Assessing the Role of Information Technology (IT) & Enterprise Software in BPO

8/2/2019 Assessing the Role of Information Technology (IT) & Enterprise Software in BPO

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Page 1Copyright EquaTerra 2007. All rights are reserved.

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Introduction

During the fourth quarter of 2005, EquaTerra first conducted a

market study to assess the role and importance of information

technology (IT) both as a collective set of technologies and

a key organization business unit to the success of business

process outsourcing (BPO) efforts. EquaTerra placed specific

emphasis on enterprise software applications as a major

component in an organizations IT portfolio. The 2006 market

assessment focused on the opinions of key executives making

line-of-business BPO decisions in buyer organizations. The

findings from this market assessment were published in the

second quarter of 2006.

Our original market assessment findings illustrated that

these BPO decision makers were very positive about the

role of IT in general and enterprise software in particular in

supporting BPO efforts. They clearly recognized that while

BPO was focused on business process, it was not advisable

to disassociate it from the underlying IT applications and

systems. BPO buyers also had clear preferences on the

commercial enterprise software vendors they would liketo use in their BPO efforts. Commercial software vendor

preferences, however, typically were based on strategic IT

investment decisions that had been made prior to, and

separate from, BPO decisions and investments.

The overall challenge, however, is not so much appreciating

the value of IT and enterprise software to BPO. Rather, it is

determining how buyers should account for IT in BPO efforts

and establishing the appropriate role for the IT group to play

as part of the BPO team. While most study respondents, for

example, felt IT was important to BPO success, many felt theirown IT groups could do more to support BPO efforts.

EquaTerra recognizes that the IT and enterprise software

markets, as well as the BPO market, are very fluid and

dynamic. For this reason, EquaTerra conducts the market

study annually. This whitepaper presents findings from the

2007 study update, as well as a reinterpretation of our

original findings based on these new results.

Background

G2000 organizations undertaking BPO efforts have a variety

of factors to consider when developing and implementing

a strategy and plan of action. Some obvious points are the

reasons to pursue BPO, the business processes to outsource,

expected process improvement and cost-saving goals, and

BPO service provider selection. Beyond these critical and

high-level issues lie numerous additional details organizations

must factor into their decision-making processes.

The current and future IT systems and application

environment is one critical area organizations must evaluate

when assessing BPO opportunities. This is especially the case

with core enterprise applications, such as those embodied in

legacy, proprietary and commercial enterprise software and

integrated Enterprise Resource Planning (ERP) systems. These

systems play a key role in the business operations of any

organization that has deployed them. While they represent

IT systems, it is difficult to separate them from the business

processes they support when it comes to outsourcing.

Organizations must address many elements of their ERP and

related enterprise software applications when pursuing BPO.

These include:

Measuring and benchmarking current cost levels, and

accurately estimating cost levels and savings potentially

gained from outsourcing.

Determining how underlying IT systems enable and/

or constrain business process performance and how

outsourcing will impact performance levels.

Defining a means to compare and contrast the current

enterprise software environment to that provided by

BPO service provider candidates, particularly if the

providers under consideration advocate a proprietary or

semi-proprietary ERP environment.

Understanding the capabilities of the enterprise software

environment that supports ongoing outsourcing

management and governance needs, as well as the costs

to provide this support both in terms of operational

Assessing the Role of Information Technology (IT) &

Enterprise Software in BPO

(Continued on page 3)


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Copyright EquaTerra 2007. All rights are reserved.


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Table of Contents

I. Introduction 2

II. Background 2

III. Study Highlights 4

IV. Current BPO Investments and Future Investment Plans 4

V. BPO Success Factors 6

a. Biggest Factors Impacting BPO Success 6

b. The Value of Information Technology to BPO Succes 7

c. The Value of Outsourcing Management and Governance to BPO Success 8

VI. Assessing the Role of Enterprise Software in BPO 9

a. Enterprise Software Vendors BPO Value Proposition 9

b. Enterprise Software Preferences in BPO Efforts 9

c. Enterprise Software Licensing Preferences in BPO Efforts 12

VII. Key Sources of Advice on IT and Enterprise Software for BPO 13VIII. Willingness to Adopt BPO Service Providers Standardized Processes 15

IX. Conclusion 17

X. About EquaTerra 17

XI. Appendix 18

a. Respondent Demographics 18

b Additional Respondent Data 20

Table of Figures/Tables

Figure 1. The Long (and Sometimes Sordid) History of Commercial ERP Systems 4

Figure 2. Current BPO Levels 5Figure 3. Shared Services Usage 5

Figure 4. Future BPO Investment Plans 5

Figure 5. Biggest Impact on BPO Success: 2007 & 2006 Combined 6

Figure 6. Importance of IT Overall to BPO Success 2006 7

Figure 7. Importance of BPO Service Providers IT Solution 2007 7

Figure 8. OM/G Importance to BPO Success 8

Figure 9. Preferences for SPs IT Solution 10

Figure 10. Reasons for Preferring an Enterprise Software Vendor 11

Figure 11. Software License Preferences 2007 & 2006 Combined 12

Figure 12. Sources of Advice for IT Issues Related to BPO 14

Table 1. Enterprise ISV Clear BPO Value Proposition, 2006 & 2007 9

Table 2. Preferred Choices for BPO Software Solutions 10

Table 3. Software Solutions Considered for BPO 12

Table 4. Reasons for BPO Service Provider to Hold Software License 13

Table 5. BPO Buyer Willingness by Process to Adopt SPs Standardized Models 2007 16


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expenses and any required software enhancements or

upgrades.

Defining the outsourcing scope from the perspective

of the enterprise software environment. This involves

mapping the business process elements being outsourced

against the underlying software applications support.

Typically, the IT components do not map cleanly to the

business functions being outsourced, creating challenges

in terms of extracting the relevant IT applications.

Many organizations struggle to address these points for

various reasons, including:

BPO typically is driven by business units

- BPO efforts are nearly always driven by business unit

and executive management. The key BPO decisionmakers often are not IT-literate or interested enough in

IT issues to adequately represent the firms enterprise

software interests in a BPO effort. In many cases,

the IT group and CIO play only a supporting role in

BPO decision making and are not always in a position

to fully address BPO challenges. Also, organizations

that have undertaken massive and of ten disruptive

ERP implementations may have negative lingering

memories of those effor ts (see Figure 1), which can

skew perceptions of the current environment.

- BPO buyers also can suffer when the IT group is

involved but takes a narrow, negative, or overlytechnical approach to their role. Buyers must assess

candidate BPO service providers IT application and

system capabilities and the fit of these systems into

their own IT environment, architecture and strategy.

The IT group must avoid, however, getting stuck

under the hood of the service providers IT platform

micro-assessing or second guessing IT components or

investment decisions.

BPO is focused on cost reduction and process

improvement (the end goals) and often not enough on

the means, of which IT is one

- BPO decision making typically is driven by efforts toreduce costs and improve process per formance levels,

not specifically to address IT issues. These BPO goals

are impacted and enabled by the IT environment, but

also are dependent upon non- IT elements like strategy,

people, resources, operational locations, and process

definitions and operating models. IT considerations

can get lost in the shuffle if decision makers do not

adequately understand IT s role.

BPO decision makers may not understand the Impact ofoutsourcing decisions on IT

- Many BPO decision makers tend to focus on the

outcome of the BPO effort and not on how the

organization gets there. For example, while event-

driven employee self-service portals are often

highly sought after by Human Resources (HR)

professionals considering BPO, their focus generally

is on how the portal performs and not on the

underlying applications and systems enabling that

performance. BPO buyers may not fully understand

that the capabilities viewed in a service provider

demo may or may not work in their own IT

environment or the time, effort and cost that may

be required to achieve those capabilities. This is

not to imply that HR professionals or other business

unit representatives should assume the role of the

IT expert and attempt to vet service providers IT

capabilities. The organizations BPO decision makers

however, must ensure that someone is playing that

role and can connect the dots between business

and IT. This ideally would be representatives from

the IT group, as well as third-party advisors, or

potentially representatives from key strategic IT

vendor partners.

