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Business Process Outsourcing. Vague name, big opportunity.



Business Process Outsourcing (“BPO”) is a buzzword term with a vague connotation – a catch-all for seemingly any sort of business service. When contemplated properly, however, it can be seen as one of the most important lynchpins of the modern economy. In an era of specialization and customization, BPO allows a company to shed non-core tasks and focus on what they are best at. With BPO, any internal or external process that is non-core becomes “outsourceable”. In our research, we have broken the sector into a series of subsectors and have prioritized those that we feel present the most attractive investment opportunities (for Catalyst at least).

We encourage you to read our full research report here (as well as view our market map here), but if you are short on time, we have included an executive summary on our research below.

EXECUTIVE SUMMARY 

BPO Yesterday, Today and Tomorrow 

  • Business Process Outsourcing (“BPO”) is an all-encompassing term which essentially describes any delegation of certain non-core business processes of an organization to external service providers 
    • BPO spans a wide range of offerings, including back office, middle office and customer facing services for both knowledge-based processes and transactional processes
  • Companies use BPO offerings to realize economies of scale, to gain access to technology infrastructure without developing solutions in-house, and to achieve the ability to focus on core, revenue-generating business functions
  • Historically, BPO services (namely customer service and payroll) were used by large enterprises seeking to decrease costs and services were typically provided by “offshore”, low-cost companies in countries such as India or the Philippines
  • Due to technology advancements, BPO services are now more accessible for SMBs (rather than just large enterprises, who were the traditional buyers)
  • BPO buyers now expect providers to function as more of a “partner” and provide complex service offerings, in addition to cost savings
    • The vast majority of buyers view service provider collaboration, integration and accountability as a way to drive significant value
  • Technology-enabled, automated and highly standardized BPO services are appearing, and the need for human involvement in some processes is rapidly decreasing

Market Segmentation and Size 

  • Est. at over $950bn, growing by at least 15% through 2019
  • Leveraging Gartner, we divided the landscape into “traditional,” people-based BPO services (“TBPO”) and the more automated BPO SaaS (“BPaaS”) offerings
  • Expect that BPaaS market growth will exceed that of TBPO by over 2.5x through 2019
  • We segment the market between horizontal solutions (finance & accounting, governance, risk & compliance, human resources, outsourced customer care, operations / supply chain management) and vertical solutions (healthcare, commerce, financial services and legal services, among others)


CONCLUSIONS 

In an attractive BPO business model, incentives are aligned between the BPO provider and the client, allowing the client to not only leverage the BPO provider for non-core process improvement, but also rely on them to provide actionable insights into business strategy and workflow. Given our extensive experience with SaaS, we feel that the BPO industry has several compelling traits that are attractive and familiar, such as recurring revenue models, sticky customer relationships and an opportunity to grow SMB/SME market share. Catalyst is excited about BPO providers that focus on addressing one or more horizontal segments for an industry as these companies will be more likely to have access to insightful benchmarking statistics across their client base and function as an integral partner to their clients. We’re currently interested in tracking and learning more about BPO companies in the following sectors in particular:

  • Healthcare BPO – addressing outsourcing related to the payor, provider or pharmaceutical market
  • Commerce / Consumer Services BPO – helping solve the need to provide a seamless customer experience
  • Supply Chain BPO – leveraging B2B and B2C sales channels in an effective and efficient manner
  • Subsectors within Human Resources BPO, in particular Learning / Training BPO, Recruitment Process Outsourcing and Benefits / Health & Wellness – streamlining the onboarding process and improving employee lifecycle

Catalyst Investors employs a proactive, research-based approach to investing. We target sectors that are experiencing above-average growth. If you are a growth-stage BPO company seeking investment, our team would love to start a dialogue.

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