The impact of technology on cost in BPO - Part 2 by LONGUE-VUE

THE IMPACT OF TECHNOLOGY ON COST IN BUSINESS PROCESS OUTSOURCING

Part 2: Five Keys to Unlock the Potential of Technology in Business Process Outsourcing

White Paper SAP Business Process Outsourcing

CONTENT

^ 4 Executive Summary ^ 5 Technology in Business Process Outsourcing â&#x20AC;&#x201C; Why You Should Care 5 Cost Control: Shared Responsibility of BPO ÂCustomer and Provider 5 The Complete BPO Cost Picture 5 Controlling Costs Through Technology ^

7 The Five Keys 7 Functionality 8 Integration 8 Configurability 9 Scalability 9 Viability

10^ How a Global High-Tech Leader Benefitted from Leveraging the Five Keys ^11 Using the Keys 11 Cost of Transition 12 Cost of Ongoing Process Operations 13 Cost of Keeping Long-Term Options Open ^14 Conclusion and Outlook

Executive Summary

Many factors contribute to the cost of a business process outsourcing (BPO) engagement. Among them, information technology – especially software – is often underestimated. While software typically represents just 3% to 5% of a BPO provider’s cost base, it directly drives the efficiency of ongoing BPO operations (as well as quality and predictability) and thus significantly impacts the overall cost structure. With BPO providers aiming to reduce total in-scope cost by about 40% in order to satisfy their own and their customers’ business cases, technology should be seen more as an enabler than merely as a cost item.

Not only will the right software, appropriately deployed, help BPO providers to further automate their processes and realize economies of scale, it will also underpin sustainable process optimization and make labor arbitrage possible by connecting and controlling remote locations via workflows. In addition, software is the key enabler for integration between buyer and service pro vider, both on process and IT levels. The Hackett Group notes that “Worldclass HR organizations . . . make better use of data across various systems, streamlining end-to-end processes using technology integration . . . ,” contributing to the fact that “[they] deliver their services with 25% lower cost.”1 Software choice has a substantial longterm impact on cost as it influences an organization’s flexibility to accommodate scope or scale changes, allow for organizational developments such as reorganization or merger and acquisition activities, and cater for potential changes in sourcing strategy.

This BPO white paper is the second in a series of SAP papers on cost in BPO. Building on the complete BPO cost picture developed in the first white paper, this paper examines five key requirements that apply to an IT solution utilized in BPO and explains how these translate into specific cost advantages for both the BPO provider and customer throughout the lifetime of a BPO project.

1. 2005 Performance Metrics and Practices of World-Class Human Resources Organizations, The Hackett Group, 2005. 4

White Paper – Impact of Technology on BPO Cost

Technology in Business Process Outsourcing – Why You Should Care

Cost reduction is still the main driver behind many business process outsourcing (BPO) decisions. But what is the impact of technology on the cost of a BPO relationship, and why should BPO buyers care?

Cost Control: Shared Responsibility of BPO Customer and Provider Instinctively, the option to pass on responsibility for the cost structure to the BPO provider and work out any conflicts via governance processes is tempting for a BPO customer. However, overall cost structures are not easy to control in this way. In addition, part of the process cost is generated by the retained organization and not controlled by the BPO contract. Even if costs are not transferred explicitly to the client, they can generate a strain on the BPO provider that ultimately puts pressure on the quality of delivery. Service-level agreements (SLAs) typically can’t cover all areas (countries, business units, and processes) or performance aspects where quality control is required. Ultimately, BPO providers operating under duress might ask to renegotiate contract elements such as price and SLAs. This is why a large degree of cooperation between BPO customer and provider to address the issues relating to the full BPO cost picture is necessary – and related technology decisions need to be made jointly.

