A Framework for Making Partner Choices in BPO

Transcription

1 Research Brief A Framework for Making Partner Choices in BPO Abstract: Opportunism typically propels alliance activity in IT. Where business process outsourcing is concerned, opportunism can be a risky and extremely costly strategy. By Christine Adams and Rebecca Scholl Recommendations The first, critical step in the partner selection process is to identify the business aims being pursued. Ambiguous or ill-conceived business strategies become ill-conceived alliance strategies. Partnering is neither the only nor the universally ideal option. For example, it is not advisable to partner for capabilities core to your business or to your desired role in the BPO service delivery model. Here, buy-or- build strategies make more sense. Business process outsourcers are few and untested. Be cautious rather than opportunistic in your partner choices. Business process outsourcing (BPO) alliances have to be built for the long-term and allow for flexibility. They have to be reassessed continuously. Publication Date: 18 February 2003

2 2 A Framework for Making Partner Choices in BPO Introduction As IT providers (and non-it providers) of all types focus more intently on the BPO opportunity, "who should I partner with in BPO?" is an increasingly common and urgent question. Unfortunately, no ready answers are available, even for experienced IT alliance builders. What works in other segments of the IT market simply doesn't work in BPO; the nature of the BPO opportunity itself is a complicating factor that can obscure partner choices and increase the risk and cost of bad decisions. In this Research Brief, Gartner Dataquest sets forth a framework that IT providers can use to evaluate the BPO marketplace, the role or roles they might play in it and the criteria for making alliance choices. Gartner Dataquest defines an alliance as an ongoing cooperative business arrangement between two or more independent parties that do not normally rely on each other as a primary source of revenue, as they might in the reseller channel. The BPO Opportunity The outsourcing of IT and process management continues to grow faster than enterprise-based consulting and development and integration, by selling cost savings and IT progress in one package (see "Process Management Forecast: November 2002" [ITSV-WW-DA-0172]). Gartner Dataquest forecasts the worldwide market for process management the core component of BPO contracts will grow from $71.3 billion in 2001 to $113.9 billion in Strategic Choices Impact Given the magnitude of the BPO opportunity, as well as the impact BPO is likely to have on the delivery of other types of IT products and services, it is not surprising that all types of providers want to move rapidly to secure a position in this burgeoning market. In their haste, providers may overlook some of the following unique aspects of competing in BPO: The BPO service delivery model and related competency requirements are highly fragmented. BPO involves a complex mix of services, including business consulting, IT consulting, process re-engineering, applications development, systems integration, infrastructure outsourcing, applications management, change management and process management, as described in Figure 1. Each one of these services requires different skills and competencies. No BPO provider can claim to own all of these skills. BPO is an umbrella term that encompasses myriad process-based market segments and opportunities. A service provider targeting the BPO segment must position its services in the context of a specific process or group of processes and then assess opportunities related to outsourcing that process.

3 Figure 1 The BPO Service Delivery Model Roles and actors are different from those in other IT opportunities. BPO includes many traditional IT services, as mentioned above. It is hard to conceive a BPO project without some level of IT consulting, applications development, systems integration and IT management. However, several components of a BPO engagement are specific to BPO, namely process consulting, process re-engineering, change management and process management. For that reason, many of the primary players in BPO did not emerge from the IT services space at all, but from the traditional service bureau space (for example, ADP in payroll and Ryder in logistics). 3 Enhance Processes/People Process Re-engineering Business/IT Consulting Applications Development Systems and Network Integration Change Management IT Operations Outsourcing Process Management Create Optimize Technology Operate Plan/ Design Develop Implement/ Integrate Source: Gartner Dataquest (February 2003) Alliance Choices Impact The following conditions in the BPO market also greatly complicate alliance choices: Long-term contracts increase risk and limit flexibility. Gartner Dataquest notes that the majority of alliances in IT are opportunistic and project-oriented. Consequently, alliances that aren't working can be disbanded with relative ease and with less risk of client distress. Multiyear BPO contracts, however, require a longer-term partner commitment. A still evolving BPO market complicates partner choices. The propensity to form alliances with market-leading, best-of-breed players is a hallmark of IT alliance building and reflects the industry's focus on partnering as a driver of top-line growth. Because the BPO market is

