Editor’s Corner: Dr. Christian Baader, SAP | Article

Christian Baader, SAPDr. Christian Baader, 44, is vice president of BPO Strategy, Market Development and Marketing for SAP, the enterprise application software provider. He is one of the architects of SAP’s unique BPO partnering model with service providers, which began to get traction in 2004. According to the Everest Research Institute, as of March 2007, SAP powers 50 percent of finance and accounting outsourcing, 44 percent of procurement outsourcing, and 40 percent of human resources outsourcing worldwide. Read why Dr. Baader thinks the BPO market is bipolar, why BPO should become more like automobile manufacturing, and what the movie The Bucket List can teach everyone.

Q: How can a software vendor like SAP contribute to BPO?

A: It wasn’t that evident in the early days of BPO. In the first generation of deals, buyers and service providers underestimated the importance of the delivery engine. People learned software is a large lever in delivering value.

Second-generation BPO buyers understand technology and appreciate the leverage technology brings to the table. Today BPO buyers (and providers) want to get their delivery engine firing on all pistons. These include:

  • Economies of scale
  • Process optimization
  • Labor arbitrage

Now people realize that technology is as fundamental to BPO delivery as oil in preventing a piston seizure. Not the only ingredient of the engine, but for sure a crucial one!

Q: What do BPO buyers want today?

A: BPO buyers want outsourcing to make their process more efficient. This is the entry ticket. In addition, they of course want higher service quality and less risk.

Labor arbitrage is a one-time lever, and it’s going away. Buyers need an advantage that is sustainable. That’s where technology comes in. We help buyers and providers get more leverage from their delivery platforms — and achieve better quality and risk at the same time.

Q: What are the key features of your provider engagement approach?

A: SAP is an enabler. We are not a service provider. We’ve adopted a partnership approach. We help providers design, deploy, and support their solution. We help them include our technology in their offerings — in time and below budget as experience has shown. Our field team collaborates with the supplier’s field team. We provide go-to-market support.

Q: What does this mean to the buyer?

A: Buyers benefit, if the provider benefits. They have to realize they must create a win-win relationship with the providers — more a joint venture or procurement situation.

Buyers don’t want to become a provider’s problem child. They want to become its success case.

We help providers design business configuration templates, for example, that they can use across customers. This helps providers deliver better service, faster implementation, higher profit, and lower risk for buyers.

Q: How do you see the overall state of the BPO market?

A: We attended HRO World in New York in April and heard a lot of HRO success stories. But we know there are quite a few dissatisfied customers too. There are many renegotiations going on. That means our market is bipolar.

I think the market sees large transformational deals as quite risky. We’ve seen some providers renegotiate these deals because they were not sustainable. But the transactional business model is quite successful. Such deals have created satisfied customers and been profitable to the suppliers more reliably, it seems.

Q: What should buyers watch out for in today’s BPO marketplace?

A: They need to understand that their contract and service level agreements (SLAs) don’t create a successful outsourcing relationship per se. They need to understand how the provider creates value for them, which means to look under the hood of the provider’s delivery engine. Is it firing on all pistons? How is the provider using the levers he has? Are the advantages it delivers, sustainable over time? It is key for the provider to be able to innovate as well.

Q: How can buyers and providers avoid these challenges and achieve BPO success?

A: Both sides must embrace best-practice standards and an integrated end-to-end view of the processes across the company, i.e., including the retained organization.

Both sides must work well together. They have to co-design the delivery system — the shop floor. Buyers must realize their providers can’t solve their every problem.

Q: Why is the integrated end-to-end view of the processes so important?
A:
Bespoke integration is expensive. You have to create interfaces between solutions that weren’t made to work together. Creating the interface is a one-time effort, but it also requires continuous maintenance. Our research shows that these costs increase disproportionately the more integration points you need to serve. And there are a lot of touch points between processes. That means you have a lot of disruption points. Also, custom-made interfaces are inflexible and make it more difficult to change.

Q: You say standardization is important. But one size can’t fit all, right?
A:
BPO is suffering from a black-and-white discussion. When companies reach a certain size, they don’t want a one-size-fits-all solution.

BPO needs to be more like modern automobile manufacturing, which means based on platform strategies. A brand might have eight different models, but they all share two-thirds of the parts. That’s what BPO needs to strive for.

Q: Do you see evidence for the benefits of scale in your customers?
A:
Yes. The American SAP Users Group surveyed 200 customers across the HR process and beyond. We found deep scale success — in the 40-60 percent range.

But not everybody benefits from scale. The benefits of scale aren’t automatic. Senior executives now appreciate how the lack of harmonization of processes hurts them.

Q: How should providers and buyers approach these topics?
A:
Sometimes managers spend so much time writing their SLAs they forget to discuss how the provider is going to achieve leverage. They need to add it to the agenda.

Q: So what should buyers and providers do in a concrete deal situation?
A:
They need to take a more engineering approach to the design of the deals. They should decide what the buyer needs to outsource based on the harmonization benefits possible versus the change pain the buyer organization would need to incur.