The Complete BPO Cost Picture Understanding the full cost structure of a BPO project is an important prerequisite to assessing the achievable cost savings and understanding how technology drives those savings. While the total contract value of BPO services as agreed with the BPO provider is a good start, it is hardly a comprehensive indicator of the overall cost. Rather, various other cost components contribute to the true full cost of BPO. While some costs are expected and occur consistently, others are less obvious and some can even surprise a customer and cause them to incur significantly higher-than-expected costs. Examples of cost items that need to be looked at include integration costs, costs of a potential exit, and costs of the retained process parts. Technology impacts each of these cost items.2

Typical BPO provider cost base

~ 65%

Controlling Costs Through Technology To evaluate the impact of technology on BPO cost, one needs to look both at its direct cost impact and consider the indirect impact it has on the following cost components.3 • Of the overall BPO cost structure, about 20% can be attributed directly to technology, while labor and related administrative costs make up the remaining 80%. • Out of the technology portion, the largest chunk is the cost of hardware and operations. Software licenses, on the other hand, typically represent only 3% to 5% of BPO process costs, while about 7% is spent on consulting services and internal resources for implementations and maintenance.

Selected IT solution impacts all cost components. Effects include: • Process automation impacts staffing levels required for process execution • Process standardization enables realization of scale effects • More efficient SLA monitoring and governance • Reduction of infrastructure and software complexity • Efficient implementation and maintenance

~ 15%

~ 10%

~ 3%

~ 7% Total Staff/ General and Hardware and Software Software Processes Administrative Operations License Maintenance and Implementation Figure 1: Breakdown of a Typical BPO Provider’s Cost Structure

2. For a more detailed analysis, see The Impact of Technology on Cost in Business Process Outsourcing – The Complete Business Process Outsourcing Cost Picture, SAP white paper, 2006 3. Source: SAP analysis. White Paper – Impact of Technology on BPO Cost

â&#x20AC;˘ Labor and related administrative costs are very sensitive to economies of scale (which are enabled largely by technology). For example, if the size of the organization triples, the cost of payroll per employee will decrease by up to 30%. Figure 1 illustrates that in order to reduce costs through technology, software is a major lever. Minimizing the software license expenditure will reduce the overall cost only marginally. Choosing the right software, however, will allow the provider to reduce complexity of the IT landscape and thereby help bring down the cost for hardware and operations and reduce related capital expenditures. Less custom code will be needed, leading to lower implementation- and maintenance-related costs. Even more significant, however, is the impact of software-enabled standardization and automation on labor costs by introducing new process optimization possibilities, improving economies of scale, and enabling a higher degree of labor arbitrage. All these approaches generate savings that are sustainable over time.

The BPO customer must consider how adjacent technology and processes need to be improved, adjusted, or at least reconciled to accommodate BPO. Even if cut-off points between retained and outsourced processes are clear and well defined, interdependencies exist. In the case of HR processes, for example, conventional wisdom maintains that core HR components, such as payroll and master data, can be decoupled seamlessly from the rest of the HR applications. However, HR organizations that want to become strategic need to use components, such as a common skills inventory and other organizational data across the enterprise, to bridge the (artificial) process boundary with the BPO provider to obtain better resource allocation and a global view of company performance. Technology, therefore, must ensure the cost-effective integration of processes and establish the link between the outsourced and retained organizations. In addition, BPO customers should think about the cost of a potential exit scenario. Strategy changes, merger and acquisition activities, or a changing project scope may precipitate a provider change or even re-insourcing. The

White Paper â&#x20AC;&#x201C; Impact of Technology on BPO Cost

respective cost can easily mount up to the same cost level as the initial migration project, or even exceed it. With the right technology, deployed approÂ priately, costs can be cut dramatically. Factors contributing to this include improved portability, better quality of documentation, less custom code, commercial availability of solutions and services, and a larger community of BPO providers with know-how relating to the software used.