4 4 A Framework for Making Partner Choices in BPO nascent, dominant, best-of-breed providers have not emerged across all segments. BPO providers favor buy-or-build strategies over partnering. A recent Gartner Dataquest survey of 43 BPO providers indicates that only 13 percent of respondents planned to grow their business via alliances during the next 12 months (77 percent planned to grow via "organic" growth and 9 percent via acquisitions). IT providers intent on entering the BPO marketplace via partnering may need to rethink their strategies. BPO providers tend to form alliances with clients. About 45 percent of the BPO providers recently surveyed indicated they had a marketing alliance, joint venture, exchange of service or some other type of cooperative business arrangement with their clients. Examples of pairs of clients/providers involved in cooperative business arrangements include Bank of America/Exult (equity participation and exchange of services), Unisys/Exult and AT&T/Accenture (co-sourcing), IBM/Fidelity (marketing alliance) and BAE Systems/Xchanging (joint venture). Gartner Dataquest Perspective: The Partner Choices Framework Figure 2 Partner Choices Framework How can companies interested in entering the BPO market navigate this complex environment and make intelligent choices as to when, how and why to partner? As shown in Figure 2, Gartner Dataquest has developed a framework that outlines the major steps involved in moving from business strategy to partner strategy. The narrative that follows Figure 2 describes each step in the specific context of BPO. Market Strategy Set Alliance Goals ID and Prioritize Partner Choices Develop Value P iti Strategic options assessment: What are my market goals for BPO? Requirements: What is required for me to achieve my goals? Gap analysis: What is my situation relative to the requirements I have identified? Strategic option reassessment: Are my initial goals realistic in light of the gap analysis? Yes Move onto resource assessment No Revamp goals and requirements analysis accordingly Resource assessment: What are my options to buy, build or borrow what I require? What things must I own or control to execute my goals? Define Execution Requirements Execute, Monitor and Measure Source: Gartner Dataquest (February 2003)

5 5 Step 1: Strategic Options Assessment As is true of the partner selection process in any market segment or offering, the first step is to identify the business aims being pursued. Participants in Gartner Dataquest's 2002 and 2003 alliance best practices study identified "mismatch" of strategies, goals and corporate cultures between or among alliance partners as the top reason for alliance failure. Ambiguous or ill-conceived business strategies become ill-conceived alliance strategies. Key question: What are my strategic goals for BPO? It is essential that goals be clear, actionable and measurable. Further, goals should be identified at as granular a level as is necessary to identify requirements. If multiple segments, such as finance and accounting, and human resources (HR) are being pursued, then the goal-setting exercise should be repeated for each. Step 2: Requirements Assessment With strategic goals established, the next step is to understand what is required to achieve these goals. As mentioned previously, one of the challenges of identifying a BPO strategy is that roles and requirements are more fragmented and complex than may be realized. Key question: What is necessary to achieve the goals outlined in Step 1? At this stage, you must decide which BPO offering you are targeting by process and industry. Some providers will want to target an end-to-end vertical BPO service for the healthcare industry. Other providers will target a niche horizontal process such as accounts-receivable outsourcing for multiple vertical industries. You should conduct the analysis several times, for each process area that you have selected. Once you have identified which BPO segment you plan on targeting, you can define a list of key requirements to be a full BPO provider in this space evenifyouwillonlybeapartofthisoffering.gartnerdataquest identified a set of key success factors for BPO providers that can be applied in this analysis but need to be adapted to the specific BPO segment that they will define. The general framework is presented in Figure 3. It includes analysis of service offerings, sales and marketing capabilities, financial capabilities and delivery capabilities.

