Business Platforms – BPO meets Technology

While leading economic indicators are showing sign of slight recovery there’s still a long way to stabilization of economy and get over current uncertainty. Smart organizations are using this challenging environment as an opportunity to drive some of the tough transformation changes while outsourcing which otherwise would have been difficult to implement. Such transformational changes invariably require overhauling of existing process and underlying technology layer to achieve savings beyond traditional ‘lift & shift’. Endured by various hype & bust cycle over last two decades, organizations today are more sensible when it comes to drive the transformation changes instead of looking for panacea to the problems.  Platform BPO being a new concept is going through initial hype cycle and so also need to cross the chasm of some of the glaring expectation gap. Organizations need to evaluate this as an integrated combination of both ‘process’ and ‘technology’ in a synergistic way instead of evaluating alone on just process or technology. If any one of the vital element is weak or ignored, it will fail to deliver the complete transformational savings.
Let’s examine this argument for Source-to-Pay platform, the complete transformation savings is essentially derived from multitude of factors which is possible only due to fusion of people, process and technology. The transformational savings thus can stem mainly from following key areas: 
 
Streamlined procurement process
·    Disciplined and user friendly self service process – request creation, catalog availability, approvals, budget check and receipts would lead to increased adoption by end users
·    Standard process for sourcing, purchase order processing, invoice receipts, payment processes, vendor data management and catalog enablement would increase enablement for off shoring
·    Transparent processes through workflow and integrated processes would reflect organization policies and procedures clearly
Effective control of spend
·    Reduce instance of buying from non approved suppliers
·    Responsible buying by capturing necessary justifications through workflow
·    Enforce purchasing policies and spend channels through automated work flow
·    Enforce payment against receipts, receipt approval and negotiation discounts and payment terms
·    Contract compliance for price and payment terms
Reduce TCO for people and technology
·    Reduce people cost due to effective automation and offshore enablemento   Reduce technology cost by taking advantage of multi-tenant platform architecture
·    Get technology obsolescence and risk addressed by service providers who collaborate closely with application vendors
Spend reduction due to strategic sourcing
·    Increase spend visibility and analysis support – monitoring, analysis and reporting would help in devising effective sourcing category strategy
·    Analytical tools with multi dimensional analysis and real time slicing & dicing of data facilitates fact based negotiation and also speed up negotiation process.
·    Aggregation of demand would lead to better negotiation and subsequently realization of slab based prices
·    Usage of eNegotiation tools make the entire price & vendor selection process transparent thus lead to better savings tracking and supplier management

The integrated value benefit i.e. people, process and technology is one of the most important aspect to be kept in mind while preparing a business case for transformational savings through BPO platform.

Posted by Gurjeet at 10:09 AM | Permalink | Comments (0) | TrackBacks (0)

The unprecedented changes in commodity prices, unpredictability and economic uncertainty over last one year has taught one important lesson to the sourcing professionals – ‘Variablize contract price by collaborating with supplier, especially for the repeat buy’ in order to keep purchase price competitive, realistic and in tandem with changes in the external environment. With commodity price index slowly rising up there’s also a strong prevalent feeling among sourcing professional about missing extremely good opportunity to achieve lower prices. However driving ‘low price’ opportunistically in such a way is a myopic approach, as the current environment lately has also taught us not to attempt low prices at the expense of suppliers thereby exposing them to financial risk hazard and threaten their own supply chain continuity. The need of the hour is to evolve a transparent pricing mechanism with clear linkage to mutually agreed and measurable index (commodity, metal, inflation, consumer price etc.) with a defined trigger points so that any impact of external environment should be accommodated realistically and quickly. We have also seen an increased no of instances where customers are asking their supplier to open their cost books and have a frank discussion about cost and margins for a sustainable and healthy supplier relationship.

