Why Technology is an important key to BPO-sustainability

Folks:  I will be featuring several guest posts from experts in the outsourcing industry who I respect. One gentleman whom I have known and worked closely with over the years is SAP's BPO group leader, Dr Christian Baader.  Christian is now the globally recognized thought leader on how crucial technology strategy becomes when companies take on BPO engagaments.  Take it away Christian...

There is widespread agreement in the BPO-industry by now, that the traditional, labor arbitrage dominated way  of "lift and shift" or “my mess for less” as some pundits call it, is not producing sustainable BPO-situations.   Many deals not living up to expectations and meager provider profitability are warning signs of this.  Sustainability has become one of the key issues of the industry.

Sustainability should be read as “both sides, customer and provider, achieve their business goals over the deal duration, i.e. the customer gets the targeted improvements in cost and quality of service while maintaining a low risk exposure and keeping long-term options open while the provider makes his margin, and the relationship  grows for both sides in value over time.” 

A number of factors need to get played well in order to safeguard sustainability of the deal from the start, one of them being the decisions around the technology foundation of the deal on the provider and customer side. 

Technology’s influence on deal economics
Business decision makers often tend to either leave the technology choice to the provider (an attitude we often see expressed as "we bought a service, now the  technology choices are on the service provider") or treat it as a mere IT-discussion only.  Both attitudes however miss the crucial influence, that technology has on the enterprise value of the deal:

·         Technology’s influence on the economics for the provider:  The design of the processes and choice of technology influences all the fundamental business drivers influencing the providers ability to service the deal efficiently and in a sustainable fashion: Synergizing between different parts within the customer organization as well as between customers for generating economy of scale (“do it cheaper”), ability to automate and optimize processes taking full advantage of future innovation potential (“do it better”), and effectively leverage labor arbitrage (“employ cheaper resources”)

·         Technology’s influence on the economics for the customer (ie, incl. the retained organization):  The technology choice and platform design of the customer and the provider is very often a shared one, or at least a heavily integrated one - and as such the choice on one end impacts the other end (e.g. when the outsourcing/centralization scope does not include all subprocesses or countries. Common problems include data integrity and ability to keep synchronized over time when the two sides of the fence move in slightly different direction – which might express itself in additional process exceptions requiring manual interventions or inconsistencies  in self service implementations or reporting)

All in all, the appropriate deployment of technology as an enabler of outsourced and retained processes is therefore critical to the sustainable delivery of the BPO services (leveraging appropriately automation, analytics, workflow, authorization concepts etc). 

The need for “Design for Manufacturability” of Process solutions
Furthermore, technology deployment cannot be engineered in a silo – it must be considered TOGETHER with the process reengineering, so that the resulting service is not just satisfying the business requirements but is also efficiently manufacturable.  I call this the "Design for Manufacturability "-paradigm of BPO-service manufacturing (and it seems high time, that we learn from the lessons of the physical goods manufacturing for the service manufacturing world).  Process solution “design for manufacturability” includes the choice of the platform itself, and configuration/customization choices for process adaptation and integration.   The advantages of standards-conformant deployment of standard technology (ie, leveraging configuration and avoiding customization) for your process solutions are manifold:

• required levels of process integration can be achieved more cost-effectively
• the solution is easier to maintain over time – which includes higher quality as well
• adoption of innovation is easier
• necessary scope-extensions of the platform (be it additional processes, geographies, businesses) are easier to accommodate
• finally migrating the platform at the end of contract (to another provider or back to inhouse delivery) will be less risky and painful.

In order to leverage those technology aspects most effectively, decision makers should make sure, that the topic is integrated into the sourcing project from the RFP-design stage onwards and that business and IT-teams are working on this in a highly integrated fashion.

Leave the technology choices to somebody else at your own peril!

Dr Christian Baader is VP of SAP's BPO Group, and is based in Waldorf Germany

Comments

[Dipankar Chowdhury]

Scott,

You need to look at the below mentioned points in order to take a well informed decision. If the below mentioned points are true for your company, then you need to go for a Platform BPO approach.

1. Do not wish to further invest in expanding existing ERP (SAP/Oracle/PeopleSoft) Financials AP Module in new geographies.

2. Wish to upgrade from legacy systems to an ERP system

3. Multiple versions of the same ERP Financials Module across multiple locations

4. Multiple system environments across multiple locations

5. Wishes to outdo with the cost and issues associated with maintaining and running a technology platform as is in the case of a traditional BPO service offering

6. Business strategy is defined to focus on core competency and to add business value from non-core competency functions of the business.

7. Volume of work is dependent on seasonal changes

Assuming that your company haS reached a level of business maturity wherein the end result matters more than the process itself when it comes to processes that are not core competency and do not add competitive advantage to the company. The end results however have a direct correlation to the cost component, thus, Platfrom BPO.

Platform BPO can also be offered to companies wherein the volume of work is erratic and depends highly on seasonal changes because of the cost associated with maintaining an ERP Financials Module at all times and the cost associated with maintaining enough resources to cater to the increase in volume as and when it happens. It is better for such companies to turn towards the Platfrom BPO offering as it would remove the burden and cost of having to maintain a system and resources to service a work function that is highly dependent on seasonal changes.

Evaluate Service Providers for:
1. Domain Expertise
2. In-house domain expertise and experience in delivering relevant services
3. Process Maturity Levels and Continuous Improvement
4. Level of process efficiency and commitment of internal management towards sustaining and encouraging process improvements
5. Amount of year-on-year savings/cost reductions achieved through process improvements
6. Investment in People, Process and Technology
7. Healthy track record and future ability to invest in domain expertise, high end technology and process frameworks.
8. Analytics and Business Intelligence Capabilities
9. Information Security
10. Comprehensive Business Continuity Models and Disaster Recovery Management Systems
11. Level of Security Infrastructure for People, Process and Technology but most importantly client’s business critical data security management systems

[Akash Rajkumar]

Dear Mr Baader,

I enjoyed reading your article.

What is your advice to Indian offshore BPO providers with these technology issues? My company has very strong process capabilities but we often have to partner with IT services providers on deals and it seems to work against us when we compete against the providers who already have strong IT competencies.

Regards,

AR

[Scott Levinson]

Dr Baader,

My company has been having extensive issues in consolidating our core finance processes onto a single instance of SAP (we also use Oracle and some legacy apps in some units). We are now evaluating outsourcing and are debating whether the ERP consolidation should be done prior to the transaction, or whether it can be done as part of the entire outsourcing engagement - as one supplier is strongly suggesting. What do you suggest from your experience?

Scott