Business Platforms – BPO meets Technology

Organizations are increasingly viewing procurement as a strategic function due to its unique ability to influence spend, which contributes directly to its bottom line. Taking a myopic view on efficiency alone can hurt organizations where in only operating costs are cut to the bone without focusing on strategic sourcing savings, which is a big ticket item.  The most common dilemma faced by CPO’s are – whether to capture cost arbitrage based savings quickly or aim towards much higher strategic sourcing savings by adopting a path of transformation. Taking a balanced view on both is necessary for sustainable cost savings.  

Let's take an example by comparing two companies with a similar profile and spend of 1 Billion, but at different maturity level. Typically on an annual basis a ‘high performance’ company's TCO (Total Cost of Operations) will be 8 million and a strategic savings of 80 million, while ‘low performance’ company’s TCO would be 12 million and would achieve strategic savings of 30 million. So while TCO difference between the two companies is a meager 4 million, it’s pale in comparison to 50 million higher strategic savings achieve by a high performance company.  We have also noticed that organization often don’t have correct assessment of strategic saving potential due to  inadequate spend visibility and absence of homogeneous and automated process  across its divisions and geographies. While evaluating procurement outsourcing decision, organizations necessarily need to assess their procurement maturity level vis-à-vis strategic savings opportunities and adopt a suitable outsourcing strategy with transformation as a key ingredient.  

Today’s economic situation is forcing management professionals to abandon capital consuming transformation initiatives and take a quicker route of ‘cost arbitrage’ which may give immediate returns in the short run. However this way organization are also getting into a point of ‘no return’ as it would be a challenge to change the underlying technology and processes, once outsourced, due to complex change management efforts later.

Organizations necessarily need to think through their procurement end state while outsourcing to achieve much wanted spend visibility and implement strategic sourcing savings. Organizations may explore ‘managed services offerings’ as an alternate to achieve transformational benefits quickly and ensure sustainable cost benefits.

Posted by Gurjeet at 01:28 PM | Permalink | Comments (0) | TrackBacks (0)

Consider the following two situations for a client organization:
a) Using an on-demand application with the process execution outsourced to a different service provider
b) Is live on a business platform with a single service provider providing IT application & process execution

In both these situations the organization is using services of external providers for provisioning of technology application (infrastructure, hosting, maintenance, support, etc.) as well as business process execution (BPO).

Are the client expectations from BPO service provider in these two situations identical, or does the BPO service provider provide some ‘additional value’ to the client organization in either of these situations?

I my view, the BPO layer in situation (b), helps clients achieve much beyond simple process execution. The SLAs & metrics to measure process efficiency are similar in both (a) and (b), but the BPO partner is in a much better position to help client in improving process effectiveness in (b).

Business platforms should ideally be viewed as a logical extension of Customer’s enterprise. Although the unique delivery methodology would have customer’s business processes to be executed outside of its enterprise boundaries. This delivery methodology also ensures shift from a capex to a opex based operating model. There is also increased management focus on strategic initiatives, as transaction management of  the business process is now being executed on business platform and the responsibility of processes, application management and hardware provisioning has been transferred.

To underline the benefits of Business Platform I will keep the focus limited to technology and exclude benefits arising from business process maturity delivered via platform solutions. The first and foremost benefit which a business platform delivers is the responsiveness to a customer’s business needs. The business platforms today are in a position to quickly respond to business needs by provisioning computing resources across application and hardware layers according to the requirement of the customer. This benefit is arising from underlying architecture which ensures that business rules layer is separated from computing infrastructure layer. This advantage coupled with say a "pay as you use" pricing model will deliver a customized offering to the customer who can have the computing infrastructure scaled up or down based on business needs.

The next benefit which comes to my mind is of reduced on-boarding time for any customer. The business platform comes with a pre-configured application layer and offers limited customization of business rules to suit specific requirements of a customer. The on-boarding time for the customer is thus primarily focused on minor customizations. This thus implies, should the customer decide to on-board on template implemented in business platform the benefit realization can start from day 1.

I will follow my views mentioned above on benefits realized from business platforms in my subsequent posts.

Posted by Sameer at 04:01 AM | Permalink | Comments (0) | TrackBacks (0)

This is a question which is continuously raised, as there is a need to optimally utilize the available resources and align them to business goals. The approach to go for on-premise implementation or on-demand managed application services has to be evaluated on two important dimensions – Business strategy and IT Architecture strategy. Unless the evaluation of these offerings aligns positively in these two dimensions, the next level evaluation of people, application and hardware costs to come up with the business case for either should not be considered.

Business strategy alignment would require evaluation against cost effectiveness in overall IT Management for business function considered, compliance to various regulatory guidelines, business continuity and also reducing the complexity of organization IT architecture.

IT architecture strategy alignment would call for an evaluation against application integration and interoperability, data integrity, data ownership, adherence to organization integration principles and deployment of proven technologies.

It is very important that business strategy take front seat and IT strategy continues as an enabler. The shift needs to be from a rigid and structured application landscape to a more agile and flexible application landscape.

per my suggestion a mix of both: on-premise implementation of applications which may form the core and a set of managed application services in a on-demand mode as flanks for non-core business functions would add that extra edge in a competitive market space for a organization. A organization where the ERP continues to be on leading vendors and is on-premise while various non-core business functions are enabled by a set of on-demand managed applications would give the organization required flexibility and agility to respond to market needs.