The underlying IT and enterprise software operating

environment, its strengths and weaknesses, costs, and

supporting vendors capabilities and future direction are

all critical elements for organizations to analyze in any BPO

decision-making process. This holds true for existing and future

environments of the BPO service provider. The process becomes

more complex due to the dynamic BPO service provider IT

environment. (e.g., current client burden, service offering plans,retirement of other offerings, strategic relationships).

EquaTerra originally undertook the market study against this

backdrop. We conducted a second market assessment update

in the fourth quarter of 2006 and first quarter of 2007. This

whitepaper will review, interpret and analyze the results of this

ongoing market assessment.


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The key sections of this years whitepaper are:

1. Current BPO investments and future investment plans.

2. BPO success factors Biggest factors impacting BPO success

The importance of information technology to BPO

success

The importance of outsourcing management and

governance to BPO success

3. Assessing the Role of Enterprise Software in BPO

Perception of enterprise software vendors value

proposition relative to BPO.

Enterprise software preferences in BPO efforts and

factors driving these preferences.

Enterprise software licensing preferences in BPOefforts

4. Key sources of advice on IT and enterprise software for

BPO

5. Willingness to adopt BPO service providers

standardized processes

Both studies survey organizations in North America and

Western Europe (see Appendix for full survey demographics).

All respondent organizations have 5,000 or more employees

and over US$1 billion in annual revenue. The 2006 study

surveyed a total of 126 respondents engaged in humanresource and/or finance and accounting outsourcing..

EquaTerra expanded the 2007 update to include buyers of

procurement outsourcing for a total of 154 respondents.

Study Highlights

BPO investment and expansion plans: Existing

human resources, finance and accounting, and

procurement outsourcing levels remain strong as do

plans for future BPO investments, though expansion

plans tempered somewhat in 2007 compared to 2006.

Information technology and enterprise

softwares importance to BPO success: Line-

of-business BPO decision makers clearly continue to

recognize the importance of IT and enterprise software

to BPO success. Outsourcing management and

governance capabilities also are viewed as important.

Biggest factors impacting BPO success: Service

provider quality remains the leading factor cited. The

collective IT capabilities of BPO service providers clearly

are recognized as critical to BPO success. The cultural fit

between the buyer and the service provider, as well as

creating a collaborative win-win relationship, also aredeemed important more so in 2007 than 2006.

Enterprise software vendors clear vision for

BPO: SAP and Oracle remained far and away the leading

enterprise software vendors that possess a clear vision

relative to BPO. They also were the preferred software

applications to support BPO efforts.

Sources of advice for IT issues and needs related

to BPO: The internal IT group was the leading source

of advice for line-of-business BPO decision makers on

IT issues related to BPO. Outsourcing consultants and

enterprise software vendors also were frequently cited

as sources of advice.

Standardization around supplier best-practices:

While most buyers do not consider standardization

among the most important factors required to ensure

success, they are ready to consider some sort of

standardization, particularly for HR.

Current BPO Investments and Future Investment Plans

Study respondents were required either to have already

undertaken BPO or be actively involved in a current effort.

For the purposes of this study, EquaTerra defined business

process outsourcing as follows:

Business process outsourcing, or BPO, is the act of transferring

responsibility for a significant part of a business process and

the respective process results to a third-party service provider.

Mostly, BPO also includes the transfer of responsibility for all

systems and technology related to the business process.

The long (and sometimes sordid) history of commercial ERP systems

The decision to migrate to a commercial ERP environment (e.g., Oracle, PeopleSoft, SAP) constituteda major event for many G2000 organizations over the past decade. Commercial ERP implementationand expansion was often driven by and paralleled other major life events of the mid to late-1990s.These include initiatives such as business process reengineering, Y2K remediation efforts, and theoften elusive pursuit of e-commerce. In addition to the pains and also significant costs ofimplementation, most organizations were ill-prepared for the ongoing care and feeding ERP systems

required.

And that was just the beginning. As one EquaTerra client executive noted Another issue has beenthe rapidness of change in technology. It often seems that as soon as organizations put a stake in theground with one ERP system, there are constant changes not to mention the burden of updates,upgrades, and maintenance activities, which always seem to be under-planned.

So while most buyers are satisfied with ERP investments in the long run, it was not a painful processto reach where they are today.

Figure 1


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Additionally, the focus of the study was primarily on SG&A

related process areas (e.g., finance and accounting/

F&A, human resources/HR, procurement) though some

respondents did include information technology outsourcing(ITO) and some front office (call center, customer relationship

management outsourcing, etc.) in the mix.

Based on this BPO definition, 84 percent of total respondents

described themselves and their organizations as currently

engaged in BPO. The remaining 16 percent were actively

evaluating BPO. These levels are similar to those in the 2006

study.

Respondents cited HR and F&A as the two process areas

most frequently outsourced (see Figure 2). The other areas

selected included ITO, call center, and industry specific BPO

such as payment processing, as well as knowledge process

outsourcing services like engineering. These levels were

similar to the 2006 study findings*. Procurement outsourcing

was listed by 24 percent of respondents, down somewhat

from the prior years study, though not significantly. In terms

of geographic differences, European respondents were more

likely than North American respondents to have undertaken

HRO (71 percent vs. 52 percent respectively). Respondents

that had not already undertaken BPO but were actively

engaged in doing so, also most commonly cited HR and F&A.

* Note that throughout this paper when year-over-year 2007vs. 2006 comparisons are made, we use only similar sample

profiles of HR and F&A respondents to keep the comparisons

representative.

The 2007 edition of the market study also surveyed BPO

buyers on their organizations current implementation levels

for shared services operations. Levels of shared services usage,

as expected, were higher than for BPO. HR and F&A were the

functional areas in which respondents had most frequently

implemented shared services operations (see figure 3). There

were no significant variations based on geography.

Respondents overall were positive about their futureBPO investment plans (see figure 4). Just two individual

respondents in the overall survey indicated that their

organizations planned to curtail or eliminate existing BPO

efforts. Respondents overall most frequently indicated

they planned to expand BPO usage into new business

units, divisions or geographies. This was followed closely by

expanding into process areas currently outsourced and into

new process areas. Maintaining existing BPO investment levels

was the next most frequently cited direction.

Future investment plan citations were lower across the board

in 2007 than 2006 for comparable samples (i.e., HR and F&A

respondent classes polled in each year). This may represent a

slight cooling in the BPO market, a trend EquaTerra has found in

other research studies. It also is a function of the survey sample

in that each respondent in general selected less options in this

multiple answer question in 2007 than in 2006, leading to lower

overall response levels. Given this point, it is important to view

the ranking of the responses as well as the absolute levels.

Current BOP Level 2007

0% 10% 20% 30% 40% 50% 60%

Procurement

Other

F&A

HR

Figure 2

Shared Services Usage 2007

0% 10% 20% 30% 40% 50% 60% 70%

Other

No Shared Services

Procurement

HR

F&A

Figure 3

Future BPO Investment Plans 2007

0% 5% 10% 15% 20% 25% 30% 35% 40%

Curtail/Eliminate

Mainain CurrentLevels

Expand-New Processes

Expand-Same Process

Expand-New Geo., Bus.

Unit

2007 &2006

2007

Figure 4


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Relative to differences by respondent type, European

respondents were more likely than North American to

indicate plans to expand BPO into new process areas (40

percent compared to 20 percent) while North Americanrespondents were more likely to maintain existing BPO

investment levels (23 percent compared to six percent)

though numbers for both groups were low. Procurement

respondents were the least likely to maintain current BPO

investment levels (11 percent) compared to HR and F&A

respondents (21 and 23 percent respectively).

Key Buyer Take Aways

BPO remains pervasive in the marketplace, and future

demand remains positive, though tempered year

over year. It has become a mainstream strategic

tool for organizations to employ to support process

improvement and/or cost-cutting ef forts.

The scope of BPO is expanding beyond functional

areas initially targeted and more often comprises

multi-tower ef forts.

The future expected growth of BPO is consistently

strong in North America, as well as Europe, and across

the functional areas of human resources, finance and

accounting, and procurement.

