Differentiating your Business Platform
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.
