BPO – “the possibilities are endless”

May 4, 2007 on 5:31 am | In Uncategorized |

By Les Mara, Head of Business Processing Outsourcing EMEA, HP

Today, the business case for business process outsourcing (BPO) is typically built on the twin pillars of labour rate arbitrage (transferring work offshore to low-cost locations) and economies of scale (consolidating previously dispersed activities into regional and global centres). However, leading companies are increasingly looking beyond this to BPO service providers who will deliver not only best practice processes but also the relevant tools and technology to enable seamless global business processing in a cost-effective manner.

In many cases, however, achieving seamless global delivery is hampered by the legacy of a complex systems landscape. Either through a history of mergers and acquisitions or through decentralised IT investment decisions, many organisations find themselves operating a mix of dissimilar enterprise resource planning (ERP) systems and home-grown applications. This disparate set of business systems can represent a significant challenge for an organisation seeking to maximise the benefits from consolidation and standardisation of processes. Furthermore, obtaining timely meaningful management information at a corporate level can be difficult and costly, thereby impacting decision making in a highly competitive marketplace. Companies faced with this situation must decide what to do with their systems architecture as part of the outsourcing equation.

Hitherto, the response to this issue was most commonly to consolidate the ERP landscape and/or migrate to a global instance of a single platform. However, global migrations can cost hundreds of millions of dollars and take years to fully implement. Savings that could be achieved through process standardisation and consolidation of business processing activities through BPO are often delayed until ERP consolidations are completed. Any merger, acquisition or divestiture activity that occurs during consolidation may disrupt the roll-out schedule and drastically effect costs and timing.

Recently, the advent of service oriented architecture (SOA) has enabled a different approach. It enables the BPO provider to deliver services whilst ‘loosely coupled’ to the customer’s IT landscape instead of being tightly bound to the customer’s own particular set of applications. In the context of SOA, ‘services’ are business services such as invoice and payment processing, account reconciliation or order fulfilment. This structure creates a virtual application by connecting multiple services to present users with a single process view. The newly combined services become a new application that can easily be reused and restructured to meet customers’ business needs.

Whilst the concept of ‘services’ has been around for quite some time, recent advances in standard definitions for various technologies have lead to greater proliferation and interoperability. With today’s higher-performance computing and stronger communication standards, this design concept can now be used for demanding enterprise applications. Using standard protocols, different devices and applications are now able to communicate and interoperate within an SOA. In essence, the SOA builds on the extensive standard communication protocols to build a ‘container’ that can house and connect all the business services and applications. Multiple services and applications can then ‘plug’ into the container. Once they are plugged in, the various services and applications can communicate with each other via industry standard protocols and can then work together to perform various customer-specific business processes. This means that users can access all the various business services from any application or service plugged into the SOA, regardless of where those services and applications physically reside and regardless of which languages they are programmed in.

Despite a legacy of multiple ERP systems and applications, by plugging into the BPO provider’s SOA-based solution, a BPO customer can therefore gain immediate access to the provider’s standardised processes, tools and technology, and secure global data warehouse. This allows the customer to begin realising savings through process efficiencies, advanced technology, and labor arbitrage without having to spend the time and money to implement ERP changes. The BPO provider enables this by dropping in an ‘extension’ of the SOA that automates communication with the customer’s systems and enables data transfer from those systems. Once the extension is in place, the customer has the ability to view consolidated data across the entire organisation. Since the provider uses the same process and data center regardless of the underlying ERP system, the process essentially becomes ERP-agnostic, and the provider’s transactions processors can access all the necessary applications and systems with a single sign-on. This ability to interact with the customer’s many ERP systems and systems without having to replace the legacy software is a major breakthrough in transformational outsourcing, and is one that is likely to become the standard as both customers and providers learn the benefits of the SOA-based solution.

Business benefits of SOA

The benefits of SOA in the BPO environment fall into five major areas: cost, speed, agility, scalability and transparency.

Cost

By far the most significant cost savings come from the ability to avoid or delay large-scale ERP transformations. By implementing an SOA architecture and placing a single ‘wrapper’ around the existing disparate systems, companies can leverage existing software investments and avoid or delay the time and expense of global ERP consolidation projects.

Although implementing an SOA-based solution will not fix any underlying ERP issues and a global harmonisation of the ERP platform may still be required in the future, it will still allow customers to gain immediate access to consolidated business views and to leverage the benefits of standardised business processes and tools across their organisation.

In addition to avoiding or delaying the cost of full-scale ERP migration/implementation, by de-coupling the BPO provider from the customer, the SOA structure can also eliminate the cascading impacts of software changes and upgrades and thus simplify ongoing maintenance. SOA’s use of defined industry standards also enables old and new applications to communicate with each other, now and in the future. This means that new applications written using industry-standard languages can be reused by any program that uses the same standard. This ability to reuse programming makes it easier to add functionality in the BPO environment, providing benefits for both BPO providers and their customers.

Whilst BPO providers benefit from greater agility and the ability to respond faster to customer business changes – and from gaining an economical way to offer ‘services on tap’ to their customers – their customers benefit from the ability to pick and choose the services they need as their business requirements change, giving them greater flexibility to manage their business.

Speed

The second key benefit of the use of SOA in the BPO environment is speed to market. By implementing an SOA-based solution, the BPO provider essentially builds a plug-and-play ‘container’. The provider can then quickly implement a solution by grouping services together within the ‘container’ to support customer-specific requirements. This rapid implementation allows customers to begin realising savings and efficiency gains in a relatively short time.

Agility

An SOA structure also allows the BPO provider to quickly respond to changing customer business needs by providing a means to isolate a customer service or set of services. The SOA structure enables the provider to modify services offline to meet the customer’s new requirements and then integrate those services back into the process flow—without disrupting ongoing operations. SOA also facilitates the incorporation of best-of-breed, off-the-shelf solutions. Furthermore, the integration of acquisitions is simplified through the ability to simply ‘drop in’ an appliance close to the existing ERP system(s) and begin processing.

Scalability

The ‘plug and play’ nature of SOA enables different companies or business units to simply plug into, or unplug from, the container without disrupting the ongoing BPO operations. This ability to plug and unplug business units in a rapid and non-disruptive manner makes the SOA platform a highly scalable solution for both customers and BPO providers. From the BPO provider perspective, because the IT architecture of the SOA solution is designed to easily integrate new entities, the provider can not only accommodate new business units, but can also leverage its investment across multiple independent customers. This reduces the BPO provider’s design and operating costs and allows it to provide lower cost services across its customer base. In addition, the BPO provider can plug-and-play additional solution applications into the container and easily add or upgrade functionality to its suite of customer solutions. From the customer perspective, scalability means that customers can easily add or remove businesses and or services without causing major disruptions to their current operations. This scalability provides for greater business agility and lower operating costs.

Transparency

Previously one of the key driving forces behind ERP applications was the need for global consolidation of financial data to increase transparency and improve business management. Now however, SOA enables a single business-process portal to interface with multiple legacy financial systems, which in turn allows better visibility into business processes and ultimately results in greater control across the business. The ramifications of this increased visibility into the business reach across functions and should ultimately result in better forecasting, tighter controls, and more strategic decision-making throughout the business.

The future

Even as these tools and technologies are coming online, BPO providers are working on the next-generation platforms, which will continue to incorporate valuable new tools and services such as:

• Integrated business-process analysis tools which enables real-time simulation and analysis of business needs, infusing efficiency, effectiveness , quality and knowledge into critical business processes
• Real-time identification service issues and performance on an end-to-end basis,(from network through IT infrastructure to business processes), so that business and technology issues can be proactively addressed.
• Rules-based automated workflows to enhance business agility at all levels, aggregating company business rules within the architecture for comprehensive business-process change management.
• Web-enabled portal to provide a single access point to services which enhances processor productivity and improves business controls.

Final words

The expanding use of SOA is providing a means for BPO providers to connect with their customers and rapidly deploy BPO services in a less invasive, less costly and less time consuming manner. While there are many valid reasons for companies to opt for ERP consolidation – for example, to enable a single, consolidated general ledger – those companies who choose not to can still achieve through SOA a cohesive and comprehensive corporate view of operations.

As the BPO market continues to mature and provide increasing levels of sophistication in both products and services, the possibilities for the next generation of BPO platforms are endless.

In profile

HP is one of the world’s premier services providers for shared services and outsourcing. Based on first-hand experience and insights, HP has successfully led strategic assessments for numerous enterprises and has assisted in transforming the IT infrastructures of several Fortune 100 companies.

The HP business transformation journey began in the early 1990s, when the company set the strategic goal of reducing operating costs by 30 PERCENT in three years. HP embarked on an initiative to consolidate its business processes and move them to offshore services centres situated in strategic locations throughout the world. This initiative enabled the company to achieve its cost reduction goals, as well as improve service levels, well within the allotted time. More importantly, consolidation provided a springboard for further process improvement through the use of technology.

Today, the company is recognised for its successful business transformation journey and is viewed as a thought leader in shared services and outsourcing. Having transformed its own business and with more than 15 years of shared services experience, HP is uniquely positioned to understand the challenges of shared services and to help companies navigate through strategic and operational obstacles to build world-class processes. As a result, HP is often approached by Fortune 500 companies to conduct shared services and outsourcing feasibility studies, prepare business cases, establish service-level agreements, develop detailed implementation plans, and lead implementations of shared services centres and outsourcing arrangements.

Beyond serving clients as a consulting partner and BPO service provider, HP is a well-respected and active member of several shared services associations, and HP representatives are regularly asked to speak at conferences on both shared services and outsourcing topics. Underlining its business process excellence, HP has been named by Shared Services News as one of the “Top 10 most admired shared services organizations.” And most recently the International Association of Outsourcing Professionals (IAOP) has ranked HP as the world’s fourth leading services provider in its 2006 Global Outsourcing 100 list.

For more information, visit the HP Web site at www.hp.com/hps/process.