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
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