When Bobby Pinson recorded his country & western song “Don’t Ask Me How I Know” dispensing bits of wisdom, I’m sure he didn’t realize he was providing advice to service providers. But my favorite line in the song is also great advice for today’s BPO providers — “Sell your truck while it’s still running.”
That’s what CSC and Dell did. In December 2012 CSC sold its credit services division “truck” to Equifax. A month earlier, Dell sold to Conifer Health Solutions its revenue cycle solutions line of business for healthcare providers. Wisely, they sold these business lines while they were still profitable. But they were not growing and were not consistent with the firms’ long-term strategies.
The business lines were sold to providers where the assets fit well with those companies’ core business and growth strategies, and which will invest in growing those lines of business. Both CSC and Dell then used the cash from those asset sales to invest in developing cloud services, which have a greater growth potential for their business.
The BPO space is full of big ideas and big investments in industry solutions or functional solutions that grew quickly and then stopped growing. In some cases the service providers are finding that they hit on a need in a micro industry and that the total market is only four or five companies that have that need. So the service line did not expand from the initial few clients.
In other cases, the provider built an offering that is now an unattractive area, so the business faces declining margins. Or perhaps the offering is based on technologies that are under attack by new disruptive technologies.
As we look across the landscape of service providers and their offerings, it’s clear that most companies have several of these kinds of businesses. Some are starting to look like a scientist’s attic stuffed full of experiments that didn’t work out.
These business pockets arose over the last few years because of the providers’ desire to drive growth by entering new markets. Many offerings were put together and sold at a price point that would allow them to scale and then become profitable after scaling. A few of these experiments in service offerings succeeded, but many stopped growing. When they don’t scale, the provider can damage its reputation by trying to drive profit improvement exercises on them afterwards in the form of price rises or a cut back in services. Existing clients become unhappy, and it affects other work they would otherwise do with the provider.
Fundamental question for BPO providers
There are many reasons to divest these BPO experiments that didn’t grow. The CSC and Dell asset sales pose a fundamental question for all BPO providers: Should you, too, sell your truck while it’s still running? Should you harvest these BPO pockets or should you run them out and let them decline?
If you leave them in place, the best that can happen is they become an anchor against growth because their future growth prospects are limited. It will make it more difficult to grow your company going forward. These BPO pockets contribute to mass but not to growth.
We wonder if others will follow CSC and Dell down the path of divestitures. What do you think? Other than these providers and IBM, we we have not seen many firms with the discipline to prune their business. Will we see a movement of others learning from these examples and start pruning back some of their portfolio?
For the right buyer, it might be a great model to aggregate these BPO business pockets and build a business around them. Pull them out of the fast-growing areas and build a separate company that has an appetite for this kind of investment. There’s an interesting proposition.
Selling the truck while it still runs is poignant advice that we should reflect on. Who knew that CSC and Dell were getting their strategic thinking from country/western songs?
Photo credit: Don O’Brien