While above is a challenge and need to adapt to the changing environment, sourcing professionals also need to simplify their sourcing strategy guiding on following principle in order to gear up towards this new kind of agility challenge.
- Keep scanning for alternate suppliers and create ‘ready to use’ supplier inventory so that buyers can access this as and when the need arises. This is perhaps the most important aspect in retaining the sourcing competence. Once there would be an inventory pool it will be easier for buyers to compare prices for any sourcing category.
- Standardize the consumption/demand as much as possible and this should be done much in advance if there is a plan to leverage RFQ or Auction. Define the specification clearly if items/services are non-standardized.
- Communicate clearly on decision parameters to facilitate healthy competition among suppliers. All parameters should be measurable clearly during an RFQ process.
- Provide flexibility to suppliers to enable them doing their own lotting strategy for the most efficient mix & match so that they can come out with the best price. This will be a win-win situation for both buyers and suppliers
- Create a performance driven environment to enable suppliers come out with their best, in terms of price and non-price aspects (like quality and delivery). Having a well defined framework is necessary to achieve this.
-       Don’t overdo auction for the negotiations. Instead develop a clear understanding of market, commodity before deciding about auctions. Buyers also should take an extra effort to draft a clear state of work enumerating specifications and categories to be outsourced.
 

It is necessary for sourcing professionals to have an end-to-end spend visibility driven on a seamless technology platform and a tight monitoring framework which will trigger for any changes in price required due to changes in the external environment. The variablize pricing model is fast becoming a reality in services wherein pay-as-you-use model has evolved out as a matured service offering over the years. There’s a need to develop variablize pricing model in close collaboration with suppliers in an improved scientific way beyond the supply and demand logic.

Posted by Gurjeet at 05:25 AM | Permalink | Comments (0) | TrackBacks (0)

The unique bundling across technology and business processes (functional process definition as well as operations delivery) in Business Platforms entails cross functional decision making  between the CIO and the business owner ( typically COO’s or  functional owners such as CPO’s, HR directors, and Financial controllers).  There is also another cross-functional decision making between multiple business owners. For e.g, in the case of a Procure-to-Pay Platform, where procurement and AP owners have to align to take an integrated view; or end-to-end Hire-to-Retire, where individual HR function owners need to align. I will cover this in a separate blog entry, and will restrict this entry to discussing alignment between the CIO and business owner. 

In my interactions with customers, I have often encountered a dichotomy in alignment between CIO’s and business owners.  In most cases, while the business owners view this as a great model to help achieve their business objectives and want to take a technology agnostic view, CIO’s view this as a model that interferes with their organizational technology strategy and feel a loss of ownership and control.  This leads to organizations being unable to take a holistic business view, and lose out on a unique opportunity that could be a win-win for both the business owners as well as CIO’s.

If we analyze the business drivers involved, the current business environment and liquidity crunch is forcing companies to bring a razor sharp focus on operational costs with capital reduction high on the CFO’s agenda.  In such an environment, the traditional model of attempting in-house technology transformation (with IT outsourcing limited to execution of  strategy) and separately outsourcing business process operations leads to sub-optimal results and needs significant capex, which in most cases the CFO is unlikely to approve.  The Platform model calls for the CIO and business owner to align early in the strategy and decision cycle. CIO’s should view the platform provider as another weapon in their arsenal that they can leverage to deliver on the organization’s business objectives.  Wave 1 of this would clearly be targeting of this approach for non-core functions (such as Indirect procurement or tactical HR transactional processes), where internal investments would not be the best use of the resources available to CIO’s and it is less critical for CIO’s to own and control the technology and they can benefit from the technology expertise, global scale and cost benefits that a platform provider can provide as well as the accountability for business outcomes that can be enforced on the platform provider in this model.  This will also enable the CIO to use the available scarce capex on strategic initiatives that translate into revenue generating programs.  Technologies such as cloud computing, and collaboration enabling tools such as portals and business mashups provide CIO’s a unique opportunity to benefit from this model.
On the other hand, business owners can benefit from getting the CIO’s team involved in the decision making, to ensure that technology risks and organizational technology considerations such as data and information security, scalability are duly evaluated and an optimal decision made. 