6 6 A Framework for Making Partner Choices in BPO Figure 3 Key Metrics for Success in BPO Overview Framework Financial Service Offering Marketing and Selling Delivery Number of contracts Current margins Prospective margins Independence of profit and loss Current revenue stream Prospective revenue stream Depth of offering Breadth of offering Global offering Potential integration with other services Autonomy of offering Process expertise Industry expertise Repeatability potential Existence of solution centers Strength of brand Effectiveness of sales force Win rate Other LOB pull-throughs Sales cycle length Number of sole-sourced deals Pricing model Use of metrics Existence of solution centers Delivery bandwidth Partnerships and alliances Applications knowledge BPO-focused training LOB = line of business Source: Gartner Dataquest (February 2003) You can further distill skill and capability requirements by identifying the role or roles you will play in the BPO service delivery model. Figure 1 sets forth the BPO service delivery model as well as the fundamental competencies necessary to execute against each role. The choice of roles should be made carefully and with the knowledge that this choice also delineates the capabilities you will need to own or control, influencing buy/build/borrow decision making later in the analysis. If, for instance, youdecidetoassumetheinfrastructureproviderroleinthebpovalue chain, then you must own (vs. obtaining through partnership) the infrastructure components of the BPO offering because they are core to the role you wish to play. You might not need to own the process management components. Step 3: Gap Analysis Once desired role(s) and related requirements and key success factors have been determined, the next step is to assess current capabilities and identify gaps. Key question: What gaps, if any, exist between current and required capabilities? Again, where roles in the service delivery model (as delineated in Figure 1) are concerned, the capabilities necessary to assume those roles should be taken as threshold requirements. Where the key success factors outlined in Figure 3 are concerned, a bit more latitude exists. Gartner Dataquest recommends that companies should first rate the importance of each requirement in the context of the role they want to play, and then the performance compared with these requirements.

7 7 Companies that want to play a narrow role in the chain (for instance, to become the application layer of the BPO offering) will rate some requirements as very important and others as less important. Companies that want to play a full-service role will rate most of the requirements as very important. The gap analysis is a result of the performance rating combined with the importance rating. Step 4: Strategic Options Reassessment With a clearer understanding of requirements and current capabilities, it is worthwhile to revisit the goals originally established in Step 1. Key question: Are the goals I have set forward for BPO reasonable in light of market requirements and my current capability to act on them? One of the byproducts of the gap analysis outlined in Step 3 is the realization that a company's original ambitions for BPO may require more investment in buying, building or partnering for needed competencies and capabilities than had been expected. Step 5: Buy, Build or Partner Assessment Having determined the gaps between current capabilities and market requirements to achieve identified BPO business goals, the next step is to decide how best to fill these gaps. This is, finally, the point in the process where the question, "Who should I partner with in BPO?" gets answered. Partnering, however, is neither the only nor the universally ideal option. For example, it is not advisable to partner for capabilities core to your business or to your desired role in the BPO service delivery model. Here, buy-or- build strategies make more sense. Refer to Gartner Dataquest research on alliances and partnerships for additional frameworks on the buy/build/partner decision. When partnering is the right strategic choice, the gap analysis provides the basis for identifying the capabilities, market share and other attributes required of partners. "Soft" attributes, such as common cultures and personal chemistry between or among partnering organizations, are equally important. It is incumbent on each individual company to determine the relative weight given these attributes in the choice of partners. In general, though, Gartner Dataquest research indicates that the greater the "fit" between partnered organizations, the greater the chances for success.

8 8 A Framework for Making Partner Choices in BPO In addition to providing a basis for understanding what you might desire or require of potential partners, the gap analysis also highlights what you can offer them. Because alliances and other business combinations are conceived for mutual benefit, it is essential that parties to an alliance be able to articulate their individual contributions to the greater good. Gartner Dataquest research indicates that lack of a compelling reciprocal value proposition is one of the enduring reasons alliances fail. Refer to "A New View of Alliance Value" (ITBS-WW-FR-0104) for an in-depth discussion of reciprocal value propositions and their individual components. Conclusion The need to develop business strategy in advance of partner strategy may appear obvious, but is often overlooked in the haste to forge new alliances to capture market openings. It is not difficult to understand why opportunism can override deliberation in IT: Getting there first is half the battle. Extending this logic to partnering in BPO is a mistake. The risk cost of getting it wrong is too high. As the BPO market unfolds, it will be interesting to see where and to what extent partnering factors into providers' go-to-market strategies. In other segments of IT, partnering is ubiquitous to the point of being a given. In BPO, it remains unclear what role partnering will play. Early indicators suggest that providers will be less reliant on alliances to compete in the BPOmarketthaninotherITmarkets. Key Issue How are partnerships, alliances and joint ventures used most effectively to sell and deliver outsourcing services? This document has been published to the following Marketplace codes: ITSV-WW-DP-0462 For More Information... In North America and Latin America: In Europe, the Middle East and Africa: In Asia/Pacific: In Japan: Worldwide via gartner.com: Entire contents 2003 Gartner, Inc. and/or its Affiliates. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice