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Claudia Imhoff

Welcome to my blog.

This is another means for me to communicate, educate and participate within the Business Intelligence industry. It is a perfect forum for airing opinions, thoughts, vendor and client updates, problems and questions. To maximize the blog's value, it must be a participative venue. This means I will look forward to hearing from you often, since your input is vital to the blog's success. All I ask is that you treat me, the blog, and everyone who uses it with respect.

So...check it out every week to see what is new and exciting in our ever changing BI world.

About the author >

A thought leader, visionary, and practitioner, Claudia Imhoff, Ph.D., is an internationally recognized expert on analytics, business intelligence, and the architectures to support these initiatives. Dr. Imhoff has co-authored five books on these subjects and writes articles (totaling more than 150) for technical and business magazines.

She is also the Founder of the Boulder BI Brain Trust, a consortium of independent analysts and consultants (www.BBBT.us). You can follow them on Twitter at #BBBT

Editor's Note:
More articles and resources are available in Claudia's BeyeNETWORK Expert Channel. Be sure to visit today!

There is a new acronym for everyone -- BPO or Business Process Outsourcing. According to Yankee Group, this is the integration of multiple business services in your enterprise with a single provider. "The whole delivery mechanism for ERP is changing" because of this trend, according to Phillip Fersht of the Yankee Group. "Suddenly ERP is no longer the core strategy of the enterprise". This spells big trouble for SAP and other large ERP vendors unless they can adapt.

The trend in outsourcing an enterprise's business processes is not new. It started years ago when companies figured out that HR management was not a core competency. Now, Fersht says, the idea is spreading to other organizational processes due to the almost instant benefits and cost savings. Yankee Group predicts that the fastest growth will occur in North America with a stellar 43% growth occurring between 2005 and 2006.

What does this means to ERP vendors like SAP? They will have to shift their business model from selling ERP packages to licensing their software to their BPO partners. So far, that is exactly what SAP is doing. They have signed up 10 partners whose licensing revenues hopefully will replace the earnings that are disappearing from the sales of their core ERP suites.

From an BI perspective, this may also free up these large vendors to focus more attention on the added value they can bring to customers from better analytics and BI applications offerings. It will be interesting to see what happens to these companies in the next 5 to 10 years.

So what are the benefits of BPO? Reduced administrative and transactional costs, transferance of management responsibilities to a third party, reduced software and hardware costs, and so on.

OK sounds good -- but a cautious note is needed here too. This is a new area. Granted a lot of the big companies like IBM, Accenture, EDS and CSC are poised to take over all of your operational processes but still, this is a mighty big leap for a lot of companies. If you are considering this, I recommend that you understand exactly what these companies are responsible for and what your company's responsibilities are. Determine which operational processes are amenable to outsourcing and which ones do still offer your company a competitive advantage. The outsourcers do not do everything well.

As in any outsourcing situation, there are a number of pitfalls as well as benefits. Your job is to mitigate the former and enhance the latter.


Posted June 9, 2005 2:16 PM
Permalink | 9 Comments |

9 Comments

Great comments Claudia. The IT world has always needed mandates and real TCO to reach each technology inflection point. The reason for the comparative failure of integration technologies like web services (aka "SOA") and continued usage of stagnating technologies like ERP is that there has not been an inflection point since Y2K. BPO is that next inflection point. Companies need agile infrastructures in order to support outsourced business services, and it is the business benefits of outsourcing - achieving business solutions like payroll, benefits and accounts receivable - at lower costs and often better quality, that are driving these changes. However, the innovation onus from a technology standpoint is clearly shifting towards the BPO and ITO vendor (aka IBM, EDS, Accenture, CapGem), and away from the CIO, whose role is increasingly becoming focused on business-IT alignment and vendor management.

I work in consulting business since 15 years and I lived the born and growth of outsourcing. As correctly reported, it started in HR, and then spread in other areas, first in accounting, then in Information Technology. Also buying finished goods (e.g. in fashion industry) is a kind of outsourcing.
However, I would be less enthusiastic and, after years of experience, I would be very careful to advise about outsourcing whatever is not HR or low-cost production. It is important to set carefully the scope of outsourcing because the "pitfalls" happen almost always: the company loses control on processes that they thought were not "core" (Finance); the Service Level control structure becomes oversized and overcostly; mostly in IT, the vendor increases a lot the power on the client, therefore the first contract is cheap, but each renewal becomes more and more expensive, because time creates a barrier to entrance of new competitors, due to high cost of handover.

Good feedback, Maurizio. Thank you! I hope everyone considering outsourcing will take your suggestions to heart. It is especially important to determine precisely what the outsourcer is responsible for. Many times, "extra" charges become quite significant because the line of demarcation between the client and the outsourcer was not clearly described.

Another trend of BPO that you havent mentioned is where the tasks are performed in a remote location (as opposed to re-badged employees)... and this can lead to cost savings of 30% + on a long term basis if done in low cost countries

the flavor here is that the ERP package continues to be held by the client but most manual processes are now handled remotely

and regards controls mature organizations ensure that key knowledge and process controls remians within their employee base

What is Outsourcing?
Outsourcing is acquiring a product or services rather than producing it yours.

Why Outsource?
There are many reasons why organizations choose to outsource functions and services. The following is a list of common reasons why outsourcing is undertaken:

* Lower costs
* Specific supplier benefits. For example, better security, continuity, etc
* Higher quality service due to focus of the supplier
* Less dependency upon internal resources
* Control of budget
* Faster setup of the function or service
* Lower ongoing investment required in internal infrastructure
* Lack of internal expertise
* Increase flexibility to meet changing business conditions
* Improve Risk Management.
* Acquire Innovative Ideas.
* Turn fixed costs into variable cost.
* And lots more...

Sharad Saxena (sharad@iwebresources.com)
www.iwebresources.com

Pardon me for asking this, but why should BPO spell decreased revenues for ERP vendors...is it because when a company outsources its process to a large vendor like IBM, that vendor would then use some other software to integrate business processes? Or is it because of some other reason? If ERP solutions provided true value for making business processes more efficient, then I am not sure why their revenues should decrease with BPO - because the user company would insist that the BPO provider still used the same software, wouldn't it?

Or may be I have not understood you at all, which is quite likely going by history :-)

Ec @ BPO

I like your last statement "your job is to mitigate the former and enhance the latter". Well, BPO grows rapidly and is becoming a major business competing very well in the business industry. Most companies resort in outsourcing their business operation for them incurs less expense but gives the same result. Companies have to be versatile and adapt to changes in order for them to survive especially in this times of crisis.

"Determine which operational processes are amenable to outsourcing and which ones do still offer your company a competitive advantage" Great statement.

Due to the financial trends today, most companies opt for outsourcing to cut out the high cost of productivity.However, not all jobs requires to be outsourced that is why companies should do research and studies first to prove the extensibility and feasibility of outsourcing in their companies.

Business Process Outsourcing (BPO) is a division of Outsourcing which includes contracting of operations and responsibilities of a specific area of business functions, to a third party service provider.ERP, SAP, Saas, what ever it be all are the individual parts of Business Process Outsourcing. Business constancies are also there to get the outsourcing business. Thanks for sharing.

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