The Five Keys

How to Identify the Right IT Solution for Cost-Effective BPO

As described above, IT plays a key role in reducing cost in a BPO engagement. But exactly how does one determine whether the solution on which a BPO provider delivers services is in fact the right one? How does one ensure that not only the provider’s own cost base is under control, but that the full BPO cost structure (including retained costs) is kept in check? And, importantly, what does one look out for to guarantee sustainability of this cost position? There is no uniform answer to the above questions, and no IT solution will be perfect for all BPO customers and situations. However, to help minimize the cost of BPO, an IT solution should fulfill the following five key requirements: • Functionality: A proven solution with built-in comprehensive functionalities and an easy-to-use user interface is the foundation of a BPO provider’s ability to optimize processes and enhance related operational savings. • Integration: A fully integrated solution enables maximum integration between the processes and systems outsourced to the provider and the ones retained by the customer, thereby increasing information flow and reducing the risk of creating “process silos.” • Configurability: A standards-based platform with a large number of “switch”–based options for organizational personalization provides the foundation for an efficient and replicable deployment while flexibly catering to the customer’s specificities and safeguarding the leverage of future technology-enabled innovations at low upgrade cost.

• Scalability: Readily available countryand industry-specific functionality and an advanced architecture underpin the scalability needed to accommodate potential increases in the provider’s business volume, scope and scale changes by the customer, and future improvements. • Viability: To ensure that the solution delivers value throughout the lifetime of a BPO project and beyond, the solution provider must ensure a reliable ongoing deployment of software improvements, adapt state-of-the-art process approaches and the latest technologies, and provide critical mass in development capacity.

Functionality At the core of a BPO provider’s cost savings is the ability to minimize the cost of labor that goes into the execution of outsourced processes. As documented in Figure 1, labor typically makes up about two-thirds of a provider’s cost base. General and administrative expenses are driven mostly by labor cost, so any process optimization implemented by the provider or automation and scale effects achieved will impact about 80% of the BPO cost. As a basis for such efforts, technology is of critical importance. While process optimization can be achieved to some extent without utilizing technology, such an approach would forego the potential to replace nonscalable labor with scalable technology and fail to make use of the vast process know-how that is built into today’s software solutions.

Tier 0

Tier 1

Tier 2

Tier 3

Process Step Execution

Employees, managers

Transaction specialists

Subject matter experts

Policy experts

Communication

Self-Services (kiosks, e-HR portal, shopping carts, ...)

Contact center

$$$

$$$$

Automation/ Scale Leverage

High

Medium

Low

Inquiries Handled (average)

66%

28%

Cost Optimizing Potential by Automation

50%–80%

10%–40%

5%–25%

< 5%

Process Cost

E-Form, e-mail, phone, fax

Figure 2: Example of a Multitier Service Approach and Related Automation Potential4

4. Source: SAP analysis. White Paper – Impact of Technology on BPO Cost

As illustrated by the example of a multitiered approach to providing BPO services to customers (as used by most BPO providers) in Figure 2, the savings potential of automation and scale leverage are significant. Breadth of processes covered is another aspect to look out for in the IT solution used in BPO. While a best-ofbreed approach may present some benefits, a closer look reveals the advantages of an integrated solution deployed in a standardized way in the context of BPO. Automation-based scale effects and process optimization can be leveraged across processes and, in the case of BPO providers who use their software in a true processingplatform fashion, across BPO customers, which in turn will lead to significantly more efficient operations. Finally, it is important that the IT solution provides tools for easy and efficient measurement and reporting of the agreed service-level metrics, thereby enabling efficient governance of the BPO agreement

Integration Technology can help to integrate processes across the enterprise, drastically improve communication, and thereby reduce the risk of creating process silos in the organization. Utilizing a solution with built-in information and process flows and lean interfaces enables automatic communication of changes in real time to all relevant

stakeholders. In HR outsourcing, for example, information generated in outsourced processes can be injected directly into multiple points of the retained organization, leading to more efficiency. Such process integration can happen across different HR functions (for example, master data management, payroll, compensation, and talent management), as well as across HR and other non-HR functions (for example, shift planning, project management, general ledger, and facilities). The use of a fully integrated platform across all countries and organizational units significantly improves the BPO customer’s ability to enforce standards throughout the enterprise and enables collection of coherent data. The Hackett Group notes that integration is much more common among world-class companies than among average ones.5 For example: “Payroll systems are highly integrated with finance in world-class firms, 82% higher than the peer group’s figure of 39%. Similarly, 31% more world-class firms have real-time integration between their payroll and employee databases.”6 This correlates with a 38% productivity advantage across the HR functions.7