All this calls for integrated governance being ensured, for business owners and CIO’s to be joint stake-holders in the platform decision and outcomes, and have scorecard metrics that enable this. If this happens, the CIO and business owner can tango together to deliver transformation to the CFO, and this will indeed be more than music to the CFO’s ears!

Posted by Hariprasad at 03:31 AM | Permalink | Comments (0) | TrackBacks (0)

Business platforms are bundled offerings across multiple layers – application, infrastructure & BPO layers. Will simple adding these layers one over the other bring substantial value to clients? Will such a offering have any sustainable competitive advantage for the service provider? Is there anything that stops another competitor to ape this model & deliver similar services? What should a service provider do to make its offering unique or to offer additional ‘perceived’ value to clients?

I believe, the ‘uniqueness’ in the business platform can be built through either of the following ways
• Domain knowledge – either industry or business function knowledge, or
• Providing end-to-end process coverage by developing IP on the standard application, or
• Bundling other accelerators to enable service delivery from offshore location, or
• Cheaper price etc.

Domain Knowledge & Process coverage: Business platforms can be categorized into two groups – industry specific platforms (e.g. mortgage industry) & business function (e.g. HRO) platforms. The former is focused on industry specific processes, while the later is aimed at generic business functions seen across industries.

In both, the service provider needs to put in a significant development effort. One of the main attractions to clients is that the platform aim to resolve issues that the off-the shelf applications don’t. So if your platform doesn’t offer anything substantial beyond the standard app, it has minimal value proposition to client and it could be readily replicated by a competitor.

In my view, having a team of domain experts to develop & maintain the platform is very critical from sustainable competitive advantage perspective for both.

For industry specific platforms, unless you deploy people who know the real industry issues, it is near impossible to develop solutions that address the actual client needs. Even for the business function platforms there is a need to develop functionalities over & above standard apps. These functionalities may not really be industry specific nuances, but can be in some other dimension. E.g. for a payroll platform, it is important that individual country-specific benefits’ rules & regulations are encrypted so that the platform supports more & more geographies. Similarly, a P2P platform needs to cover all spend categories – from simple (office supplies) to complex (temporary staffing & other services) so as to provide end-to-end coverage for all indirect spend categories. Here, the end-to-end process or global coverage can be the differentiator.

Developing & enhancing such a platform takes time & consequently a large investment is needed. Acquiring a company with a developed platform shortens this journey and not only gives a head start vis-à-vis the competition but also brings live clients to the fold!

Integrating Offshoring enablers with standard applications: Transaction processing BPO providers, typically, would already have enabler tools such as work allocation tool, workflow, scanning solution, OCR/ ICR tool, etc. These tools need be integrated in its platforms to ensure seamless process delivery, and they help in differentiating from other providers.

Price as a differentiator: Can lower price be a long-term differentiator? Or could it only be a short term strategy? How can a service provider fundamentally change the cost structure so as to price its services at lower than market price?

I think lower price comes handy in winning clients only in absence of any other differentiators. Obviously, a full-service provider, (owns app, infra & BPO layers) in-house, can offer a cheaper price as compared to someone who uses sub-contracted services (Refer my earlier blog entries - What exactly should a Platform service provider really ‘own’?). Though one can ask for premium price in industry specific platforms where value delivered to clients is higher, still the price remains an important decision criterion for the clients.

Both these lead to a single conclusion – scale is critical to achieve a competitive price. Scale helps service provider apportion platform development cost & investment on infrastructure, data center setup, etc. across multiple clients thereby lowering the price. Extending the logic further – a service provider, who is early into the platform journey, has to be ready to ‘buy out’ first few deals (operate at low/ negative margins). One needs to wait till it reaches scale to actually make good margins in this business.

Doesn’t this sound like the situation which IT product vendors face – low/ negative margins from first few clients, with real money to be made only when you reach a particular scale? Essentially, this is a completely different risk-reward profile than what the BPO service providers are used to. Can the BPO service providers change their DNA fundamentally to operate in this market? I will cover this in my next blog entry.

Posted by Yogesh at 11:38 AM | Permalink | Comments (0) | TrackBacks (0)