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