BPO Success Factors

Biggest Factors Impacting BPO Success

Respondents in both years of this market study were queried

on what they viewed as the biggest factors impacting the

success of BPO efforts. Respondents could select up to five

choices from a list of 14 factors (13 in 2006). In both studies,

each respondent selected on average 4.4 factors. Figure 5

illustrates the combined rankings of the success factors for HR

and F&A respondents.

The quality of the BPO service provider was the leading factor

cited over the life of the study and in each individual year,

surpassing the next closest factor by over 15 percent and being

the only factor cited by a majority of respondents. Rankingsthat included all respondents from 2007 generally were in

line with the rankings in Figure 5. The need and desire for

service provider quality, however, is somewhat self-evident.

The additional responses to this question highlight how buyers

further define what goes into that quality assessment.

A key point to note is that two IT related factors were listed in

2007 - 1) quality of the BPO service provider IT applications

and systems and 2) the ability of service providers to

leverage IT while just the first of these two responses was

listed in 2006. Combining the two responses provides afuller accounting of the importance given to a BPO service

providers IT capabilities as a factor impacting BPO success.

The cumulative total for 2007 HR and F&A respondents that

selected one or the other of the IT factors was 42 percent,

placing the combined response in fourth place overall.

There are two other interesting points to note in these findings

One is that BPO line-of-business decision makers are placing a

strong emphasis on some of the softer aspects of the BPO

effort, such as the cultural fit with the service provider and the

need to develop a collaborative win-win relationship between

the buyer and service provider. EquaTerra is a strong advocate

of embedding these principles and concepts into a BPO effort

and relationship, and views them as critical success factors.

Historically, however, buyers have not always placed enough

emphasis on these points, so it is positive to see this growing.

The challenge remains to determine how to embed these

principles into a contractual working relationship, as well as

maintain their emphasis throughout the life of the BPO effort.

This is where ongoing outsourcing relationship management

and governance play a key role.

A second point of focus is the relatively low emphasis givento the BPO service providers abilities to meet cost reduction

and process improvement goals. Achieving these goals are

typically two of the main reasons why buyers undertake BPO

efforts. EquaTerra interprets these rankings, however, not to

mean that buyers today care less about saving money and

improving process performance, but rather that they are

more focused than in the past on how to achieve the goals.

The emphasis is more on the key means like collaborative15%

19%

23%

29%

33%

34%

35%

37%

42%

42%

44%

44%

62%

0% 10% 20% 30% 40% 50% 60% 70%

Customer Adopting Stndized Processes*

Sourcing Process/Selecting Right SP

Ability ofSP to Leverage IT*

Ability toMeet Reg. Requirements

Quality ofSP's IT Apps/Systems

Abilityof SP to MeetProcess Imp. Goals

Abilityof SP to Meet Cost ReductionGoals

Ongoing Outsourcing Mgmnt/Governace

Quality of Contract/SLA's

Transition Process

Cultural Fit with SP

Collaborative/Win-Win Relationship

Quality of SP

Biggest Impact on BPO Sources: 2007 & 2006 Combined

48% of respondents selected one orthe other of the ITrelatedr esponses

*Only askedin 2007

Figure 5


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service provider relationships and IT to some extent to

achieve the ends of BPO, which are cost reduction and

process improvement.

There were multiple variations of the success factor rankings

based on geography and the respondents business unit

across the two years of the study (see Appendix for details).

Emphasis on meeting process improvement and cost

reduction goals, for example, fell off in 2007 compared

to 2006 for HR and F&A respondents. North American

respondents in 2007 were more focused on the quality of the

service provider than European respondents. Overall, though,

the rankings of the success factors generally were in line

across the multiple constituencies.

The Value of Information Technology to BPO Success

Respondents in both years of the study also were asked how

important they perceived IT is to BPO success. The 2006

edition of this market study assessed the perceived value of IT

overall (software applications, infrastructure, IT professionals,

etc.) to the success of a BPO effort. Figure 6 illustrates the

overall positive rankings respondents gave to the role that IT

plays in BPO success.

IT was ranked 4.2 overall on a scale of one to five (one

being not important, five being very important). Specific

dimensions of IT supporting BPO all scored in the 3.7 to

4.0 range led by ITs importance in helping to meet quality,

maintenance and improvement goals.

Study respondents were asked a slightly different question

in 2007, with the focus being on the importance of the BPO

service providers IT solution to the success of BPO. Both the

2006 and 2007 questions focused on IT, last years from the

more general perspective and this years from the perspective

of the BPO service provider. The goal for 2007 was to get

an absolute ranking of the importance of a BPO service

providers IT solution vs the relative ranking of its importanceas illustrated in Figure 5.

Figure 7 shows that service providers IT solutions were

recognized as important to BPO success, though at slightly

lower levels than overall IT was in 2006. In both scenarios,

however, ITs importance was recognized as key. Respondents

across both geographies and all lines of business in 2007

generally ranked the IT solution as equally important. When

asked specifically why, survey respondents elaborated on the

following points.

IT should provide a seamless interface between clientand outsourcers systems. Client users should ef fectively

not be able to feel that services are provided by a third

party.

[IT should provide] controls, audit trails, and security

to enforce the business rules as configured along

with the reporting and analytics to enable continuous

improvement in quality and efficiency.

Without a successful IT infrastructure, basic business

processes are a non starter... therefore, the basic

uninterrupted IT platform is the most important

attribute [of a BPO effort].

IT has to be a partner with business and the BPO firm.

IT is critically important to assess the impact [of BPO] on

current operations.

To have successful BPO, you need people, process and

systems. And without the third leg, then things will fall

over and you cant really have an offering.

Importance of IT Overall to BPO Sources 2006

3.50 3.60 3.70 3.80 3.90 4.00 4.10 4.20 4.30

Risk Mitigation

Managing contracts/SLA's

Support outsourcing

mgmnt/governance

Meet reg. compliance

requirements

Meeting c ostreduction goals

Meet quality/maint./imp. goals

Overall

1 = Least Important,5 = Most Important

Figure 6

BPO Service Providers IT Solution 2007

2.50 3.00 3.50 4.00 4.50

Total

N Am

Europe

HR-Total

FA-Total

Prc-Total

IT SolutionImportance toBPO

1=Not at all Important, 5=Very Important

Figure 7


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An EquaTerra client executive reminded, however, not to

overemphasize the role IT can play to support outsourcing efforts:

IT is an enabler but it is not the highest priority; it can

contribute more in terms of standardization, efficiency of

processes and process improvement.

The Value of Outsourcing Management and Governance to

BPO Success

Outsourcing management and governance also is another

critical set of BPO success enablers. EquaTerra defines

outsourcing management and governance as the people,

processes and software based tools that perform or support

any of the following activities:1. Service quality management (performance, satisfaction)

2. Issue management (escalation, emergency)

3. Change management (project initiation, demand &

consumption)

4. Commercial management (contract, benchmarking,financial)

5. Compliance management (regulatory, safety, privacy)

6. Communication management (business requirements,

relationship alignment)

Respondents across the board in 2007 gave outsourcing

management and governance high marks (see Figure 8) in

supporting and enabling BPO success. While IT can play a key

role in supporting an organizations governance efforts, IT

in itself is not a substitute for adequate and skilled resources

and solid programs and processes. Additionally, just as there

are multiple dimensions to governance, there are different

types of IT requirements needed to support it.

The larger and established enterprise software vendors are

mostly in the early stages of formulating, developing and

deploying additional capabilities to better support BPO

governance. SAP, for example, has continued to advance its

strategy and product capabilities to support buyers service

level management needs. Also, many software vendorsspecifically in the OM/G tools space support both buyer and

service provider needs. These include Digital Fuel, Janeeva

and Oblicore. EquaTerra itself has launched an outsourcing

management software solution in partnership with Microsoft.

Respondents offered several specific examples of how IT

can help support OM/G efforts and the role of OM/G itself in

supporting BPO.

Relative to governance, IT can enable open and

continuous communication on performance to service

levels, incidents & problems, support, and future solutions.

It can help with total support, collaborative efforts, and

an understanding of goals, objectives and cost savings

we are trying to achieve.