Configurability Deploying outsourced processes and underpinning IT solutions to all affected areas at the BPO customer can become quite an elaborate (and thus

expensive) task – both at the outset and during periodic upgrades. The most cost-effective BPO providers not only leverage their experience but also create a replicable, template-based deployment process that is efficient and guarantees that optimized pro cesses can be replicated accurately and uniformly across the enterprise. Configurability of the software is an important enabler of such an approach. “Switch”-based options for organizational personalization and related bestpractice process rules embedded in standard software are a perfect foundation for the BPO provider’s process templates. Additionally, they can ensure that customer-specific processes and touch points are respected to the maximum degree, while eliminating the need to build fragile and expensive-tomaintain custom code. As an example, BPO providers who are specially trained on SAP® software to make full use of all configuration functionality for BPO and employ proven best practices can effectively halve the effort required during the blueprinting and design phases of the implementation, and complete these tasks 40% faster.8 Configurability directly impacts the BPO provider’s ability to run customers’ business processes on a one-tomany platform, which enables scale leverage and makes it simpler to bring new customers on board. Many providers’ solutions are based on a multitenant architecture,9 which is needed as a technical prerequisite for such an

5. The Hackett Group defines world-class companies as those who are in the top performance quartile for both efficiency and effectiveness. 6. 2005 Performance Metrics and Practices of World-Class Human Resources Organizations, The Hackett Group, 2005. 7. Measured across all HR functions; a joint ASUG/SAP benchmarking study comes to similar results. 8. Impact of SAP Best Practices on the Sales and Implementation Process, SAP, 2005. 9. Multitenant here means the capability to run multiple organizations on the same software asset. 8

White Paper – Impact of Technology on BPO Cost

approach. Unfortunately, as a result, the provider is no longer able to accommodate customer-specific functional scope and personalization. As a consequence, proprietary BPO platforms typically resort to “one-sizefits-all” approaches where personalization is scarce at deeper process levels, and custom code is needed beyond the solution’s limited functional and geographic scope. With modern and flexible software, however, providers can reap the benefits of leveraging technology investments across clients while maintaining full separation of data (thereby maintaining data privacy and security) and at the same time retaining the capability to implement customerspecific requirements.

Scalability An IT solution used in BPO must be scalable in two different ways. It must scale with the provider’s business volume, especially when it is used as a one-to-many platform. And it must cater to changes in the scale and scope of individual customers’ BPO activities. The two core prerequisites for a oneto-many platform are the capability to handle the high transaction volume resulting from an accumulation of multiple customers’ transactions on the same system, and the aforementioned multitenancy of the platform. Regardless of the provider’s approach to technology (one-to-many platform or customer-specific solution), BPO is not a one-off exercise. Rather, many BPO

engagements are extended to other parts of the BPO customer’s organization over time, including additional countries, organizational units, and subsidiaries. Utilizing a software solution that has country- and industry-specific functionalities built in and deploying these according to best practices enable a BPO provider to flexibly, quickly, and cost-efficiently meet such changing requirements. The underlying architecture is another important aspect of how BPO software impacts scalability. If the software is directly built on – and not just interfaced with – this integration platform, the BPO provider can accommodate and deploy scope changes much more easily and quickly, without the need for manually connecting the respective solution to the integration platform and building the necessary data maps.

Viability Viability has become one of the BPO industry’s most discussed challenges. Some providers have struggled to run their customers’ processes efficiently over time. At the same time, BPO customers look more closely at the viability of their chosen provider’s business model and underlying operational

s tructures to ensure that their processes are in safe hands. They require viable software as a foundation for their operations, with a clear future road map guaranteed by a reputable and trustworthy vendor. Just as important are regular updates covering the many ongoing changes to country-specific functionalities. In finance processes, for example, constantly evolving accounting rules have to be implemented and kept current on a country-by-country basis. Providers using custom-coded or proprietary software solutions typically need to develop such updates individually, a task not commercially viable, especially for many smaller countries. Very few BPO providers have the necessary programming resources and indepth know-how to build, maintain, and upgrade a proprietary solution on an ongoing basis, apart from a limited functional or geographic scope. These providers (and with them, their customers) will always be in danger of being trapped with underperforming, antiquated legacy systems. To update such systems often requires disruptive and expensive ad hoc overhauls. Large software companies, in contrast, can spread development efforts across

