If a Business Process Outsourcer Improves a Function, Is It Business Transformational Outsourcing? | Article
At a major IT conference in 2002, two outsourcing service providers claimed they do business transformational outsourcing (BTO). In 2003, fourteen providers claimed expertise in BTO notes Joe Vales, senior partner with the Vales Consulting Group, LLC, a New York business development advisory firm. Many of those claims were only hopeful intentions. Others were based on standard BPO offerings repositioned to sound like BTO.
Despite their promises, whether most providers can deliver on business transformation solutions remains to be seen. With a handful of exceptions, most BTO solutions are just now being conceived; yet the providers are touting them as “deep expertise.” As a result, it is critical that buyers invest in a due diligence process.
BTO buyers are subject to providers’ aggressive marketing efforts; yet, dynamic business transformational outcomes that can be achieved by outsourcing strategies are real. Potential BTO buyers need to realize there are crucial requirements for BTO success.
Why BTO is Taking Hold of the BPO Market
The basic demand that propelled the growth of the business process outsourcing (BPO) market was process expertise. Providers’ process reengineering expertise and economies of scale met buyers’ demands of generating process improvements and cost reduction. But process improvements can only go so far.
Vales explains buyers now have two or three years of good results with their BPO deals; but they are realizing the ability to continue generating new value is not inherent in those arrangements. “The market is moving, with buyers asking providers to help them become more competitive and using outsourcing to change business outcomes. This requires a new breed of BPO provider with the resources to deliver on the promise of business transformational outsourcing,” Vales states.
BTO’s Leader Perspectives
IBM Global Services, the Armonk, New York-headquartered global services provider, opened its BTO line of business as part of IBM’s Business Consulting Services (BCS) in late 2002 as a response to client demands. Cynthia Erdman, global strategy leader, Business Transformation Outsourcing, BCS, explains clients needed “a combination of transformation and outsourcing that has the capability to effect continuous strategic change and tie the results of the outsourcing initiative to strategic business outcomes.” Beyond cost reduction, she says IBM’s clients want capabilities to:
- adapt quickly to market changes
- innovate around the process areas while improving them
- speed the time to benefit realization around the process innovations
- improve real-time data capture to enhance decision support on an enterprise-wide level.
Sally Herbert, global executive head of the Enterprise Resource Transformation Practice at EDS, agrees there is a BPO-to-BTO shift in the market the Plano, Texas-headquartered global outsourcer is seeing.
Due to the evolution from BPO to BTO, Joseph W. McGrath, corporate executive vice president and president, Enterprise Transformation Services at Unisys, says BTO discussions start in various places along the value chain, depending on what the buyer is seeking. Nevertheless, more often than not, the driver is still cost — a mistaken starting point when it comes to business transformation.
BTO vs. BPO, According to the Providers
Business process outsourcing or IT outsourcing of a functional area can be likened to freezing, says McGrath. “I’ve heard it often described as pouring cement over the top of a function in order to extract costs. Companies come back from those types of engagements realizing they also need agility to respond to the changes in the marketplace.” The problem with freezing that function to take out costs, he explains, is that companies “strategically disadvantage themselves in that functional area, falling further behind the competition.”
As stated in the first article in this BTO series, most players are not adequately defining business transformational outsourcing, differentiating it from business process outsourcing or IT outsourcing. This explains the ease in the jump from two to 14 BPO and ITO players spray-painting themselves as business transformational outsourcing experts. Buyers must become knowledgeable of the real differences despite the marketing messages. Whether you call it “reengineering” or “improving,” making changes to a business function or process within an outsourced model is not business transformational outsourcing; it is simply “transforming” a function. BTO achieves strategic outcomes on an enterprise-wide level and continues to generate new strategic value throughout the life of the agreement. [See the sidebar for some successful enterprise-wide results of BTO.]
Says IBM’s Erdman, “Business process outsourcing is a single process or a set of processes in the outsourced model, but the client is not seeking to transform it. The client is looking to take out costs or tune up the area but not completely redesign and transform it.”
