BPO battle heats up

BPO (business process outsourcing) is quickly becoming a frontline solution for CIOs desperate to reduce costs and automate business processes.

Behind the lines, however, the major application vendors are increasingly viewing BPO as an opportunity to lock outsourcers and customers into proprietary infrastructures.

Microsoft is quietly building a BPO platform strategy group, which in its own words will use Microsoft “evangelists” to promote its technology and infrastructure to partners.

Microsoft already offers such solutions, but there are hints from some quarters within the company that packaged BPO solutions will start to roll out in far greater numbers this summer. These solutions will come from BPO service providers that have domain expertise in areas as specific as 401k management for pharmaceuticals, as opposed to BPO hosts offering horizontal solutions for general accounting and HR.

The offerings will be developed with Microsoft technology and will combine a company’s domain knowledge with Microsoft foundation technology such as Windows Server, BizTalk, SharePoint, Smart Client, and Active Directory.

Microsoft isn't the only one evangelizing to the BPOs. SAP is working along similar lines in order to make NetWeaver the infrastructure of choice for linking outside the firewall business processes and data to behind the firewall systems.

Among others, SAP has major deal with ADP, a company that does far more than just payroll outsourcing. It now also outsources services for retirement, tax and financial, HR, brokerage and claims. And it is working with IBM on the procurement side.

 "With these types of partnership agreements it will enable our partners to deliver their services on the basis of our platform [NetWeaver.]," said Christian Baader, vice president of BPO for SAP.

While horizontal solutions may be 90 percent of most business processes, Baader agrees with Microsoft's Charles Fitzgerald, general manager of platform strategy that the remaining 10 percent must be provided by a BPO with domain or industry specific expertise.

"On that last 10 percent BPOs will write their own code and they need a platform like NetWeaver that will not endanger the 90 percent that is standard," Baader said.

Baader says customer lock in on any one particular platform selected by a BPO is best avoided by going with companies that use standard processes rather than home grown best of breed solutions.

"Our software will support shared service centers," Baader said.

Microsoft, SAP and myriad other software vendors and service providers are interested in BPO in part because they believe it will trigger one of those rare inflection points in how business is conducted.

Up until now, outsourcing has been about “labor arbitrage” to a low-cost site, said Terry Jost, vice president and leader of North American Outsourcing for Capgemini.

“What we are talking about now is process improvement that goes with BPO,” Jost said.

This new focus on outsourcing business processes rather than applications is a sea change, says Josh Greenbaum, principal analyst with Enterprise Applications Consulting.

“Business processes in general have become the next higher-value, innovative place for software to go. This is where Web services, composite applications, [SAP] NetWeaver are all headed,” Greenbaum explained.