From the start, the buyer needs to look at the ending of the movie, i.e., when the contract expires. If the buyer wants to change suppliers, it’s much more difficult if the deal is based on a proprietary, custom-made solution. If the buyer selects a best practice-based solution based on standards, it will be much easier to move. Standardization also reduces the perceived risk for the buyer.

Q: What else should buyers and providers focus on?
A:
They need to focus on clearly scoping their project. Neither side should bite off more than it can chew.

Collaboration is key. You have to put together the business people — the ones designing the services — with the people designing the shop floor — the IT and operations people. Typically these two groups don’t work together by default.

In order to ensure best leverage of the IT, buyers of second-generation BPO deals often invite us in early on. These buyers understand the importance of their supplier’s delivery engine. We can help both parties leverage our technology best, because we understand the latest status and where it’s going.

Q: This sounds like some heavy lifting is involved. How can buyers get focused?
A:
Buyers need to look at their processes to determine how much scale they can achieve and how much cost-share they represent. The “heavy” processes most prone to scale are the most important ones.

Q: What is the role of an advisor here?
A:
Today there is a lot of emphasis on running competitive selections. This is important. But consultants also have to help their customer understand the options and bring best practice expertise on the process and delivery side.

Q: What role does SAP play?
A:
We want to support them when designing the shop floor and leveraging our machinery. Neither the providers nor the advisors may know about the latest SAP release and how the solutions are going to evolve. We hope our input around these factors helps make the deals sustainable.

We try to help from the RFP stage. We get a lot of good feedback during implementation when we get involved early.

Q: Were there challenges to implementing your BPO concept?
A:
We certainly had some challenges in the beginning. When BPO started in the late 1990s, we viewed BPO providers as a threat. Also, the players saw first generation BPO deals mostly from the strategy and restructuring angle and less as a delivery issue.

Then we created a business unit to help us partner with BPO providers worldwide. Now we leverage the know-how and experience. We made SAP BPO friendly.

Q: What results have you achieved so far?
A:
We now have four years of operational experience. We have seen our 25 participating BPO providers sign over 300 deals under this program. By building on our role as BPO enablers, we have become an appreciated part of the market. A long way from where we were four years ago.

If you ask me personally, I am proud, that together with my colleagues, I could build a real, sustainable part of the organization within SAP to manage and evolve this very particular business area for us. We are now close to 60 people worldwide dedicated to BPO with many more from the rest of the organization who collaborate with us on a situation-specific basis. That is a lot of commitment for the long term.

Q: Let’s talk about your background. Where were you born?
A:
I grew up in south Germany in Darmstadt. My parents ran a retail business. Retailing turned out to be a good background for me. I saw them in their daily struggle. I learned to be successful you have to work hard and be flexible.

When the big retail chains moved to town, they sold their business and moved to Baden-Baden. Much later, after I started working for SAP, I returned there.

Q: Where did you go to school?
A:
I studied computer science at the University of Karlsruhe.

During this time I had a chance to study at Stanford. It was in 1987 as part of an internship at Digital Equipment in Palo Alto. That was a formative experience. I learned how important it is to be collegial, pragmatic, and results oriented.

Q: How did you decide to combine IT with business?
A:
I wanted to move beyond pure IT when I finished with my degree. Maybe also it was a lesson from my parents’ business: it is the use of IT, not IT itself, that creates the value. So after the university, I joined McKinsey as a management consultant. During my time there I got an MBA from INSEAD in France where I learned the basics like finance and marketing.

After several more years as a consultant, I took the chance to extend my experiences into a PhD during a sabbatical; I wrote my thesis on how to manage subsidiaries in a systematic fashion. It was a pragmatic attempt to standardize. There are quite a few similarities to our BPO approach today, when I think about it.

Q: Where did you learn your biggest business lesson?
A:
It was early in my career as a management consultant at McKinsey. I was working on a project to increase productivity at a shared services center. We didn’t have a lot of support from management; this resulted in daily warfare with our client team. They didn’t appreciate us suggesting replacing capacity with more clever management. This project told me a lot about the challenges of change management. I learned emotions and fear can be much more powerful than facts in shaping decisions.

Q: What’s your favorite book?
A:
I like to read novels that take me to faraway places and times. One of my favorites is The Discovery of Slowness, by Sten Nadolny. It’s a fascinating story of a guy named Franklin in the early nineteenth century. He was a slow and deliberate guy, which he saw as a big problem. In the end this became his biggest strength.

My lesson: we are living in an accelerated world. People think speed is everything. But often you can achieve more when you are steady and thorough. You have to take time to think. Apply this to BPO today: You must be willing and able to play the deliberate, long-term game. The customers are in it for the long haul — and so are we!

Q: What’s your favorite movie?
A:
The Bucket List. One guy is rich, one poor. The movie shows materialism is just one side of life. The rich guy realized he could learn a lot from the poor guy.

Q: What do you do for fun when you’re not thinking about BPO?
A:
I have three women at home, including two daughters, ages 10 and 12. I love spending time with them. I also like various sports like skiing, windsurfing or motorbiking — in fact, things with engines fascinate me. That is why I learned piloting single engine planes and lately motor boats.

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