Business process as a service (BPaaS) is emerging to be a BPO game-changer reminiscent of Software as a Service (SaaS) a decade ago. Specifically, BPaaS is adding arrows to organizations’ outsourcing quiver in how they approach their finance and accounting and other back-office functions.
“Businesses that leverage traditional outsourcing deals are looking to move off of inflexible contract and delivery structures,” explains Robert McNeill, Vice President for analyst firm Saugatuck Technology. “The pillars that built and supported legacy outsourcing are under severe pressure. Labor arbitrage, old technologies, and traditional business models limit effectiveness. Businesses are looking for more flexibility, innovation, and responsiveness from their outsourcers. BPaaS is providing that alternative.”
McNeill says BPasS is “broader than just a software play, and that’s important.” He says the BPaaS proposition may include Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and SaaS as well as the traditional benefits of outsourcing such as process expertise and labor arbitrage. In addition, he predicts BPaaS offerings will provide a cost, sales, and delivery model to reach the medium-sized enterprise market. This is a change since “the traditional large service providers make their bread and butter in the Global 2000.”
Service providers are now providing the robust proprietary platforms and application modules they developed for their BPO practice to organizations for their in-house use as either fully integrated solutions or on a modular basis. Saugatuck Technology projects half of all BPO engagements by 2015 will involve BPaaS elements in the contracts.
The role of BPaaS in the future
Here is what the service providers are saying about BPaas:
- “The cloud will provide the platform for service providers of all shapes and sizes to re-energize traditional outsourcing services and also to launch new services. One key implication is that businesses will ask for cloud/BPaaS innovations within the renegotiation of traditional outsourcing contracts. Adoption as just the beginning.” Robert McNeill, Vice President for analyst firm Saugatuck Technology
- “In the medium term, we believe there is going to be significant traction. BPaaS will force people to standardize their processes. Infrastructure and software become more of a choice that allows buyers to leverage the right ecosystem. I think that is a huge shift that changes the landscape and is fundamental to how this will play out.” Shantanu Ghosh, Genpact Senior Vice President – Practices, Solutions, and Transitions
- “We think BPaaS will continue to take a larger share of the BPO market. This delivery model provides advantages that go beyond cost savings and hence will find widespread acceptability. For capital-starved firms especially, this model offers tangible business advantages. We are quite bullish about BPaaS adoption in the future.” Raj Agrawal, Global Head, Platform BPO Solutions for Tata Consultancy Services Limited (TCS)
- “Many of the concerns around BPaaS include long-term commitment, perceived risks, and the complexities around technology and BPO service integration. We continue to see increased adoption across many industries as more clients share their implementation experience and especially the return on investment.” Aniket Maindarkar, Associate Vice President, Infosys BPO
- “Technology is becoming more of a key component to the businesses. Now, everything is about process improvement. Part of the process improvement is running analytics around what is currently transpiring. We see service providers using software more as a proactive analytical tool curing things without getting people involved.” Mark Vengroff, CEO of Vengroff, Williams & Associates (VWA)
The drivers for BPaaS offerings
The BPO market, in general, and FAO market in particular, has matured. Buyers are increasingly demanding, seeking more flexible offerings tailored to meet their individual needs. The providers are finding it more difficult to find new enterprise clients with their traditional offerings. Beyond moving towards the largely untapped midmarket, providers are seeking new revenue streams.
Vengroff says improving performance is the primary driver for buyers. ”The technology may be lacking or the management team may not have the right set of processes in place. In some cases it is just a technology fix to be able to create a best-in-class performance and culture. So we realized we should start taking our toolsets and make them commercially available,” he says.
Agrawal of TCS explains “this model allows us to spread our investments across multiple customers. Customers share financial benefits by reducing operating costs up to 30 percent, thereby cutting capital expenditures. They do this using a pay-as-you-go pricing model.”
For Maindarkar, customer demand was a significant driver. “Companies are finding it difficult in this economy to secure the capital required for major platform implementations and other IT initiatives. It is clear clients are looking for ways to focus on their core capabilities. The benefits of a variable pricing model, combined with technology and business process excellence that reduce or eliminate large capital demands, are driving this interest. Clients are tremendously interested in remodeling their businesses in ways that are more flexible, on demand, and beneficial for the long-term.”
