers with only Web design and server management. As a

result, traditional hosting firms and other IT outsourcers are facing

new challenges from BPO providers, many of which are located offshore.

The business process outsourcing industry

in India has been growing at 70 percent a year and is now worth $1.6

billion, employing 100,000 people. According to McKinsey & Company (mckinsey.com) projections, BPO has to only grow 27 percent until 2008 to reach $17 billion in revenue and employ a million people.

BPO providers based in India pose an

added threat to North American-based service providers due to low labor

costs and the increasing availability of broadband-intensive telecom

and broadband infrastructure on the subcontinent.

"Competition in the services marketplace

has never been so intense," says Sophie Mayo, director of worldwide

services research at market research firm IDC. "With new entrants from

offshore locations, new delivery models being developed, the

convergence of software, hardware, and services, and ever more

demanding customers, services firms are faced with a multitude of

challenges. Those firms that are able to anticipate the changes and

execute on their vision will stay on the top of the market."

A new report released by IDC (idc.com)

reveals the services market is highly fragmented, with the top 20

providers representing just over a third of the market opportunity in

2003.

While IDC expects that the top companies

will become increasingly dominant as acquisitions continue to play an

important part in their growth strategies, new entrants will continue

to put competitive pressure on the major incumbents.

Indian firms such as Tata Consulting Services (tcs.com) and Wipro Technologies (wipro.com)

are some of the most notable emerging players that are challenging

established top-tier, complex Web hosting and IT services providers

such as EDS (eds.com) and IBM Global Services (ibm.com).

The IDC study, Worldwide Services 2004

Vendor Analysis: Winning in the Global Services Marketplace, Lessons

Learned from the Top 20 Players, argues that the firms that can

demonstrate their ability to integrate technology, data, and business

processes, with an explicit measurement of cost savings and value

creation will win the battle for the growing BPO and transformational

outsourcing opportunity.

So far, BPO providers have been

successful at targeting vertical industries such as insurance, telecom,

banking, pharmaceuticals and airlines. Many of these early adopters,

insurance and banking in particular, have been able to generate huge

savings purely because a large number of their business processes, such

as claims processing, loan processing and call center client services

can be outsourced.

As the BPO market evolves however, small

to medium-sized business will comprise a greater share of the

purchasing market for BPO services with demand for low cost and rapid

implementations. BPO providers will directly challenge current hosting

services by offering affordable full-service, transactional e-business

and hosting infrastructure.

Tags:  IT services  Appro  EDS  IBM  IDC  Iona  UTICA 

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