“Outsourcing key HR processes lets us take human capital management to the next level. By taking full advantage of SAP software, we can now provide decision makers with a more holistic view of our global workforce. Also, our HR processes now run faster, and we’re saving money.” Global high-tech company

White Paper – Impact of Technology on BPO Cost

their product and customer portfolio, and thus offer solutions and corresponding updates for a significantly wider array of countries and industries.10 By working closely with the BPO providers’ power users, software vendors can feed BPO-specific requirements to their development organizations. This fosters the crystallization of industry standards and indirectly protects the BPO customers’ investments.

How a Global High-Tech Leader Benefited from Leveraging the Five Keys Outsourcing Objectives • Reduce HR transactions and costs • Leverage existing systems and operations • Manage a disparate worldwide workforce • Drive increased value via measurable HR service Scope of BPO Project • 5-year contract • Service for employees and retirees in 38 countries and support for 14 languages • Based on functionality in the SAP® ERP Human Capital Management solution for talent management (such as recruiting and managing enterprise learning) and workforce process management (such as payroll and benefits)

Project Highlights • Best-practice methodologies allowed redesign of processes to further streamline operations and gain greater efficiencies. • Through a global shared-service center, the BPO provider’s services offer customer’s staff a high degree of consistency; service levels and response times are contractually guaranteed. Key Benefits • Customer expected to realize annual savings of more than 30%. • Responses are faster and more accurate, with 80% of cases closing within 5 days, compared to 50% within 10 days just 3 years ago. • Decision makers have a more holistic view of the workforce.

10. Localization for the SAP® ERP Human Capital Management solution, for example, is readily available for over 68 countries, based on the same homogeneous platform. 10

White Paper – Impact of Technology on BPO Cost

Using The Keys

From Requirements To Benefits

While the previous section described requirements with respect to the IT solution and related deployment in the context of BPO, this section focuses on how such a solution can help drive down cost throughout the lifetime of a BPO engagement. While the largest cost savings will be delivered during the BPO operations phase, the cost impact of the chosen software solution goes far beyond this and spans the entire BPO life cycle from transition to (potential) exit. As a cost simulation conducted by SAP indicates (see Figure 3), the added benefits of using a solution that meets the five key requirements versus using the traditional “lift and shift” model can bring down BPO cost throughout the following project phases:11 • Transition: The BPO provider’s (learned) ability to leverage efficient and proven technology and process change methodologies, easy-to- configure and easy-to-interface software platforms, multitenant archi tecture, and use of a single global platform can speed up the transition process and limit related costs. • Ongoing process operations: Manual intervention in both processing and handoffs between organizations can be reduced drastically by BPO providers who have the know-how and the discipline to eliminate unnecessary costs through software-based automation and standardization. Software is a key enabler of effective and comprehensive performance and SLA monitoring, which is required for better governance.

Impact of Fully Leveraging Technology in BPO – 7% 78%

– 7%

– 65%

11% Transition

11% Operation

Traditional “lift and shift BPO”

Exit

Best-practice, replicable BPO approach

Figure 3: Results of BPO Cost Simulation by SAP

• Long-term options: Leveraging the agility associated with a more standardized and portable platform, customers and providers alike maintain the flexibility to cater cost-effectively for changes in BPO scope, ensure that decisions can be reversed if necessary, and avoid being locked into an outsourcing relationship that does not work.

Cost of Transition Moving to a steady state of operations can account for a substantial portion – up to 20% – of the business case. Any loss of efficiency and other transition-related costs like involuntary staff losses or temporary, nonautomated processes can undermine the business case. With the right software and its appropriate deployment, the transition process can be accelerated and related costs minimized.

