Forget Platform BPO, it’s really about the Business Services Cloud (Part II)

We inspired a lot of offline debate when we discussed the challenges facing BPO providers delivering so-called “Platform BPO” solutions.  Bottom-line, if BPO service providers are competing for commodity services engagements which are underpinned by software platforms that are widely deployed by several other service providers, they face a major challenge of differentiating themselves to win new clients and avoid a price-war for new business.

Cookie cutterAt the enterprise level, selecting a BPO provider to process transactional business services for a major Oracle or SAP-based engagement is dependent on the providers’ global scale, brand and competency.  For these large-scale transactional BPO engagements (i.e. accounts payable, payroll etc), it’s largely a commodity market these days.  However, the battle is on to provide industry-specific solutions, such as health insurance processing and revenue-cycle management, banking-specific services (i.e. netting, lock-box services), retail merchandising, legal services, healthcare informatics etc etc.

For example, I had a great conversation last week with Mark Stiffler, CEO of sales compensation provider Synygy. He was faced with two choices for his business:  either to provide an on-demand managed service to his clients, or license his software through BPOs in the channel.  Sales compensation is an area that can be delivered on a set of standard processes, with some unique personalization to the client.  It’s also an area where there’s a hell of a lot of value an outsourcing provider can add to optimize their clients’ sales performance management processes.  Hosting the software provides the utility offering that can enable a high-value growth engine for the business.  However, when enabling clients to make the most of out these services, they need some quality support that understands both their industry and their business.  How many times have you heard of clients who buy a software package and only use a fraction of its functionality?  The BPO channel should be there to enable clients to maximize the process flows on offer.

While Mark has pursued this managed services (BPO) strategy, some of his nearest competitors have opted to pull-back from a services-delivery model and push their software package through BPOs in non-exclusive agreements.  While the latter strategy might make sense for the software vendor in reducing its own cost-of-sales, the BPO providers are unlikely to invest a great deal of money in high-quality support for a standard software package they don’t own.  They’ll simply add the hosted software into a broad portfolio of adjunct services.

Today, we don’t know whether Mark’s strategy will ultimately win out in his market, but sales compensation is an area where most clients need quality support, so you have to assume Synygy will continue to grow organically as a managed services provider, and could ultimately become an attractive acquisition candidate for one of the BPOs.  You have to applaud Mark’s firm for making a successful transition from a software to a managed services provider.  Too many other software providers simply find that shift in business model too much of a cultural change, and often too much of an initial investment to stomach.  My fear is many software providers will go out of business if they fail to choose the right managed services strategy for themselves and invest in making that cultural shift.

In commodity markets, such as payroll, the scale-game through the BPO channel is clearly the way forward (for example ADP/SAP) because the managed service will normally cover all the key areas the client needs for successful delivery.  Once you have your payroll and accounts payable up and running, how much “innovation” do you really need, if you’re happy with the performance and price?

However, for business areas where clients really could really benefit from best practices, especially when they can be tied to industry-specific scenarios, the “Business Cloud” model is clearly the way to go, where the provider can deploy the computing, business support and alignment services its clients need to maximize the use of the software in a on-demand model.  And will we be even be talking about “software” in a few years?  It’s the process IP that software supports which is really what’s at stake here.

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4 Comments

  1. Posted September 27, 2009 at 11:48 pm | Permalink

    Hi,

    A couple of comments :-

    1. The resistance to change to adopting Business Cloud could be high.

    For eg :-

    1.Fraud Case management is a common process followed by many banks – Will they be open to moving this on the cloud and the process managed by a service provider ??

    2. Mortgage / Loan Processing : Is again a common process ( with different business rules ) followed by many banks..will they be open to moving this process on the Business Cloud and managed by a service provider ??

    It’s actually a good opportunity for Non-IT /BPO companies to get into a Business Cloud!! For eg : A large Bank or Industry federation hosting a Business Cloud for Mortgage processing, might make it easier for other banks to move this process into a Business Cloud!!

    Regards,

    Murali Sathya

  2. Posted September 29, 2009 at 6:45 am | Permalink

    @Murali:

    Any process that is tied to regulatory protocols is normally a great candidate for outsourcing, as you have immediate standardization, and there a always software packahes available to underpin the workflows. Take environmental health and safety, for example. Expect that to move into a heavily managed services environment in the future with software firms such as Technidata developing managed services-based offerings. As you point out, there are many financial processes that fall into this category. It’s more a question of reassuring clients they’re better off using an outsourced model (i.e. cheaper, better compliance, empowerment to focus internal staff on higher-value tasks etc)…

    PF

  3. Rahul Shah, Infosys Knowledge Services
    Posted September 29, 2009 at 7:55 pm | Permalink

    Phil,

    Very apt example of Mark Stiffler. This approach comes with multiple benefits. Firstly, it opens up a huge revenue stream for product vendors in the form of managed services. Secondly, it becomes a huge differentiater in competitive situations where product fitment becomes an issue. Using this approach, players like Mark can provide certain functionalities on demand and thereafter bake them into their product. Thirdly, it opens up a huge market demand of small enterprises. Many of the complex processes should start off as part of the KPO industry thereby getting de-skilled and either getting automated or becoming BPO processes. This a surely the way to go.

  4. Posted October 30, 2009 at 6:27 am | Permalink

    What you refer to as Business services cloud is what we refer has Business Platforms( not Platform BPO)-as they bring together -the business process fully configured and supported on an application ( including maybe a part of ERP and/or best of breed tool along with value added solution layers to address gaps)bundled with the domain based business process services expertise hosted on a private or public cloud .All of this is bundled together and priced in a model which is based on outcome or transactions serviced .
    Overall to move to the Business Platform -which in my view is the Nirvana state on cloud – at one end there are product vendors adding business services layer along with hosting andon the other end are Tech Savvy BPO service providers who are building out and offering the whole business process based services -embedded with augmented application layer and hosting .
    Which of these players will win depends on who is able to bring out the benefits of “economies of scope through standardisation” along with industry specific personalisation -driven by Domain capability and knowledge.

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  1. [...] may recall we first started introduced the concept of the “Business Platform” a few years ago, when we discussed a “Business Services Cloud” where SaaS-providers could start [...]

  2. [...] may recall we first started introduced the concept of the “Business Platform” a few years ago, when we discussed a “Business Services Cloud” where SaaS-providers could start building a BPO [...]

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