In or Out?
Is the Trend Now Toward Transactional Output Outsourcing?
By Scott Gerschwer, OutputLinks
A little less than one month ago, Xerox announced the purchase of Affiliated Computer Services (ACS), a leading managed service company, for over $6 billion. Just a few short months into her tenure as CEO, Ursula Burns has transformed Xerox.
What are the implications?
The timing is interesting: The acquisition comes at a time when economic conditions make it hard to sell big boxes; it gives the company a better chance to earn recurring revenue, so highly coveted by C-level executives and boards.
It also gives Xerox a stronger presence at the Outsourcers Ball, with a real chance to become the new prom queen. Of the ACS deal, InfoTrends asserts that “Xerox will now have a critical mass of services, accounts and sales to be a major player in the lucrative BPO market.”
Paul Hartley, Corporate Business Strategy at Xerox, recently posted,
“…our combined companies will focus on the information needs of the business process, the data, documents and transactional touch points to solve business problems. At the end of the day, this transaction creates a single provider for enterprises and governments to do the three things that matter most: reduce costs, improve processes; and manage information more efficiently.”
Document management and beyond: through the ACS acquisition, we are hitting the “sweet spot” of fulfilling our vision of owning all aspects of document management, while preparing for tomorrow’s growth. In a maturing enterprise technology market, customers increasingly want to outsource the purchase and management of complicated systems, and to offload administrative tasks. By purchasing ACS, we can handle more for our customers.
The economic climate has been perfect for outsourcing for almost two years now. This move prompts the question: Will enterprises look more to outsource their transactional output?
Xerox is clearly betting on it. HP bet on it with their acquisition of EDS just over a year ago. IBM bet on it a while back and reported solid 3rd Quarter earnings. “What you are seeing is some of the product companies trying to replicate IBM’s model,” said Moshe Katri, analyst, Cowen & Co. “They have a successful services business that makes them a one-stop shop.”
Dell is in on it, too, purchasing Ross Perot’s company a couple of weeks ago.
According to reports, Canon is open to opportunities to acquire suitable business process outsourcing (BPO) companies, as well as to strengthen partnerships to boost its imaging business, according to senior executives based here.
Industry analysts predict five to 10 percent growth in the $130 – $150 billion BPO market. The drive toward a "solutions" approach, or packaging software and services along with hardware, has been intensified as companies are not as interested in "buying boxes" as they are in solving business problems and gaining efficiencies.
I posted on LinkedIn asking if enterprises are moving in this direction with regard to HVTO and received a reply from Michael O’Leary, Director of Document Outsourcing at InfoTrends:
“We just completed a survey of 350 companies across North America to determine their attitudes, behaviors, and decision making around document outsourcing, including transaction-oriented document services. We found a growing desire to outsource for transaction documents…the services value proposition isn't just the presentment part, but the payment, processing, reporting, and customer service components. In many cases, this is really BPO services focused on the entire transaction lifecycle.”
Mark Savin, client delivery manager, Xerox Global Services, agreed: “Companies with small mail operations are not so inclined to outsourcing unless it is in the context of outsourcing a broader scope of services over and above just mail. The current economic climate is making for fertile ground for outsourcing.”
These answers indicate that organizations see HVTO in a broader context and that outsourcing the entire business process is becoming a more attractive value proposition. As such, Xerox wants to offer a more unified outsourcing strategy, where one provider is able to manage the total environment from IT to HVTO and back.
“Xerox Global Services is about producing and printing pages; ACS is about manipulating information in the document, data extraction and the software that drives that,” said Jim Firestone, president of Xerox's corporate operations.
Since ACS primarily focuses on business process outsourcing (80%) vs. information technology outsourcing (20%), a future IT-focused acquisition may be required to complete the strategic realignment.
As for the HVTO industry, it is clear that outsourcing is going to play a very large role in future discussions. It brings to mind something that Mike Lambert, VP sales of Sefas Innovation, always says: always be prepared to outsource.
If you can outsource readily, your operation is efficient and effective. Whether or not you actually outsource is a business decision made at another level of the company. Your job is to be ready to go, to be airtight, to optimize the entire process. Optimize the equipment in which your company has invested so much money. Break down the HVTO process like a supply chain, examine the separate links and make each of them perform optimally. Standardize; remove all complexity. Ensure that the entire process can be measured, managed and optimized from a single server. And then it is ready to be outsourced.
It’s official: Outsourcing HVTO is a trend to keep an eye on, especially as it will be conducted as a component of a greater whole. This means that, perhaps for the first time, C-Level executives will come to view their transactional output as a vital strategic asset. The data center is no longer a lonely outpost: it is the hub of the most core business process that the organization relies on: customer communication. Every billing statement is a customer touch point. From the customer stand point it is regular, reliable and valued communication. It can be the most important element of brand reinforcement available to the enterprise.
I invite comments and debates on the OutputLinks page on LinkedIn. The industry is changing direction. Let’s talk about what this means for the future.