Reduced Process Implementation Costs Integration is one of the most easily overlooked or underrated cost factors.12 Any predefined integration – whether within the outsourced processes or with the retained organization – can have a significant cost impact. Standard software solutions offer a broad range of such integrations; SAP ERP HCM, for example, delivers 85 intra-HR integration points, connecting such processes as performance management with the SAP Learning Solution and e-recruitment with organization management, and more than 45 integration scenarios for real-time processing between HR and other business processes such as financials and logistics. Implementation efforts are reduced significantly by predefined or preconfigured functionality such as out-of-thebox self-services for employees and

11. More details on the cost simulation and respective results are available upon request. 12. T he Impact of Technology on Cost in Business Process Outsourcing – The Complete Business Process Outsourcing Cost Picture, SAP white paper, 2006. White Paper – Impact of Technology on BPO Cost

managers, ready-to-run processes, and out-of-the-box integration between processes enabling real-time processing. Localization efforts can be cut dramatically if all respective functional enhancements and languages are r eadily available. Reduced Cost of Training Occasional and Migrated or New Users The effort necessary for ensuring that occasional users can use the system efficiently, as well as training needed for migrated and new users, can be reduced if the software provides an identical look and feel and strong guidance in all process steps and builds on an extensive use of intuitive bestpractice, industry-standard processes. Reduced IT Integration Costs The cost of migrating master data as well as in-process and historical transaction data can be reduced by utilizing migration tools, such as those delivered by most providers as part of their standard software solutions. The use of one global platform makes the technical migration and integration faster and less complex, if the solution is to be deployed in more than one location. Reduced Maintenance Costs The use of a unified global software platform reduces the handling of ongoing software updates; for example, legal change updates included in the maintenance package for standard software solutions ensure cost-effective ongoing legal compliance and avoid the cost of ad hoc reprogramming for specific processes and countries.

Cost of Ongoing Process Operations The cost of process steps constitutes the bulk of the ongoing cost base. Manual intervention and handoffs between systems and organizations can be reduced drastically with the right technologies. High Productivity of BPO Provider and Customer Staff Any best-practice processes implemented within the software solution directly impact the BPO provider’s productivity. For example, paper-based processes can be automated significantly with interactive forms and guided procedures; contact processing time in customer interaction centers can be reduced; and such centers can be run more cost-effectively if multiple BPO customers can be hosted on the same platform (so that the usage experience is the same for the clerks). Productivity will be improved by integrating multiple call center scenarios, for example, a procurement help desk and an HR help desk, or the IT help desks of various countries and organizations. In addition, process integration built into the software is a powerful efficiency driver. Outsourced recruiting processes, for example, should be integrated tightly with succession planning and project management, and use a single skills database for supporting the assessment of candidates, contractors, and incumbent employees. This will enable the identification of gaps in learning and development and ensure the right employees with the right skills are assigned to projects.

All optimization efforts, however, will be ineffective if they are constrained to back-office processes. Today, the business user is the key user, and selfservice transactions have become a sizeable communication channel. According to a study conducted by Deloitte Consulting and SAP,13 an average of 60% cost and time savings can be achieved from organizational and technical optimization of personnel processes, with self-services at the heart of the optimization. In some cases, such as procurement outsourcing, savings are completely dependent on the customer’s organization using selfservices – supported, for example, by online product catalogs and by approval workflows – to guide spend compliance. By utilizing intuitive user interfaces and navigation and ensuring that the selfservice interface is not just a veneer (that is, it enables most of the required transactions in real time), software can ensure high adoption and low error rates among occasional users and reduce costs dramatically for the backoffice organization. This effect can be enhanced with predefined events that guide users through combined selfservice transactions, for example, all activities relating to a marriage. Managers of all levels – from executive management to shop-floor supervisor, from retail-store manager to call-center manager – require reports and analytical data on the outsourced processes, integrated with other data sources and processes. Such data is only available cost-efficiently via integrated solutions spanning all outsourced processes and locations.

