Modeling the Procurement BPO of the Future (Part 2)

In the first installment of this column, I looked at an article from India's Financial Express that examined some of the critical enabling factors for next generation offshore procurement BPOs. One of the areas the author suggests will be key is for BPOs to develop a core competency in all areas of related technology, including potential owning solutions of their own (versus just serving as less expensive extensions of systems implementation and hosting firms). However, the more interesting related argument is whether or not BPOs should actually own technology solutions of their own and where the line should blur -- if at all -- between software companies, services providers and process outsourcers. When it comes to enabling solutions for procurement outside of the transactional back-office, the big question in the next few decades is whether a single provider -- perhaps a BPO-- will end up owning the customer relationship and delivering all three capabilities.

To this end, the Financial Express article suggests that "the rapid growth of platform BPO solutions" along "with software as a service (SaaS)" are potential "killer applications of the cloud computing phenomenon." When it comes to BPO involvement in these areas, the question is one of where BPO providers will pick up from in terms of technology providers (or whether the lines will merge with BPOs buying software providers). Consider that "a cloud" environment "not only calls for a deep understanding of processes and the ability to partner with or develop high quality software applications for hosting on public or hybrid clouds, it will also change the characteristics of the BPO firm as it develops a healthy mix of technology and process capabilities and changes the commercial model from a service fee to a pay per use billing system."

I'm not convinced yet that the body-obsessed BPO world is ready to focus on software innovation and cloud development as a core competency. Yet I do know many of these providers are building large war chests (and even on-shore based BPOs like CGE&Y are flexing their muscles and building application competencies by acquiring solution and SaaS delivery providers like IBX). I highly suspect we'll see offshore BPOs begin to pick up additional technology assets as a core component of evolving their business models. Heck, Ariba nearly completely transitioned out of a software licensee model to what essentially amounts to a "pay per use billing system," as the author describes the model. I suspect BPOs will embrace a similar philosophy around technology enablement as well.

Whether they own, license or rent the assets themselves to provide to global customers will be dependent on many factors. But I have no doubt that BPOs will take a prime contracting role by delivering a mix of solutions, services and outsourced capabilities. Just as BravoSolution, as an example, has developed healthy services/software components of its business following its acquisition of Verticalnet in the applications area -- while also maintaining the ability to mix the two for advanced sourcing and related areas -- I suspect we'll see hybrid models such as this move offshore. AT Kearney Procurement Solutions might, as well, serve as an archetype by which BPOs model solution delivery (including software and services mixes) as well, based on its success. The key will be scale and diversified internal focus and leadership to avoid the middle ground that ultimately left FreeMarkets a much smaller hybrid provider than it could have been.

Jason Busch

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