What is needed are automated, real-time dashboards

on performance and ability to slice & dice the

information to different countries and business units.


BPO buyers consistently view service provider quality

as the biggest factor impacting BPO success. They also

increasingly are focused on other critical factors like

the cultural fit with the service provider and the need

to develop a collaborative relationship between the

buyer and service provider. While these two points are

critical success factors, buyers must focus on how to

make their achievement actionable.

BPO buyers place strong emphasis on the IT

capabilities of candidate BPO service providers

as critical factors impacting BPO success. These

findings reiterate the need for active and hands-on

involvement of the IT group in the BPO process toensure service provider IT capabilities are adequately

assessed and mapped to buyers needs.

Outsourcing management and governance is

recognized as very important to achieving success with

BPO efforts. Through governance, people, process and

software system buyers can manage progress towards

BPO goals, drive the effort and relationship in the right

direction, and ensure progress is maintained.

OM/G Importance to BPO Success2.50 3.00 3.50 4.00 4.50 5.00

Total

N Am

Europe

HR-Total

FA-Total

Prc-Total

OM/G Importance to BPO

1=Not at all Important, 5=Very Important

Figure 8


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Assessing the Role of Enterprise Software in BPO

Perception of Enterprise Software Vendors BPO Value

Proposition

The next section of this market study assessed respondent

opinions and preferences relative to enterprise software

solutions supporting and enabling BPO efforts. Enterprise

software was not strictly defined as part of the study,

though respondents were provided a representative list of

enterprise software vendors. The emphasis was on Enterprise

Resource Planning (ERP) applications and vendors, enterprise

desktop applications that support business applications and

middleware, and function-specific applications to support

business processes like procurement and sales and marketing.

The focus was on assessing which of the vendors in theseproduct classes has exhibited a clear value proposition

relative to BPO, which vendors BPO buyers would ultimately

prefer to use in a BPO effort, and what dynamics surrounded

their usage regarding software licensing.

Table 1. Enterprise ISV Clear BPO Value Proposition, 2006 & 2007

Table 1 illustrates responses to the question of which

enterprise software vendor respondents felt had

demonstrated a clear value proposition relative to BPO. The

totals represent combined responses for both years of the

survey for HR and F&A respondents. The arrows highlight

trending in responses for 2007 compared to 2006 as follows: 2007 results increased against

2006 survey findings

No change or change not

statistically significant

2007 results decreased against

2006 survey findings

The totals in Table 1 also compare responses for North

American vs European respondents. The appendix has total

responses for all 2007 respondents.

SAP and Oracle were the clear leaders in terms of exhibiting a

clear value proposition for BPO. SAP was somewhat stronger

among European respondents and Oracle among North

American respondents. IBM Software, despite its relationship

to IBM as a BPO service provider, fared lower than SAP or

Oracle and had response levels in line with those of Microsoft

While Microsofts software is commonplace in organizations

undertaking BPO, the firm does not have a strong position

or message concerning BPO from a software perspective.

Microsoft has, however, been making moves in the

outsourcing management and governance software solutionand tools space. IBM Software and Microsoft were weaker in

Europe than in North America in both years samples but also

declined in North America in 2007 compared to 2006.

Functional-specific software vendors like Salesforce.com

(sales/marketing) and Ariba (supply chain/procurement) fared

low among the HR and F&A respondents polled and also in

Europe. Ariba, IBM Software and Microsoft all ranked stronger

among North American HR and F&A respondents while both

Ariba (26 percent) and IBM Software (37 percent) were

stronger among procurement line-of-business BPO buyers on

both continents in 2007. There were no major variations on

perceived software vendors clear value proposition based on

the size of the organization in which the respondent worked.

Enterprise Software Preferences in BPO Efforts

A new question was added to the 2007 market study to

assess BPO decision makers preferences for candidate service

providers IT solutions. The intent was to gauge the degree to

which buyers had a predetermined preference for specific types

of IT solutions (employing specific software vendors applications

supporting specific architectural models or approaches, etc.)

and in general how important they felt the service providers IT

solution was to the success of the BPO effort.

Respondents could select from four options:

1. Service providers will not be considered unless they

support a specific IT solution.

2. Service providers with different IT solutions will be

considered, but we have clear solution preferences.

5%13%10%Ariba

20%3%9%Other

2%14%10%Salesforce.com

0%35%Microsoft

8%32%24%IBM (Software only)

28%67%53%Oracle

72%54%SAP

Clear Value Proposition

Europe


North America


Total

0.75 pt

23%

60%


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3. Service providers with different IT solutions will be

considered as long as they meet some predefined

criteria (e.g. interfaces to our retained IT landscape).

4. Do not care for the IT solution/it does not matter in our

decision making.

Figure 9 illustrates the responses selected to this question

for the entire 2007 sample. As this question was not asked in

2006, year-over-year comparisons are not included.

Slightly over one-quarter of all respondents preferred a

predetermined IT solution. Typically this was based on the

existing enterprise application suite deployed within the

respondents organization. This is not surprising given the

scale and sunk costs associated with these investments,particularly when they involved commercial ERP software

systems. Few large, global organizations, however, have

totally standardized on a single set of enterprise software

applications outside the desktop with Microsoft. Reflecting

this reality, the two most commonly cited responses

highlighted that buyers had preferences and defined

selection criteria, but were open to considering more than

one IT solution. Relatively few BPO decision makers didnt

care or felt that the BPO service providers IT solution did

not factor into their selection and decision-making processes.

The results did not differ much between segments (HR, F&A,procurement).

Buyers selecting BPO service providers must strike a balance

between two competing needs when assessing BPO

service providers IT solutions. One is the practical need to

leverage existing IT investments, recognizing the significant

time, effort and strategic thinking that went into those

investments. The other is the need to consider new and

potentially better or more cost-effective IT solutions that a

BPO effort and service provider potentially could provide.

The providers choice of an IT solution will have a long-term impact on different dimensions, such as the basis for

standardization-based economies of scale and the long-term

viability of the provider. Buyers also must account for the

fact that only portions of overall business functions are being

outsourced and retained elements still require support. While

there is no right or wrong preference, buyers must perform a

thorough self-assessment of their IT needs regarding BPO to

determine how to balance each need.

Based on their answers to the above question on preferred

IT solutions, BPO buyers were then asked which enterprisesoftware solution they would prefer or consider for their

BPO efforts. Buyers that selected service providers will not

be considered unless they support a specific IT solution

or service providers with different IT solutions will be

considered, but we have clear solution preferences had the

following preferences for enterprise software solutions.

Table 2: Preferred Choices for BPO Software Solutions

EquaTerra concludes that these buyers have stronger

predefined preferences for IT solutions to support BPOefforts. These respondents were more likely to slightly favor

SAP overall, especially among European and HR line-of-

business respondents. While SAPs strength in Europe is not

surprising, its HR strength is more notable given Oracles

PeopleSoft acquisition. The sample sizes are relatively small

though when broken down to this level (for example, 26 of

Preferences for SP's IT Solution - 2007

0% 5% 10% 15% 20% 25% 30% 35% 40%

IT Solution Does Not Matter

Must SupportSpecific

Solution

Dif. Solutions OK, But

Preferences Exist

Dif. Solutions OK,But Must

Meet Criteria

Figure 9

17%7%7%12%7%

33%43%27%19%33%

0%7%0%0%7%

17%0%3%4%5%

0%0%0%0%3%

0%4%0%0%3%

0%4%7%8%7%

33%36%57%58%34%

Procur

e-Total

FA-

Total

HR-

Total

EuropeN Am

8%

29%

5%

5%

2%

2%

7%

42%

Total

No Single

Preference

Oracle

Ariba

Proprietary

SF.com

Microsoft

SAP

IBM

(Software only)


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the total 84 respondents to this question were from Europe

and 30 were in the HR business unit). All other choices,

including a preference for proprietary or semi-proprietary

BPO software platforms, scored low. The point on semi-proprietary platforms is interesting to note in that several

leading BPO service providers tout such a platform at least to

some degree. Respondents to this question could only select

one of the software choices as an answer.