Posted by Sameer at 08:35 AM | Permalink | Comments (0) | TrackBacks (0)

Procurement Outsourcing (PO) burst into outsourcing scene with lots of promise & hype in the early part of this decade, however it has failed to live its fullest potential and still lags behind other outsourcing areas like FA and HRO due to various reasons.  Organizations are now realizing that the potential of procurement outsourcing (PO) is not just limited to traditional cost arbitrage but effective management of overall spend, which contributes directly to the bottom line savings, especially for the ‘non core’ part. While PO deals has demonstrated numerous tactical benefits such as reduction in operation cost and sourcing savings in an isolated way, most of the organizations are still struggling to realize the full potential of PO in an integrated way.  Even the much hyped ‘sole sourcing outsourcing’ deals based on gain-share model failed to deliver the targeted benefit, as most of the time actual ‘realized savings‘ was actually a fraction of ‘identified savings’ and thus form a major conflict between Finance & Purchase department in terms of procurement department performance. Organizations typically based their projected sourcing savings on the assumption that end-user community would follow the ‘contract pricing’, but in reality they have achieved low compliance & adoption in the absence of unified procurement platform and structure.

It’s not unusual to see CPO’s going through a quarterly ritual of negotiating with finance about actual savings figure and then publish a common figure based on certain unconventional yard stick. Procurement departments are also realizing the need for an embedded, transparent performance framework on a unified procurement platform which can help them self-monitor their performance in an integrated way. Organizations are increasingly looking at service provider for an end-to-end solution which can help them get into next level of maturity, driven by following business metrics:

- Common processes on a standard procurement tool with end-to-end spend visibility
- Enhance strategic-sourcing opportunities and decision making capabilities
- Improve contract compliance and so ‘realize’ savings
- Improve cash flow through better negotiated  payment term
- Reduce rogue or off-contract purchase

While service providers have been able to showcase isolated success with a native improvement in individual sub functions like operational procurement, strategic sourcing, contract negotiation and account payable, the absence of a unified platform which can tie all these disparate pieces together, has resulted in sub optimal benefits. The very unique and fragmented nature of ‘non core’ buying on a non-standard processes has made it difficult for organizations to implement an in-house unified platform without undergoing major restructuring. The traditional technology approach by consolidating procurement applications and migrate to a single instance through in-house implementation can cost millions of dollars and years to implement. Organizations are in a state of ‘fix’ whether to transform first and outsource procurement later, in this challenging time where speed is crucial.  Organizations are increasingly looking at alternative service model which would require minimum capital investment and can be adopted quickly.

Managed service model is not a new concept in the non-core procurement arena with numerous matured SaaS offering available due to historic reasons, and is growing at a healthy rate. Organizations are today looking beyond traditional SaaS, with complete ownership of technology & BPO as bundled services, with a single vendor delivering on an outcome based contract. However many CXO’s are also in a dilemma whether to adopt a transformational approach in this unpredictable environment as was aptly put by CIO of a fortune 10 companies in one of our interactions. His apprehension was – ‘What if in a long run you  will charge me higher, and given the high level of dependency I will not have any other option but to pay you higher’. Organizations necessarily need to take a decision from long term perspective and evaluate managed service model on a BOOT (Build, Own, Operate and Transfer model) framework to have flexibility of in-sourcing i.e. in event of economic upturn or any unforeseen event, should be able to in-source unified platform smoothly as part of their contract, which is very much feasible in managed service model.

Posted by Gurjeet at 07:46 AM | Permalink | Comments (1) | TrackBacks (0)

The current business cycle and liquidity crunch is forcing companies to bring a razor sharp focus on operational costs with capital reduction high on the CFO’s agenda. The traditional BPO model, where the process and people are managed by a BPO service provider where as the technology is still owned and managed by the customer has limited effectiveness, as the fundamental bottlenecks are not addressed. This has led to customer expectations of alternate delivery models that enable technology led transformation with minimal CAPEX.

Achieving seamless global delivery is often hampered by a complex, heterogeneous systems landscape unable to communicate with each other. Due to inorganic growth strategies or through tactical de-centralized IT investments, many organizations find themselves operating fragmented, heterogeneous enterprise resource planning (ERP) systems and home-grown custom applications. This presents a significant challenge for an organization seeking to maximize benefits from consolidation and standardization. The common approach of in-house consolidation to a harmonized single instance implementation needs signification CAPEX and long lead times, and produces limited results at an unacceptable cost.

To address the challenges mentioned above, Platform BPO has emerged as an innovative service delivery model, wherein end-to-end processes are offered as "Managed Services", on a standardized "Business Platform" based on a best-of-breed ERP solution, hosted, managed and maintained by the Service Provider. This involves implementing, and managing an end-to-end process that converges the ownership of the outsourced process, people and technology to the Service Provider and is aligned to the business and strategic objectives of the customer. This bundling of technology,  consulting and BPO helps synergistic value creation, delivers transformational value through global scale, technology innovation, process optimization, and centralization.

This service delivery approach helps customers move from a CAPEX to OPEX model and enables higher value creation by moving from an input-centric model to an outcome-based model, and by combining internal capabilities with specialized processes and tools from providers. Depending on where an organization is in terms of process, people and technology maturity, savings between 20 to 40 percent on operational costs is possible by embracing the Platform paradigm.

Posted by Hariprasad at 07:37 AM | Permalink | Comments (4) | TrackBacks (0)