Business Process Outsourcing Challenges Web Hosting

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Business Process Outsourcing Challenges Web Hosting
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By Rawlson O’Neil King
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August 20, 2004 — (WEB HOST INDUSTRY
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REVIEW) — Business process outsourcing, the delegation of IT-intensive
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business processes to an external service provider, has emerged as a
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challenge to the traditional Web hosting paradigm. Service providers
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manage selected processes, based on defined and measurable performance
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criteria.
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BPO providers can offer a wide range of
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end-to-end solutions including customer interaction, payment services,
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supply chain management, finance and accounting services, human
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resources and data mining services. Many offer these services through
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their own data center facilities, which also offer typical Web hosting
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services.
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Large enterprises stand to gain from
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outsourcing business processes on a number of fronts, including cost
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advantage, economy of scale and business risk mitigation. The approach
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is particularly appealing to Fortune 500 firms since it facilitates the
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management of an entire business process, rather than a single
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component.
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The BPO model can be seen as a challenge
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to Web hosting providers, since a competing BPO provider could easily
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handle all aspects of a large customer’s e-business operation: from
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programming, product fulfillment, payment processing and live call
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center support, in addition to management of the technical
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infrastructure. Many hosting firms, however, are limited to providing
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their customers with only Web design and server management. As a
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result, traditional hosting firms and other IT outsourcers are facing
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new challenges from BPO providers, many of which are located offshore.
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The business process outsourcing industry
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in India has been growing at 70 percent a year and is now worth $1.6
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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.
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BPO providers based in India pose an
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added threat to North American-based service providers due to low labor
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costs and the increasing availability of broadband-intensive telecom
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and broadband infrastructure on the subcontinent.
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“Competition in the services marketplace
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has never been so intense,” says Sophie Mayo, director of worldwide
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services research at market research firm IDC. “With new entrants from
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offshore locations, new delivery models being developed, the
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convergence of software, hardware, and services, and ever more
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demanding customers, services firms are faced with a multitude of
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challenges. Those firms that are able to anticipate the changes and
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execute on their vision will stay on the top of the market.”
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A new report released by IDC (idc.com)
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reveals the services market is highly fragmented, with the top 20
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providers representing just over a third of the market opportunity in
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2003.
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While IDC expects that the top companies
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will become increasingly dominant as acquisitions continue to play an
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important part in their growth strategies, new entrants will continue
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to put competitive pressure on the major incumbents.
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Indian firms such as Tata Consulting Services (tcs.com) and Wipro Technologies (wipro.com)
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are some of the most notable emerging players that are challenging
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established top-tier, complex Web hosting and IT services providers
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such as EDS (eds.com) and IBM Global Services (ibm.com).
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The IDC study, Worldwide Services 2004
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Vendor Analysis: Winning in the Global Services Marketplace, Lessons
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Learned from the Top 20 Players, argues that the firms that can
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demonstrate their ability to integrate technology, data, and business
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processes, with an explicit measurement of cost savings and value
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creation will win the battle for the growing BPO and transformational
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outsourcing opportunity.
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So far, BPO providers have been
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successful at targeting vertical industries such as insurance, telecom,
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banking, pharmaceuticals and airlines. Many of these early adopters,
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insurance and banking in particular, have been able to generate huge
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savings purely because a large number of their business processes, such
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as claims processing, loan processing and call center client services
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can be outsourced.
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As the BPO market evolves however, small
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to medium-sized business will comprise a greater share of the
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purchasing market for BPO services with demand for low cost and rapid
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implementations. BPO providers will directly challenge current hosting
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services by offering affordable full-service, transactional e-business
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and hosting infrastructure.
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