Next, respondents were asked why they preferred the

enterprise software vendor selected (see Figure 10). Though

they had the option to select multiple answers, nearly all

chose just one.

Over one-half of respondents indicated they preferred the

software vendor selected because using its products was

prescribed in their organizations corporate IT strategy. It

makes sense that the buyer would attempt to support and

reflect their existing IT strategy in a BPO effort. The second

most commonly cited reason was that the software is already

in use regardless of whether its part of the corporate IT

strategy. This also is not unexpected given the need and

desire to leverage existing software investments.

Buyers displayed little appetite for selecting a BPO software

option based on the desire to migrate to that software

vendors platform or because they felt that the BPO serviceproviders considered had exceptional competencies in a

particular platform. On this latter point it is important to

note that buyers clearly value and prioritize a BPO service

providers skill in supporting a specific software platform.

It is nearly always the case, however, that the buyer desires

the service provider to support the existing software

environment, not that service provider selection drives

migration to a new platform or environment. There were no

major variations based on the respondents geography or

business unit. Rankings for the top three reasons cited alsowere the same in 2007 as in 2006.

Interviews with study participants further highlighted the

allegiance buyers have to their existing enterprise software

vendors and environments. Demonstrated skills and

experiences supporting the vendors applications typically

were key decision-making criteria in selecting a BPO service, a

consideration EquaTerra also routinely sees in buyer sourcing

efforts. The allegiance, however, was based on a desire to

support and maintain the existing enterprise IT architecture

and platform, not because buyers necessarily felt theirexisting enterprise software platform was the best suited

for BPO. Indeed, several respondents interviewed indicated

they could not clearly differentiate major enterprise software

vendors based on their specific capabilities to support BPO.

Their selection of clear value proposition was driven by

their existing vendor relationships more than by the vendors

specifically articulated BPO capabilities. Product attributes

that won the initial business, such as scalability, support for

global operations, and specific functional capabilities, also are

all valuable for many BPO buyers.

While it is important for BPO buyers and decision makers to

account for existing enterprise software investments and

respect existing IT strategies, they also must ensure they give

appropriate consideration to new software alternatives as

part of a BPO effort. BPO can provide a vehicle through which

organizations can introduce new and improved IT capabilities

to support a business process. It is also potentially a means

to enable positive change in the existing IT environment.

For example, supplier consolidation and rationalization

can reduce the number of disparate or higher cost/lower

performance legacy systems and provide access to next

generation software and platform capabilities.

The providers IT choice also has significant long-term

implications. It builds the basis for the providers capability

to leverage both best-in-class processes and technology

investments across the client base. It serves as the basis for

a deep and seamless integration between the provider and

the customer, thereby impacting the cost and quality of

Reasons for Preferring an Enterprise Software Vendor - 2007

0% 10% 20% 30% 40% 50% 60%

Want toMigrate

BPO SP Competencies

Vendor Software in Use

Corporate IT Strategy

Figure 10


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daily operations once the outsourced processes are up and

running, The combination of these factors helps the provider

increase the sustainability of the offerings, giving the buyer

stability and security. The key is to understand and accountfor the benefits and costs of these opportunities, which is

why the IT group can play a critical role in the BPO decision-

making process as it relates to enterprise software.

Buyers that selected service providers with different IT

solutions will be considered as long as they meet some

predefined criteria (e.g. interfaces to our retained IT

landscape) were then asked which enterprise software

solutions they would consider for their BPO efforts. Note

the wording was consider compared to prefer above. It

is critical to note that respondents had the option (but notobligation) to select multiple answers to this question vs

selecting just one in the table 2 question, hence the citations

total more than 100 percent (see Figure 3). The sample

size for this question was also smaller, making some of the

comparisons more directional than statistically significant.

Table 3: Software Solutions Considered for BPO

EquaTerra interprets that these buyers are more open to

different enterprise software solutions to support their

BPO efforts. Here Oracle fared slightly better than SAP, but

overall respondents gave more enterprise software vendorsconsideration, which is expected with buyers less predisposed

to a specific enterprise software solution

Enterprise Software Licensing Preferences in BPO Efforts

All respondents were queried about their preferences on

holding the licenses for enterprise software applications in a

BPO effort. The two main options for a buyer is to maintain

ownership and control of the enterprise software license

themselves or have the BPO service provider hold the license.

Respondents could select from four options regarding

enterprise software licensing. Figure 11 represents combinedHR and F&A responses for this question for both years of the

market study. There were no significant changes between

the HR and F&A group. The total sample for 2007 and the

ranking of the responses was the same for both 2007 and

2006 overall.

BPO buyers showed a slight preference overall for having the

BPO service provider hold the enterprise software license.

This was followed closely by continuing to hold the software

licenses themselves. A large percentage of respondents,

though, had no preference or did not know their preferencerelative to software licensing.

Control and flexibility were the common reasons cited by

respondents for preferring to hold the software license

themselves. Buyers also wanted to guard against disruptions

if the BPO service provider exited a market segment or was

acquired, or the buyer made a decision in the future to bring

outsourced work back in-house. Also, commonly cited was

the practical reason that the enterprise software in question

supported other, non-outsourced business processes.

As one buyer noted, We are maintaining the licenseinternally because our use of the software extends past

potential BPO efforts and we want to maintain leverage [with

the software vendor.]

Another buyer highlights similar points, but also felt they

have greater leverage with the enterprise software vendor,

an opinion expressed by several larger, global buyer

15%6%24%8%19%16%

38%18%33%31%26%27%

69%59%57%46%69%64%

38%24%14%31%21%24%

31%6%5%8%14%13%

38%53%29%23%45%40%

54%35%43%38%43%42%

46%65%43%62%50%53%

Procure-

Total

FA-

Total

HR-

Total

EuropeN AmTotal

All of the

Above

Proprietary

Oracle

Ariba

SF.com

Microsoft

IBM

SAP

(Software only)

Software License Preferences - 2007 & 2006 Combined

Dont Know, 18%

No Preference, 23%

Retain License In-

House, 27%

BPO SP Provides

License, 32%

Figure 11


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organizations. We have a stronger buying power with

vendor due to our overall ERP software purchases. We want

to maintain operational flexibility to pursue other BPO or in-

house options if needed.

Respondents also were asked in both years market studies

why they would prefer to have the BPO service provider

hold the enterprise software license. Table four illustrates

these preferences for both 2007 and 2006 for HR and F&A

respondents. There were no significant changes between

the HR and F&A group. The total sample for 2007 and the

ranking of the top four responses was the same for both

2007 and 2006 overall.

Table 4 - Reasons for BPO Service Provider to Hold Software License

One stop shopping was the commonly cited reason in

both studies for the BPO service provider to hold the license.This was followed by balance sheet considerations. One stop

shopping grew in importance for European respondents year

over year, while balance sheet considerations declined for

North American respondents, though sample size when cut

to this level is somewhat small. Getting a better deal via the

service provider or leveraging the service providers platform

also were ranked, with the latter reason slipping year over year.

The dynamics and costs of enterprise software licensing in

a BPO effort are changing and becoming more dynamic as

BPO becomes more prevalent. Major BPO service providersare pushing software vendors for pricing concessions and

changes in overall software licensing models as they gain

scale and clout as major holders of software licenses.

Vendors are responding with their own approaches while

simultaneously enhancing software platforms to better

support BPO and, in some cases, expanding their own service

offerings. EquaTerras collective opinion is that SAP has made

more positive progress in terms of revising its licensing model

to better support BPO. Oracle, however, has been focusing

more intently on this area over the past 12-18 months. Buyers

should monitor these developments and assess how theyimpact their own situation.


Buyers generally have clear ideas on their preferences

for enterprise software environments to support

their BPO efforts. Leading ERP software vendors

SAP and Oracle are cited most frequently as having

a clear value proposition relative to BPO. While

there is strong allegiance to commercial software

vendors in BPO, most evidence shows it is based on

prior decisions made on the softwares merits asan enterprise application suite, not on its specific

capabilities to support BPO, though those initial

considerations are equally important in BPO.