“In BPO,” adds Mike Jones, CEO of (i)Structure, Inc., a leading IT infrastructure outsourcer, based in Broomfield, Colorado, “the provider is taking the responsibility for ‘transforming’ a function to an end point. Once the transformation is completed, the provider just keeps running it for the client, or the client takes it back in house.”
According to EDS’ Herbert, “When we say we are going to provide BPO services to a client, a component of that is business transformation. Business transformation to us is really related to what we do for the client to actually get them into our BPO model (where EDS provides the people and IT infrastructure and runs the process). We do the transformation during the transition phase, changing their processes to best in class and enhancing our underlying BPO-enabling applications and technology for any additional requirements they may have.”
Many BPO and ITO players are entering the BTO market by copying the EDS model. Players on both sides of that fence, lacking either the process expertise or scalable IT infrastructure but wanting to compete in this emerging market, are joining forces and unfurling a BTO banner.
IBM and Unisys look at transformation as an ongoing, highly strategic, innovative activity on a long-term basis. Both insightfully agree on another key factor in BTO: the direction it’s headed.
Where are the Solution Areas Evolving in BTO?
“The future of BTO is going to be industry-led,” boldly claims Unisys’ McGrath. “The provider must have a deep domain understanding of what it is reengineering — either from having worked in that industry or from experience in building software solutions to satisfy industry requirements.” Success will require a confluence of outsourcing with a high-level component of software and systems integration, along with innovative consulting and the ability to turn sophisticated industry insight into innovative solutions.
IBM’s Erdman agrees that BTO is evolving with a vertical focus. In addition to process expertise, clients need expert help in transformation around the core of their industries. “We wouldn’t be able to put service level agreements and expected business outcomes in place for a client unless we have the key expertise in both the industry and the process area,” she adds.
Accenture, the Bermuda-based global consulting and outsourcing firm, is in this arena, developing industry-focused solutions around the world. Building on its world-class resources and expertise, the firm is entering new markets and building BTO solutions from a strategy of joint ventures with buyers’ shared services spinouts. In Canada, for example, Accenture Business Services for Utilities was born in a joint venture with BC Hydro; Arthis SpA is a spinout joint venture with La Rinascente SpA, focused on solutions for the European retail industry.
Referring to his company’s investments, Michael Whitacre, senior client executive, Acxiom Corporation, says the data management services company based in Little Rock, Arkansas has invested heavily in developing outsourced solutions for retail and other consumer-facing industries. “These companies,” he comments, “need to transform how they create delightful experiences for their customers through a comprehensive understanding of their current and prospective customers at all touch points.”
Although still nascent, BTO’s evolution already has a predictable direction. McGrath explains: “We believe BTO will eventually become something that will be called Business Process Utility (BPU).” It will be industry-centric but not just a big, one-size-fits-all transactional facility. Providers can customize processes to individual client needs while also providing the economies of scale benefits that make BTO affordable; IBM’s On Demand solutions, already popular in the marketplace, are an important component in shaping BTU solutions.
Not Everyone Can Play the BTO Game
Having many providers saying they do BTO is a natural component of an evolving marketplace. But it’s a problem for buyers. Today, it’s still difficult for most buyer enterprises to distinguish hype from substance in outsourcing proposals and presentations. Ultimately, dissatisfaction erupts when providers cannot deliver on their promises. Moreover, the providers that really can deliver on BTO’s promise will be impacted by the confusion and failures caused by the other players.
Beyond deep industry and process expertise, creation and delivery of BTO solutions absolutely will require enormous capital investment in research and development for software/systems integration and innovation (not to mention global infrastructure). This narrows the field of players significantly, despite current claims.
Lessons from the Outsourcing Journal:
- Moving beyond BPO, BTO providers achieve innovation and ever-evolving enterprise-wide transformational outcomes, not just cost reduction and reengineered functions.
- When evaluating potential BTO providers, buyers should ensure a provider is making deep capital investments in ongoing research/development around innovation and software/systems integration solutions.
- Unlike BPO (where solutions are process centric), BTO solutions will be industry led. Seek a provider that can turn its sophisticated industry insight into innovative, enterprise-wide solutions.