But Deal Architect’s Mirchandani warns that outsourcing isn’t the same as improvement. “We’re probably in the second inning
of BPO. People are just not that sophisticated,” he says. “An old adage in outsourcing has been ‘outsource an efficient process.’
If you just hand it to a vendor and expect efficiencies, I think you’re being somewhat naive.”
Leveraging technology
From the beginning, technology was the fertile ground for BPO’s growth. The expansion and consolidation of the ERP and application
software markets, for example, helped standardize common enterprise processes. In turn, the rise of the Internet made it easier
to farm out not just code and data but workflow and process information as well.
“The tools have evolved to allow a company like us to provide A-level services on an outsourced basis,” says Gene Long, president
of consulting services at Atlanta-based UPS Supply Chain Solutions. “The big driver now is the software. It lets you outsource
operations that before had to be managed uniquely by location, like warehouse performance optimization, inventory track and
trace, traffic and carrier management, recognizing demand, and even returns.”
Across the board, technology is shaping up to stay at the heart of the BPO battle. Responding to cost pressure from offshore
vendors, incumbents including IBM have recently announced that they plan to focus more on using technology rather than labor
to deliver compelling BPO solutions.
“There’s no question that the absolute improvements over time will be by employing better technology,” says HP’s Schwarz.
“It is absolutely about leveraging assets.”
But some analysts say that many BPO providers have a long way to go to leverage technology well, and that they must better
use open standards and existing applications platforms. “If BPO vendors are smart, they will not reinvent the wheel,” says
Mirchandani. “But especially the offshore guys, they think, Why pay Oracle so much when I can go write a custom piece of software,
with my labor costs the way they are?”
“BPO is all about economies of scale and reuse,” says Rearden Commerce’s Grady, making the case for a loosely coupled, Web
services-based, 100-percent-hosted BPO delivery architecture. BPO customers, he notes, may have “thousands of permutations
of applications, unique business processes, and custom integrations across scores of apps. … If all you’re doing is migrating
that hairball into your datacenter, someone will pay the piper.”
In fact, BPO vendors have begun bulking up on best-of-breed software assets for their delivery platforms. For example, IBM
recently acquired a company called Equitant, which had software assets and expertise in finance business processes, including
working capital management, collections, credit, and invoicing.
IBM’s Schulman says the company has also built analytics tools internally, such as software that can audit outsourced employee
expense reports to flag questionable items.
“It actually knows how much it costs to take a cab in New York City, so we know whether or not [the employee is] taking advantage,”
says Schulman. “If you build out a robust tool like that you can save 10-15 percent on the total travel and expense budget
of a corporation.”
Inside the black box
How much can enterprises actually influence which technologies or standards a BPO vendor uses on their accounts? In some cases,
says HP’s Schwarz, BPO is simply a wrap-around to existing IT systems.
“There tends to be a reluctance to go off your ERP for these functions,” Schwarz explains. “In a sense, BPO is all about bolt-ons
to ERPs, which allow us to provide more efficiency: business-logic types of software, better workflow, software that could
take an aggregate look at a company’s customers over various business segments.”
For some regulated processes, customers may legally be required to know the inner workings of a BPO vendor’s system. “One
of the challenges,” says UPS’s Long, “is being able to prove that we have processes and supporting technology that can meet
or exceed our customers’ auditors’ internal-control requirements.”
But in other cases, notes Deal Architect’s Mirchandani, customers won’t be able to pry open the BPO vendor’s black box. Enterprises
may specify standard interfaces and most vendors will use common processing engines. But some won’t, says Mirchandani. “It’ll
be like a sausage factory. Do you really want to see what goes on there?”
IBM’s Schulman argues that at a certain level of the stack, as long as the interfaces are based on open standards, the innards
may not matter. “At an application layer,” he says, “talking about features and functionality of how you process a general
ledger transaction or a benefits administration transaction, the technology piece becomes less important. That’s not where
the value lies. It’s in the process you’re providing, not the technology.”
Wipro’s Garnick agrees. “We see an emerging trend where customers are agnostic on the platform. They’ll come to us and say,
‘We need this output; it’s up to you what system you deploy to run on.’ ”
When major enterprise processes are outsourced, what will be the impact on IT? “Suddenly you lop off a major transaction-processing
system and all you get is input and reports,” Deal Architect’s Mirchandani explains. “That ... drives certain CTOs nuts. They’ll
essentially be getting results and need to monitor how that analytical stuff flows into other apps that are still owned by
the organization.”
Mirchandani predicts that the role of the CIO “will become huge” in this new BPO world, as the art of vendor management and
crafting SLAs begins to assume even more importance. “But not necessarily the techies,” Mirchandani adds. “The nitty-gritty
IT person will lose quite a bit of power in this whole process.”
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