BPO buyer preferences for enterprise software are

strongly influenced by pre-existing decisions on what

enterprise software is included in the corporate IT

strategy and what software already is in use in the

organization. While it is critical that buyers account

for their current IT investment environment, they also

must recognize opportunities to modify and improve

their enterprise IT capabilities though a BPO ef fort.

Buyer preferences for BPO IT solutions, based on

commercial enterprise software applications, remain

strong even though BPO service providers continue to

push semi-proprietary software solutions or add-ons.

Buyers must clearly assess the profile of BPO service

providers IT platform to understand the commercial

and non-commercial/semi-proprietary components

that comprise it.

Key Sources of Advice on IT and Enterprise Software for

BPO

The findings from this two-year market study highlight

that BPO line-of-business decision makers recognize the

importance of information technology overall and enterprise

software in particular to the success of BPO efforts. A key

issue, though, is how they respond to this recognition.

Buyers need to educate themselves on their existing IT and

2007 - HR and F&A respondents only T ot al N A m E ur op e H R- To ta l F A- To ta l

One Stop Shopping 55% 73% 70% 73% 71%

Balance Sheet 32% 23% 20% 23% 21%Better Conditions via BPO SP 29% 19% 60% 41% 14%

Leverage BPO SP's Platform 11% 15% 60% 32% 21%

Other 0% 0% 0% 0% 0%

Total Respondents 36 26 10 22 14

2006 T ot al N A m E ur op e H R- To ta l F A- To ta l

One Stop Shopping 63% 78% 27% 40% 22%

Balance Sheet 47% 52% 36% 22% 30%

Better Conditions via BPO SP 34% 37% 27% 20% 15%

Leverage BPO SP's Platform 34% 33% 36% 13% 26%None of the Above 11% 0% 36% 4% 7%

Total Respondents 38 27 11 27 45


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enterprise software operating environment, understand

what change could occur as a result of undertaking BPO and

how to ensure that the change is for better, and determine

how best to assess the IT capabilities of the service providercandidates. These needs create an educational requirement

for the typical business unit decision maker.

A new question was added to the 2007 market study to

better understand how BPO decision makers were educating

themselves on the IT issues related to their BPO efforts. Figure

12 illustrates the common sources of advice that respondents

sought when assessing the IT and enterprise software

dimensions of BPO.

BPO buyers internal IT groups were the clear leading source

of advice sought on IT as it relates to BPO. It was the only

source cited by a majority of aggregate respondents.

Individual groups of respondents all ranked the internal IT

group first, with the exception of European respondents

that placed it second behind outsourcing consultants.

Outsourcing and management consultants collectively were

the next two leading sources of advice.

There were two classifications for independent software

vendors/ISVs: BPO specialists and their sales representatives

and/or account teams. Separately, these two choices

ranked near the bottom. However, counting respondentsthat selected one or the other choice raises the total to 28

percent, below internal IT groups and consultants but above

BPO providers and IT analysts as sources of advice. IT industry

analysts fared relatively low. While these groups potentially

have extensive IT related knowledge, they are not as active in

the BPO space and are not a typical source of advice sought

by line-of-business professionals in HR, F&A and procurement.

Though it is positive to note that BPO business unit buyers

value and seek the advice of the IT group, it does put the

onus on the IT group to respond accordingly and adequately.

Once the IT group gets a seat at the BPO decision-making

table, it must earn its right to stay there by showing it can

add value to the process through a strong understanding of

IT needs to support BPO and a solid process for vetting BPO

service providers IT capabilities.

The same holds true for enterprise software vendors. They

must ensure that the strategic BPO product direction, as

well as specific BPO capabilities, are well understood by the

client facing account teams. Feedback from respondent

interviews in this study and other EquaTerra experiences

suggest that often the enterprise software vendors account

teams are only peripherally involved in BPO efforts and do

not always have a strong message around their products

BPO capabilities. There are obvious questions, though, as to

whether a BPO service provider might prefer to exclude the

ISVs account team and/or whether the buyer adequately

reaches out to include the ISV.

While enterprise software vendors, particularly SAP, are takingstrategic BPO messages and value propositions to market,

these efforts are not always reaching key business unit

BPO decision makers. EquaTerra sees that buyers are more

likely to recognize that SAP has developed a corporate BPO

strategy over other enterprise software vendors and view

that as a plus. This strategy and its meaning, however, must

consistently make it down to account teams and key business

unit decision makers. What this means for all enterprise

software vendors is that they must develop and promote

new technical product capabilities (e.g., governance, service

level management, management tools) and deploymentmodels (more compelling licensing models, etc.) that support

BPO. They also must highlight existing product capabilities

supporting often large, global BPO efforts.

Sources of Advice for IT Issues Related to BPO

13%

22%

24%

26%

40%

42%

58%

0% 10% 20% 30% 40% 50% 60% 70%

ISV's Sales Rep.

ISVs BPO Specialist

IT IndustryA nalysts

BPO Provider

Management Consultant

Outsourcing Consultant

Internal IT Department

28% ofr espondents selected one orthe other of the ISV responses

Figure 12


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Business unit BPO buyers view the internal IT group

as a key source of advice on IT issues relating to BPO.

IT groups can play a key role in making IT related

BPO decisions and assessing BPO service providers IT

capabilities, but need to be ready to step up to the

challenge or line-of-business decision makers will look

elsewhere for help.

BPO buyers are casting a wide net in seeking advice on

IT as it relates to BPO, leveraging external consultants

for support and also turning to enterprise software

vendors. ISVs must work to ensure client facing

account teams are fluent in their firms overall BPO

position and collective product capabilities supportingBPO to adequately satisfy buyer educational

requirements.

BPO buyer teams must work to define the

representative roles that each internal and external

constituency will play in BPO sourcing and ongoing

management efforts. While utilizing multiple sources

of advice is recommended, buyers need a process to

coordinate, leverage and manage support they receive

from external sources.

Willingness to Adopt BPO Service ProvidersStandardized Processes

Finally, respondents to this years study were asked about

their willingness to transform existing processes across

the HR, F&A and procurement functions to meet the best-

practice standards proposed by the service provider. That is,

adopt the service providers process model vs maintaining

their own current process model.

It is also important to note that the adoption of standardized

processes was not deemed critical to BPO success overall.

This factor ranked last of those impacting BPO success in the2007 study (see Figure 5 above). This is unfortunate because

many challenges and problems BPO buyers and service

providers face today are in part rooted in trying to enable

too much customization and/or too little standardization and

consistency across systems and processes. There is a real cost

to both enable and support customization. Real inefficiencies

and inaccuracies can occur with non-standardized processes.

Regulatory compliance costs and risks also can rise if

adequate standardization is lacking.

Increased adoption of standardized processes potentially can

lead to more successful BPO efforts for buyers by enabling

them to leverage the service providers process efficiency

and economies of scale models. Standardization also could

ease transition costs, pains and timeframes. Service providers

would benefit for similar reasons, as buyers also potentially

achieve higher margins through standardization and process

optimization. Their challenge, however, is that the lure of

attempting to create best-of-breed processes is strong

for both buyers and service providers. These best-of-breed

solutions often are more expensive, have little leverage acrossmultiple buyers, and prove difficult to maintain in a market-

leading manner.

While adopting standardized processes was not ranked

as a critical BPO success factor, respondents did show a

willingness to theoretically at least adopt standardization

within certain processes across functional areas addressed.

These findings indicate that while BPO buyers may not

embrace standardization up front, there are opportunities

to introduce greater levels of standardization over the life of

the BPO effort. Table 5 illustrates process areas across each

of the functions and the percentage of total respondents

by function that indicated a willingness to standardize that

process.


