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Tuesday, June 14, 2005

The Coming Process Commoditization Wave

Tom Davenport writes in the current issue of HBR, that a broad set of process standards are evolving that will lead to dramatic changes in the shape & structure of corporations. Most enteprises are in do-it-yourself mode for the bulk of their processes, dspite the much-ballyhooed increase in outsourcing in large part because there's no way to compare outside organizations' capabilities with those of internal functions. Given the lack of comparability, it's almost surprising that anyone outsources today. But it's not surprising that cost is by far companies' primary criterion for evaluating outsourcers or that many companies are dissatisfied with their outsourcing relationships. A new world is coming, says Tom Davenport -one that will lead to dramatic changes in the shape and structure of corporations. A broad set of process standards will soon make it easy to determine whether a business capability can be improved by outsourcing it. Such standards will also help businesses compare service providers and evaluate the costs vs. the benefits of outsourcing. Eventually these costs and benefits will be so visible to buyers that outsourced processes will become a commodity, and prices will drop significantly. The low costs and low risk of outsourcing will accelerate the flow of jobs offshore, force companies to reassess their strategies, and change the basis of competition. The speed with which some businesses have already adopted process standards suggests that many previously unscrutinized areas are ripe for change. In the field of technology, for instance, the Carnegie Mellon Software Engineering Institute has developed a global standard for software development processes, called the Capability Maturity Model. For companies that don't have process standards in place, it makes sense for them to create standards by working with customers, competitors, software providers, businesses that processes may be outsourced to, and objective researchers and standard-setters. Setting standards is likely to lead to the improvement of both internal and outsourced processes.

In a computerworld interview Tom adds, When business processes become commodities, all the rules change in ways that can revolutionize business. For virtually anybody, a standard process can be a starting point—a point of departure from which to design a new process. When people are designing organizational charts, they often look at other organizational charts. It also simplifies the commodity stuff that people do. There are so many processes in an organization that don't confer any competitive advantage, and doing them in an innovative way wouldn't make much difference to revenues or profits. So you might as well do them in a standard way. And application packages all assume some sort of process by which they're used. Process activity & flow, Process performance, Process management - these are among the evolving standards that business needs to relate to their business functions and activities to leverage process advantage better.

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