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The Future of Captive BPOs: Captives Are Not at Risk
Of late, there has been a healthy debate among outsourcing professionals about the future of offshore captive units around the world. Many claim that parent organizations are expected to finalize their exit strategies, and may soon sell out strategically and reduce their stakes significantly. Yet, I dont think that the future of captives is at any risk; nor will captives vanish from the BPO scene.

Several captives have successfully demonstrated undertaking of higher order capabilities and processes in the recent past through innovative ideas and non-conventional vibrant thinking. After all, "costs" alone are not necessarily the only measure of a successfully run unit. One of the handicaps, though, in this context is the lack of robust, credible, consistent data and benchmarks.

I think the near future will see an evolution and maturity of certain kinds of processes in the third-party area, leading to a gradual migration of simultaneous transitions from captive to third parties. Initially, this will be restricted to what captives may consider as being "non-core" for themselves and where the cost of building scale and automation outweigh the benefits of retaining them in-house. While "captives" per se is not really the issue, the opportunity through M&A deals will bring in access to better practices more efficiently.

So long as captives are viewed by parent organizations as being critical and strategic enablers of their success and a truly integral part of their organization, the future is truly very bright for captives!

The Future of Deals Structures: Back to 7-year Contracts
As 2007 draws to a close, we see some signs of changing market conditions. We expect the Total Contract Value (TCV) for 2007 to be roughly $70 bn, which will represent a slowdown of about 10% in terms of contract values. And the average current annualized contract value is low compared with historical levels, with ITO valued at $42 mn and BPO valued at $28 mn. The underlying cause of these market shifts is the current popularity of effort-based contracting. Companies are tending to contract for access to less expensive labor rather than sign agreements for truly defined services.

In the next few years, contract terms should rebound a bit (depending on geography and scope) to the "seven-year threshold." And, since the TCV is directly related to contract duration, we also expect the longer-term contracts to increase the overall TCV awarded.

Representing a new era for the BPO segment of the outsourcing industry that has a much greater domain-specific orientation, we suspect that BPO ACV will grow faster than ITO ACV.

The new corporate "family jewels" will be data regarding customers, products, inventories, risks, and channels of distribution. Outsourcing agreements will be designed to recognize the sacred role of data for the modern global enterprise, and will construct services that process the data in more defined and standardized ways.

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