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Total N Am Europe HR-Total FA-Total Prc-Total

HR - Compensation Admin 44% 46% 40% 54% 37% 19%

HR - Benefits Admin 52% 52% 51% 60% 42% 30%

HR - Payroll 60% 60% 58% 75% 48% 30%

HR - Recruiting & Talent Mgmnt 33% 36% 24% 44% 23% 11%

HR - Learning & Training 38% 41% 33% 51% 29% 15%

HR - IT 40% 41% 40% 54% 33% 19%

HR - Expatriate and Relocation 31% 38% 18% 37% 21% 30%

HR - Org. Effectiveness 21% 26% 11% 30% 10% 19%

F&A - AP 40% 36% 47% 33% 42% 37%

F&A - AR/C&C 35% 32% 40% 35% 31% 26%

F&A - Decision Support 12% 14% 9% 11% 6% 15%

F&A - Finance, Control, Risk Mgmnt 17% 20% 11% 7% 19% 15%

F&A - General Accounting 27% 28% 24% 18% 31% 22%

F&A - Travel & Entertainment 42% 46% 33% 39% 35% 44%

Procurement - Strategic Sourcing 16% 16% 16% 16% 13% 11%

Procurement - Category Mgmnt 13% 13% 13% 12% 13% 7%

Procurement - Tactical Sourcing/Spot Buy 21% 20% 22% 23% 13% 22%

Procurement - Supplier Mgmnt 26% 29% 18% 19% 29% 15%

Procurement - Catalog Mgmnt 22% 17% 33% 18% 21% 22%

Procurement - Contract Admin 21% 20% 24% 16% 17% 30%

Procurement - Procurement IT 25% 25% 24% 26% 19% 26%

Total Respondents 141 96 45 57 52 27

Table 5: BPO Buyer Willingness by Process to Adopt SPs Standardized Models 2007

While all respondents were asked to select which processes

they would be willing to standardize, the emphasis is

on processes in each respondents own functional areas

because that is where their opinions count more. This is

highlighted by the coordinated colors in Table 5. Overall,

HR respondents showed the greatest willingness to adopt

BPO service providers standardized processes. This is likely a

function of the relative greater maturity of the HRO market

compared to that of FAO or procurement outsourcing, as well

as the fact that key leading HRO service providers tout more

standardized application models. Overall, though, the gap

between willingness to adopt standardized models as part of

a BPO effort and actually doing so remains large.

Key Buyer Take Aways BPO buyers do not view the adoption of BPO service

providers standardized process models as a key factor

impacting BPO success. It is not uncommon, however,

for lack of standardization to negatively impact BPO

efforts, both from a process efficiency and cost as well

as a service provider profitability standpoint.

BPO buyers in the HR business unit were the most

open to potentially adopting BPO service providers

standardized process models in their functional area.

This is a result of the HRO markets relative maturity

and the go-to market strategy of some of the leading

HRO service providers.

While there always will remain a need for some level

of customization, BPO buyers should more seriously

explore where standardization can bring them greater

benefits and improved costs, especially for processes

that typically do not of fer opportunities to create

competitive differentiation.


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Conclusion

Information technology plays a critical role in any BPO effort.

It is the backbone that supports the transactional operations

of outsourced business processes, as well as analysis, trackingand quality control efforts. IT is critical to supporting

outsourcing management and governance efforts.

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. This involves understanding the capabilities of their

existing enterprise software environment to support BPO

efforts and the future direction of their strategic IT vendors.

Buyers also must assess and understand candidate BPO service

providers IT application system capabilities, as well as theirability to support the buyers strategic IT vendor platform

and systems. This includes reviewing current and likely

future software licensing models and costs. 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.

Organizations embarking on BPO also must strive to leverage

existing investments and technologies. This is important not

only from a cost standpoint, but also to maintain comfort

levels associated with familiar IT applications and systems

used in the past. That being said, organizations need to

have decision-making processes in place to determine when

it makes the most sense to move on to new platforms and

technologies. This also should involve seriously assessing

the value of potentially adopting service providers more

standardized process models to improve efficiencies, reduce

costs and leverage best practices.

About EquaTerra

EquaTerra (www.EquaTerra.com) is focused solely on

providing global corporations with outsourcing and in-

sourcing advisory, research and governance services thatenable them to achieve services delivery excellence for

their administrative processes. EquaTerras advisors average

more than 20 years of industry, service provider and

process experience with functional leadership in Finance &

Accounting, HR, IT and Procurement, and have been involved

in over 600 global business transformation, outsourcing and

outsourcing management projects.

For more information on EquaTerras public sector capabilities,

please contact Glenn Davidson at: Glenn.Davidson@EquaTerra.

com or +1 202.904.2311; or go to: www.EquaTerra.com.

For more information on EquaTerras research and knowledge

services, please contact Stan Lepeak, at Stan.Lepeak@

EquaTerra.com or + 1 203.458.0677.


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Appendix

Respondent Demographics

The information and charts below provide detailed information about the respondents of this study, including their: geography,BPO usage, industry representation, title, BPO decision-making role, and organization size and revenues.

Respondent Profile 2006 2007

Total Respondents 126 154

Geography

North America 61% 71%

Europe 39% 29%

Corporate Function

Human Resources 50% 37%Finance & Accounting 50% 34%

Procurement 0% 18%

Other 0% 10%

BPO Usage

Doing BPO 89% 84%

Actively Undertaking 11% 16%

Shared Services Usage

HR N/A 63%F&A N/A 66%

Procurement N/A 45%

Other N/A 6%

None N/A 10%

Organization Size - Employees

5-10K 41% 16%

10K+ 59% 84%

Organization Size - Revenue$1 billion to $4.9 billion 27% 16%

$5 billion to $9.9 billion 22% 16%



$50 billion or more 18% 15%

None/public sector/not-for-profit 2%


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Additional Respondent Data

Responses broken out by respondent geography and line of business unit (HR/Human Resources, FA/Finance and Accounting,

and Prc/Procurement). Note that some samples for break-outs by process are relatively small limiting statistically significant

comparisons to total or larger samples and should be viewed as directional only.

Total N Am

N Am - HR,

FA Europe

Eur. - HR,

FA HR-Total FA-Total Prc-Total

In what areas of your

organization do you currently

use BPO? (Please select all that

apply.)

Human Resources (HR) 57% 52% 64% 71% 73% 83% 49% 29%

Finance and Accounting (F&A) 56% 54% 55% 60% 62% 43% 72% 58%

Procurement/Purchasing 24% 22% 23% 29% 23% 21% 26% 21%

Other 28% 28% 20% 29% 42% 30% 23% 29%Respondent Total 129 94 64 35 26 47 43 24

Over the next 12 months what

are your organizations plans

relative to BPO? (Please select

all that apply.)

Expand-Same Process 28% 32% 34% 17% 15% 21% 37% 15%

Expand-New Geo., Bus. Unit 29% 24% 14% 40% 38% 30% 12% 26%

Expand-Same Process 26% 20% 23% 40% 38% 26% 30% 37%

Mainain Current Levels 19% 23% 28% 6% 8% 21% 23% 11%

Curtail/Eliminate 0% 2% 0% 0% 0% 0% 0% 0%

Respondent Total 129 94 64 35 26 47 43 27

In what areas of your

organization do you currently

use Shared Services? (Please

select all that apply.)

Human Resources (HR) 63% 64% 72% 60% 61% 74% 63% 41%

Finance and Accounting (F&A) 66% 68% 67% 62% 67% 61% 73% 59%

Procurement/Purchasing 45% 51% 55% 29% 27% 40% 54% 41%

No, we dont use shared services 10% 7% 9% 18% 15% 14% 8% 11%

Other 6% 7% 8% 2% 3% 7% 6% 4%



21/26

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Total N Am

N Am - HR,

FA Europe

Eur. - HR,


In your opinion which of these

enterprise software vendors

have a clear value proposition

supporting BPO? (Please select

all that apply.)

Ariba 15% 14% 13% 18% 9% 12% 12% 26%

IBM Software 23% 27% 20% 16% 12% 16% 19% 37%

Microsoft 18% 21% 22% 9% 0% 9% 23% 19%

Oracle/PeopleSoft/Siebel 54% 58% 64% 44% 33% 58% 52% 44%

Salesforce.coml 5% 4% 3% 7% 6% 4% 4% 7%

SAP 53% 50% 54% 60% 67% 58% 58% 37%

Other 3% 3% 3% 4% 6% 5% 2% 4%


When deciding to partner with

a specific BPO service provider

how important of a factor was/

will be the enterprise software

platform used by the service

provider? (Please select only

one.)

