The advantages of outsourcing technology requirements
that are not core to a business are familiar. Many organisations
need to reduce back-office costs and improve overall operating
efficiencies to maintain a competitive edge.
However, media coverage of such deals may leave industry
observers with the impression that they are the preserve of large,
multi-national corporations with the IT budgets to match.
Ironically, smaller or mid-sized firms that have less IT
expertise or budgets, but with turnovers as large as £200m, may
actually have a more compelling business case for evaluating
outsourcing's ability to initiate cost savings, provide process
efficiency and the freedom to innovate. But that does not just
include outsourcing the IT, but the people and processes that IT
supports.
Internal administrative departments, such as HR, finance and
accounting, procurement and customer call centres are increasingly
being outsourced to third parties.
According to analyst firm Datamonitor, the business process
outsourcing market is the single fastest growing area of the IT
services sector. Growing at a rate of 8% annually, it is estimated
to be worth £214bn today and is predicted to grow to almost £375bn
by 2008.
John Willmott, chief executive of UK-based research company
Nelson Hall, said, "Over the past nine months business process
outsourcing has accounted for 38% of outsourcing activity in
Europe, with IT outsourcing contributing 62%. So [business
process-led outsourcing] is not quite dominant yet. The principal
sectors remain financial services and government, though we are
seeing increased HR and finance and accounting outsourcing across
other commercial sectors."
But he said there was very little activity in the SME business
process outsourcing space at present. "The market is very immature
in regards to SME offerings. It depends how you define SME, but
[this market sector] probably still only makes up less than 10% of
the business process outsourcing market in general at this stage.
Largely local accountants and payroll services companies serve this
market. An example of a payroll company serving SMEs is
MidlandHR."
Other companies that can be put in this space include Go4BPO, a
provider of mortgage loan, insurance claim and outsourced data
entry and transaction processing services in the UK, US and India.
And Middlesex-based Damco Solutions specialises in document and
data processing, content management, and legal support services for
customers as diverse as local councils, legal or financial services
firms and wood products manufacturers.
Another example is financial systems and outsourcing specialist
BancTec. It recently announced the release of The Mortgageweb, a
new automated data exchange system designed specifically for the
mortgage market to automate electronic data exchange relating to
the mortgage application process for financial services
companies.
Rob Liddell, BancTec new product development director, said,
"Our research indicates that the majority of lenders and packagers
cite manual processes and data re-keying as being highly
detrimental to the efficient processing of mortgage
applications."
IT service providers, management consultancies and specialist
business process outsourcing suppliers are all positioning
themselves to gain a share of this growing market, which is
increasingly merging the traditional areas of IT services and
specialist business process management services.
This can make it harder for an SME to find the right provider
for business process outsourcing services. Some specialist
services, like payroll, are even being offered by banks as part of
small business banking packages.
Willmott said, "Most SMEs want up-to-date technology, and
actually, the need to refresh or update systems, and hence
processes, is a more important driver in the SME market than for
multinationals.
"However, the technology needs to be relatively straightforward
to use and relatively low-cost to implement. It also needs to be
highly modular so that it can be tailored to the specific needs of
the SME."
The needs of an SME are no less specific than a large enterprise
when it comes to business-to-business process management.
"Suppliers have always tried to provide standard services, and SMEs
are no different from any other organisation in needing suppliers
to understand them and their place in their industry, as well as
provide an account manager who will match the supplier's
capabilities with the client's requirements," said Willmott.
"The client needs to feel special and as though the service is
designed with them in mind, even if they are a small organisation,"
he said.
He advocated services that simultaneously offer cost reduction,
service improvement and process improvement or innovation. "In
general, business process outsourcing is an operations rather than
technology player, so IT capability is less important than
operational capability," he said.
"Nonetheless, most offerings need to be underpinned by good data
capture, imaging, workflow or document distribution, and agent
management technology. After that it depends on the area being
outsourced."
Independent industry analyst, Derek Miers, said that from a
technology perspective, SMEs are most likely to struggle to handle
the choreography and orchestration of their electronic data
interchange business processes. Basic knowledge of the processes
involved are desirable, but not essential.
When outsourcing such core business functions, Miers said
companies could consider adding to the in-house technology
infrastructure with tools that can help better orchestrate the
business processes being outsourced. SMEs should also monitor the
service provider's choreography of them according to the service
level agreement and pricing conditions of the business process
outsourcing contract.
"There are those packages, like Peoplecube, N8 and Digital Fuel,
which help automate and monitor workflow administration," said
Miers. "They help suppliers and users in modelling the services and
reporting on them. A business process outsourcing company may be
providing services to 28 different companies, but needs to charge
them at a granular level."
Process notation and modelling standards could go a long way to
opening up the business process outsourcing market, according to
Miers. "Companies should ask about the notion of process modelling
protocols like enterprise data fabric, which allows for outsourcing
outside the business firewall," he said.
"These standards are all about how an organisation defines the
boundaries of how it interacts with other suppliers, like
outsourcers', systems. Take a fresh approach to how you understand
your processes before outsourcing them."
Peter Redshaw, Gartner investment services research director,
said toolsets occupy only a thin slice of the business process
outsourcing technology stack, and to a very low level of
granularity, which need not necessarily have an impact on an SME's
decision to outsource.
"If the brief is business process outsourcing, that might lead
to some level of understanding of business process management
technology, which is all about methodology, tools and standards.
But a deal will essentially be about process workflow, which is a
very specific part of business process management," he said.
Rather than pursuing a deeper understanding of in-house
technology investment, Redshaw urged a pragmatic approach to
business process management technology. SMEs should ensure that the
benefits available offset the inevitable extra management and
governance requirements involved in running a successful business
process outsourcing contract.
"These are often white label services that deal with
high-volume, low-value transactions. And for small firms, where it
can be difficult to get economies of scale, it does not add any
value to keep tweaking code to stay ahead of regulations. These
deals can give access to offshore resources too," he said.
Allan Cook, director of IT strategy and outsourcing consultancy
Akubra, agreed. According to Cook, the real challenge is getting
the SLAs and exit strategy right.
"Setting up and automating the processes themselves comes from
the workflow and business process management engines that have
orchestration technologies built-in as a commodity. Focus less on
the technology and more on the enablement of SLAs and contract
governance."
Cook pointed out process technologies used to deliver business
specific applications with a web front-end form the basis of a
majority of functional and business specific outsourcing
offerings.
"The outsourcers are exposing as much integration and
specialisation as web services as they possibly can, to make the
service as simple to use and attractive as possible," he said.
"There are some industry areas where older methods of
integration are more linked to the type of technologies used on the
back end. In financial services, for example, applications are
probably built on mainframe technology.
"Any business process outsourcing service should be able to
display the process exchange inside a browser and handle
authentication," said Cook.
Cook pointed out that the design of the contract is actually
much harder than the design of the technology. "When considering
whether to outsource a process, it is more about the risk
associated with outsourcing and the cost than what technology is
involved - interoperability and workflow have been around for some
time."
Outsourcing, regardless of what size of company, is now less
about technology and more about service and cost. "It is not a
technology problem you are solving, it is a business one. The
technology is just there to plug the companies together now," said
Cook.
Finding the right service provider is the most important
consideration. And in a rapidly expanding market, where large
organisations have laid the groundwork for exposing some heavy
technical processes to non-technical users using web standards, the
SME's choice is likely to be greater than ever before.
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