13. Increased Value Through Optimization of HR Processes, a joint study by Deloitte Consulting and SAP AG, March 2003 12

White Paper – Impact of Technology on BPO Cost

Cost of Monitoring Performance With out-of-the-box business intelligence content – such as preconfigured data models, data extractors, queries, key performance indicators, and reports – standard software solutions provide proven and efficient means of monitoring the performance of outsourced processes. Similar tools are available for monitoring the quality and efficiency of employee interaction, so that the provider can quickly identify processes that generate inaccuracies and direct targeted process improvement.

Cost of Keeping Long-Term Options Open Virtually no BPO project remains unchanged in scope or scale over time, and quite a few relationships get reviewed when the contract is up for renewal. Relying on a proven, viable, and flexible IT solution ensures that the BPO customer can make decisions that can be reversed cost-efficiently if needed. Aspects to be considered include the following.

Increasing the BPO Scope When a new country or business unit needs to be added, a merger catered for, or the scope of outsourced processes changed – the task becomes significantly easier if the software used includes the needed specificities and related tools. With a template-based configuration approach, the customer can set global standards and at the same time add countries and organizations with unique requirements. Compatible data structures ensure reusabil ity of interfaces for data migration. In addition, the customer must have access to expert resources and proven methodologies for change management, testing, and training. Changing Providers or Re-Insourcing Processes Being stuck in an outsourcing relationship that does not work may be expensive, and not just for the customer. To determine if a relationship is working, both provider and customer need to first gauge what level of quality is delivered by using adequate business intelligence tools and service-level management reports that span beyond the key parameters agreed to in the contract. This ensures the customer can make informed decisions and, if needed, safer negotiations with a new supplier.

The key challenge when moving outsourced processes from one BPO provider to another, or bringing them back in-house, is to ensure that the business process configuration and all related data are transferred smoothly – without the customer having to go through a full transition cycle again. Customers of a BPO provider relying on standard software are at a clear advantage here, as they can reuse the configuration settings stored in standardized business configuration sets. If the solution is fully multiclient-capable, a copy of the platform configuration can be obtained without compromising data security of any other customer or the integrity of the data of other customers potentially running on the same platform. Also, integration with retained systems does not require overhaul because of standardized interfaces.

White Paper – Impact of Technology on BPO Cost

Conclusion and Outlook

Companies considering BPO as a strategic option should be aware of the deciding role that technology plays in reducing and controlling overall BPO cost. As any choices made by the BPO provider have an impact far beyond the parameters of the agreed total contract value, customers need to take a careful look at technology, especially software. In fact, BPO customers should pro actively address technology-related requirements during the RFP phase and closely monitor all respective decisions made by their chosen provider during the lifetime of the BPO contract. EquaTerra’s market study notes that “given the importance of IT, organizations engaged in or pursuing BPO must ensure that they have the skills and take the time to adequately assess their IT options when it comes to BPO. . . . Buyers must assess and understand candidate BPO service providers’ IT application system capabilities, as well as their ability to support the buyer’s strategic IT vendor platform and systems. . . . Embedding IT requirements, needs and capabilities – and key representatives from the IT group – into BPO teams from the start will improve the likelihood of success for any organization undertaking BPO.”14

When assessing how well the software utilized by their provider is suited to sustainably underpin cost-effective operations, BPO customers need to look at five key areas: functionality, integration, configurability, scalability, and viability. They should be aware that evaluating only the solution might not be sufficient; the provider’s ability to cost-effectively and viably deploy the software also has a significant impact on both initial and ongoing cost.

For more about information about how SAP supports BPO customers and service providers, visit www.sap.com/services/bpo.

While the largest cost savings will clearly be delivered during the BPO operations phase, the cost impact of the chosen software solution goes far beyond this and spans the entire BPO life cycle from transition to a (potential) exit. In addition to the cost aspects explain ed above, technology directly impacts the quality of, and risk associated with, the BPO engagement. Subsequent white papers in this series will address these aspects in more detail.

14. Assessing the Role of Information Technology (IT) & Enterprise Software in BPO, EquaTerra Research, April 2007. 14

White Paper – Impact of Technology on BPO Cost

White Paper â&#x20AC;&#x201C; Impact of Technology on BPO Cost

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