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Tuesday, May 10, 2005

The Great Business Process Handoff -Outsourcing Internal Processes

(Via Infoworld)Standards such as Java, Windows, and TCP/IP have made it much easier to outsource various aspects of IT, spawning a huge IT outsourcing industry. But that trend may pale in comparison to the next outsourcing wave: BPO (business-process outsourcing). Companies have offered limited BPO for decades, such as ADP’s payroll processing. Today, companies are outsourcing a broad array of processes, including finance, accounting, and HR. Vinnie Mirchandani has a good take on BPO – He sees BPO as the inevitable convergence of application software and services, as more companies balk at the costs of deploying software internally and prices drop for fast-maturing outsourced offerings.
Key questions remain unanswered about how BPO will play out and how enterprises can best ride the wave.Will BPO vendors eventually look like ASPs, offering open interfaces and process transparency? Or will they look like black boxes providing only limited inputs and outputs? Can BPO vendors actually deliver innovation and optimize outsourced processes, or will they just run existing processes at a lower cost? And what will the impact of BPO be on existing IT organizations? Beyond the booming call-center outsourcing, recent BPO growth has centered on four key areas: finance and accounting, such as time and expense management, credit analysis, and collection activities; HR, including payroll and benefits management; supply management and procurement; and industry-specific vertical processes, such as mortgage and claims processing. IBM Global Services Vice President Donniel Schulman does not see BPO as offshoring only. It’s about taking over a process and adding value right away, like putting in Six Sigma and smart operational improvements. Your provider should be able to bring things to the table that you can’t do yourself.” Process-specific expertise - for example, a detailed knowledge of how revenue accounting in the energy industry should work - trump labor costs, these have already been neutralized by setting up outposts worldwide.

Technology was the fertile ground for BPO’s growth. The expansion and consolidation of the ERP and application software markets, 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. Across the board, technology is shaping up to stay at the heart of the BPO battle.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."

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