“All corporations now focus on faster payback, quick return on investments, and solutions where they do not have to think about infrastructure, software, and process services,” adds Ghosh.
The offerings are, or will be, available as a fully integrated solution as well as individual components/services/modules. The providers not only can market their platforms, in whole or part, but also their services built around their expertise in using the platforms to their optimal potential to drive continuous improvement in business processes. They can couple these services with BPaaS to provide opportunities related to other areas of their clients’ business. BPaaS offers providers a product that can significantly benefit organizations migrating to new ERP systems.
“Infosys BPaaS is a fully integrated suite of services as well as stand-alone offerings, depending on a client’s needs,” Maindarkar states. “The market for BPaaS is rapidly maturing with clients looking at individual offerings initially, then building on that success with additional offerings. What clients expect is a unified service and IT strategy around BPaaS that allows them to leverage end-to-end services.”
“Response from customers, so far, has been encouraging,” Agrawal reports. “Our solutions are integrated as well as modular, and we are seeing interest on both ends of the spectrum.”
“Our view is that this is going to be a full portfolio of offerings,” Ghosh submits. “It will be a targeted point solution. It could be a full part of a process. In some cases, it could be end to end. We are having discussions with a large group and are finding them interested in understanding what this could do and where it could lead.”
“We have a lot of flexibility in how they want to use it,” Vengroff says. “We’re finding a tremendous amount of interest because there doesn’t seem to be a toolset offered into the marketplace that has this fully integrated solution.”
Providers offering flexibility in pricing models
There is a wide variety of pricing models. Providers are also going to market with a gain-sharing option. “I think the first few clients that move to the service will heavily dictate the initial function of specific BPaaS platforms,” McNeill suggests. “They will be taking somewhat of the early-mover risk. They will develop functions to reflect their requirements. The service will become useful and profitable when service providers hit a critical mass of clients that use the service.”
Vengroff says his firm has a variety of offerings, which include subscriptions and licenses. “We have also created performance-based risk/reward models,” he says. Since the firm is confident its “solutions will produce results,” it is including a percentage of the overall price as an incentive. He says most of the company’s buyers are looking at license per seat, but “we are getting involved with more of the enterprise engagements with the gain-sharing model,” he reports.
“The pricing model is really more pay per use,” Ghosh explains. “Some of it is monthly, and some of it is annual because of the way the customer wanted to stagger cash flows.”
“This utility model is attractive to clients for a variety of reasons, but they especially like that Infosys has a shared stake in their success,” Maubdarkar submits.
“Buyers will consume BPaaS through more flexible pay-per-use pricing models rather than large lump-sum outflows,” McNeill continues. “The entry point for businesses to consume BPaaS will lower as customers benefit from standardization (and cost savings) available from externally sourced infrastructure, platform, and software across many clients. Service providers, advisors, and IT/business executives are actively pursuing and introducing new cloud alternatives to yesteryear’s services deals.”
Market forces and new delivery changing BPO
Market forces and BPO maturation have converged to redefine the nature of the playing field. The shift is now less about broad-based, one-size-fits-all horizontal offerings. There is movement towards vertical expertise in conjunction with meeting the specific business objectives of the individual buyer at a lower price point. “Service providers are beginning to develop BPaaS offerings across numerous vertical markets,” McNeill adds. “But not all of these innovations will end up being profitable or successful.”
“Cloud computing inclusive of BPaaS provides an enormous opportunity for service providers,” McNeill continues. “There is a tremendous amount of internal strategy work to understand the impact of cloud IT. Service providers are focusing solution design and go-to-market strategies on new vertical BPaaS opportunities. The emergence of new vertical offerings will originate from traditional IT and business service providers that leverage a new, more efficient delivery platform for well-understood verticals in which they already sell and non-traditional cloud-based service providers with specific vertical and business IP.”
“The emergence of new cloud-based business services providers presents a new opportunity for traditional service providers to think outside the box,” McNeill concludes. “They may partner with businesses to offer new vertical-orientated business solutions and services. Traditional providers will bring expertise in service delivery, selling, and partnering to help take these new propositions to market. This trend may lead to increasing fragmentation in the service provider market with new non-traditional BPaaS providers driving significant market innovation.”
For BPO buyers, what had been a limited menu is rapidly becoming smorgasbord.