Must Support Specific Solution 26% 24% 22% 32% 28% 29% 19% 33%

Dif. Solutions OK, But Preferences

Exist 31% 31% 33% 30% 28% 29% 35% 15%

Dif. Solutions OK, But Must Meet

Criteria 36% 39% 37% 30% 31% 38% 33% 48%

IT Solution Does Not Matter 7% 6% 8% 9% 13% 5% 13% 4%



22/26

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Total N Am

N Am - HR,

FA Europe

Eur. - HR,


Which one of these software

platforms do you prefer for

a BPO engagement? (Please

select only one.)

Ariba 5% 5% 0% 4% 6% 3% 0% 17%

IBM Software (software only; do

not consider services or hardware

groups) 5% 7% 5% 0% 0% 0% 7% 0%

Microsoft 7% 7% 7% 8% 0% 7% 4% 0%


Salesforce.com 2% 3% 2% 0% 0% 0% 4% 0%

SAP 42% 34% 37% 58% 71% 57% 36% 33%BPO providers proprietary/semi-

proprietary platform (e.g. Hewitt,

Fidelity) 2% 3% 0% 0% 0% 0% 0% 0%

No single preference 8% 7% 7% 12% 6% 7% 7% 17%

Other 0% 0% 0% 0% 0% 0% 0% 0%


Why do you prefer the enterprisesoftware vendor selected in abovequestion?

Vendors software is part ofcorporate IT strategy 54% 50% 49% 62% 71% 63% 46% 75%

Vendors software is already used 40% 41% 37% 38% 29% 27% 43% 42%

Would like to migrate to this

vendors software as part of the

BPO project 7% 7% 7% 8% 6% 10% 4% 0%

BPO Providers have developed

strong competence in/use of it ) 7% 9% 5% 4% 6% 3% 7% 8%

Other reasons 0% 0% 0% 0% 0% 0% 0% 0%


Which of these enterprisesoftware platforms would yourorganization consider using in aBPO engagement? (Please selectall that apply.)

Ariba 24% 21% 18% 31% 20% 14% 24% 38%

IBM Software (software only; do

not consider services or hardware

groups) 42% 43% 43% 38% 30% 43% 35% 54%


23/26

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Total N Am

N Am - HR,

FA Europe

Eur. - HR,


Microsoft 40% 45% 46% 23% 20% 29% 53% 38%


Salesforce.com 13% 14% 7% 8% 0% 5% 6% 31%

SAP 53% 50% 46% 62% 70% 43% 65% 46%

BPO providers proprietary/semi-

proprietary platform

27% 26% 25% 31% 30% 33% 18% 38%

All of the above 16% 19% 18% 8% 10% 24% 6% 15%

Other 0% 0% 0% 0% 0% 0% 0% 0%


In a BPO deal which of the

following options relative tosoftware licensing would you

prefer? (Please select only one.)

Retain the software license in-

house 26% 23% 33% 32% 22% 26% 29% 19%

Have the BPO service provider

provide the license as part of its

offering 38% 36% 47% 41% 20% 41% 27% 44%

No preference 23% 24% 31% 18% 14% 20% 25% 22%

Dont know 14% 16% 24% 9% 8% 13% 19% 15%


Why would you prefer to havethe BPO service provider providethe license as part of its offering?(Please select all that apply.)

One-stop-shopping with BPO

service provider 67% 67% 73% 67% 70% 73% 71% 58%

Balance sheet-related

considerations 23% 23% 23% 22% 20% 23% 21% 25%

Hope to get better conditions

through BPO service provider 35% 31% 19% 44% 60% 41% 14% 50%

Leverage BPO service providers

platform by sharing it with other

users 35% 31% 15% 44% 60% 32% 21% 50%

Other reason 0% 0% 0% 0% 0% 0% 0% 0%



24/26

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Total N Am

N Am - HR,

FA Europe

Eur. - HR,


Whose advice would yourorganization seek relativeto assessing the informationtechnology platform and relateddeployment options for BPO?(Please select all that apply.)

Management Consultant 40% 45% 46% 27% 24% 37% 42% 33%

Outsourcing Consultant 42% 38% 33% 51% 55% 35% 44% 44%

Software Vendors Sales

Representative 13% 14% 12% 9% 6% 14% 6% 15%

Software Vendors BPO Specialist 22% 25% 21% 16% 21% 21% 21% 30%

BPO Provider 26% 25% 26% 29% 33% 28% 29% 26%

IT Industry Analysts 24% 26% 25% 18% 18% 25% 21% 19%

Internal IT Department 58% 63% 66% 44% 48% 56% 65% 59%

Other 0% 0% 0% 0% 0% 0% 0% 0%


Which of the following factors doyou think have the biggest impacton the success and/or failure of aBPO engagement? (Please selecttop five.)

Quality of service provider 67% 74% 67% 51% 45% 61% 60% 81%

Quality of service providers IT

applications and systems 34% 38% 33% 22% 21% 26% 33% 44%

Quality of outsourcing contract

and service level agreements 42% 37% 33% 53% 58% 51% 29% 52%

Cultural fit between client and


Development of a collaborative/

win-win relationship between the

buyer and the service provider 47% 50% 50% 40% 42% 54% 40% 48%

Sourcing process/selecting the

right service provider 23% 19% 16% 31% 33% 25% 17% 30%Transition process from client to



25/26

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Total N Am

N Am - HR,

FA Europe

Eur. - HR,


Ongoing outsourcingmanagement and governance 36% 29% 28% 51% 58% 42% 31% 37%

Ability of the service provider to

meet cost reduction goals 27% 25% 21% 31% 27% 23% 23% 44%

Ability of service provider to

leverage information technology 21% 25% 25% 13% 18% 21% 25% 11%

Ability of service provider to meet

process improvement goals 26% 24% 24% 29% 27% 28% 21% 26%

Customer adopting standardized

best-practice processes as set by

the outsourcing service provider 14% 13% 11% 18% 24% 18% 12% 4%

Ability of client and service

provider to meet regulatory

compliance requirements (e.g.,

Sarbanes Oxley, Basel II, HIPAA)

19%

23% 22% 9% 12% 16% 23% 11%

Other 0% 0% 0% 0% 0% 0% 0% 0%


How important is the IT

solution used by the BPO

provider for the success of BPO

engagements? (Please rank on

1-5 scale with 1 being not atall important and 5 being very

important.)

3.73 3.73 3.78 3.74 3.61 3.77 3.68 3.96


How important do you feel

that outsourcing management

and governance is to the

success of an outsourcing

effort? (Please rank on a 1-5

scale with 1 being not at all

important and 5 being very

important.)

4.19 4.04 4.13 4.57 4.61 4.36 4.18 4.27



26/26

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Total N Am

N Am - HR,

FA Europe

Eur. - HR,


In which of the process areaslisted below would your

organization be willing to

transform existing processes

to meet the best-practice

standards proposed by the

service provider (i.e. adopt

the service providers process

model vs. maintaining your

current

HR - Compensation Administration 44% 46% 47% 40% 42% 54% 37% 19%

HR - Benefits Administration 52% 52% 50% 51% 55% 60% 42% 30%

HR - Payroll 60% 60% 63% 58% 61% 75% 48% 30%HR - Recruiting & Talent

Management 33% 36% 38% 24% 24% 44% 23% 11%

HR - Learning & Training 38% 41% 43% 33% 33% 51% 29% 15%

HR - IT 40% 41% 39% 40% 55% 54% 33% 19%

HR - Expatriate and Relocation 31% 38% 36% 18% 15% 37% 21% 30%

HR - Organizational Effectiveness 21% 26% 22% 11% 15% 30% 10% 19%

F&A - Accounts Payable 40% 36% 36% 47% 42% 33% 42% 37%

F&A - Accounts Receivable/Credit

& Collections 35% 32% 32% 40% 36% 35% 31% 26%

F&A - Decision Support 12% 14% 11% 9% 3% 11% 6% 15%

F&A - Finance, Control, Risk

Management 17% 20% 16% 11% 6% 7% 19% 15%

F&A - General Acco

Date post:	05-Apr-2018
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Assessing the Role of Information Technology (IT) & Enterprise Software in BPO

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