New Impacts on Outsourcing in 2009
New impacts on outsourcing in 2009 include service-oriented architecture (SOA), service provider "DNA," green IT, the changing role of physicians, and what the future holds because of the convergence of technology and business process.
Nov 10, 2008
Service-Oriented Architecture"I'm really excited about SOA," says Gianni Giacomelli, head of BPO Strategy and Marketing, SAP. "Conceptually, it's a revolution in outsourcing that will take it to the next level."
Software implementations today are constrained by yesterday's way of writing code. As Giacomelli explains, software developers wrote hundreds of thousands of lines of code that, together, handle a business process (such as finance and accounting). But the code is not clearly segmented into functions or subprocesses (such as accounts payable, accounts receivable, collections, general ledger, and fixed assets). It's often difficult to take out the lines of code for subprocesses and give them to another company. And, at times, companies have to implement an entire system even if they only want to use one segment of the code.
In contrast, SOA makes the code accessible in pieces, so to speak, that are very easy to map to business subprocesses. So if a company only wants to implement a system for collections or a system for the general ledger, for example, SOA enables that option.
"By being able to do that, you enable one simple thing: specialization," explains Giacomelli. He compares it to automobile manufacturers that use subcontractors to build almost of the components that make up a car. "Those components became a natural breeding ground for organizations that are specialized in doing specific things such as making brakes or transmissions. Without specialization, we wouldn't be able to have cars that cost what they do today. Cars were expensive and extremely rudimentary decades ago because there was no specialization in the components in the car."
SOA has the potential to generate that specialization in the outsourcing industry because it enables providers to take much more granular pieces of a process and concentrate on them. "By concentrating only on one piece or on a few pieces, service providers can actually choose the ones in which they are really, really good, the ones in which they really can create significant economies of scale for 100 or 200 customers," says the SAP exec.
That's a value proposition that Giacomelli points out is still sometimes lacking in BPO today. "Many providers are not bringing to the fore significantly different economies of scale that the client can't replicate because many providers have at best only a handful of clients running on the same platform."
What are the implications for buyers of outsourcing services? The risk and difficulty of outsourcing subprocesses will be much lower. "The connection points between the piece the buyer moved out and gave to the provider and the rest of the retained subprocesses are going to be very clear because they are mapped into the software. It's almost like taking a Lego piece out of a structure; it still recombines fairly well with the rest because the connection points are very regular. SOA is also great for making new and improved pieces fit with the rest of the structure; there's less pain with enhancement, upgrades, and ultimately innovation."
The ideal scenario is one where both the buyer and provider have SOA so that they can communicate in the best way and so there is a minimum amount of "stranded assets" on the client side. "But the reality is most clients don't have SOA in their landscape today for most of the processes. It's changing, and there's a wave of adoption today; however, broader adoption will follow the rhythm of upgrades, so it will take 10 years," says Giacomelli. "This said, the fact that the provider is already able to use SOA on its end to build very focused 'droplets' of subfunctions is game-changing."
The big advantage of SOA in outsourcing is a win-win for buyers and providers. Giacomelli points out, "With SOA, the BPO provider needs to implement and run only a specific piece of the entire application landscape (such as the collections piece of the accounts receivable process). Therefore, the implementation will be much less complex, less lengthy
Software implementations today are constrained by yesterday's way of writing code. As Giacomelli explains, software developers wrote hundreds of thousands of lines of code that, together, handle a business process (such as finance and accounting). But the code is not clearly segmented into functions or subprocesses (such as accounts payable, accounts receivable, collections, general ledger, and fixed assets). It's often difficult to take out the lines of code for subprocesses and give them to another company. And, at times, companies have to implement an entire system even if they only want to use one segment of the code.
In contrast, SOA makes the code accessible in pieces, so to speak, that are very easy to map to business subprocesses. So if a company only wants to implement a system for collections or a system for the general ledger, for example, SOA enables that option.
"By being able to do that, you enable one simple thing: specialization," explains Giacomelli. He compares it to automobile manufacturers that use subcontractors to build almost of the components that make up a car. "Those components became a natural breeding ground for organizations that are specialized in doing specific things such as making brakes or transmissions. Without specialization, we wouldn't be able to have cars that cost what they do today. Cars were expensive and extremely rudimentary decades ago because there was no specialization in the components in the car."
SOA has the potential to generate that specialization in the outsourcing industry because it enables providers to take much more granular pieces of a process and concentrate on them. "By concentrating only on one piece or on a few pieces, service providers can actually choose the ones in which they are really, really good, the ones in which they really can create significant economies of scale for 100 or 200 customers," says the SAP exec.
That's a value proposition that Giacomelli points out is still sometimes lacking in BPO today. "Many providers are not bringing to the fore significantly different economies of scale that the client can't replicate because many providers have at best only a handful of clients running on the same platform."
What are the implications for buyers of outsourcing services? The risk and difficulty of outsourcing subprocesses will be much lower. "The connection points between the piece the buyer moved out and gave to the provider and the rest of the retained subprocesses are going to be very clear because they are mapped into the software. It's almost like taking a Lego piece out of a structure; it still recombines fairly well with the rest because the connection points are very regular. SOA is also great for making new and improved pieces fit with the rest of the structure; there's less pain with enhancement, upgrades, and ultimately innovation."
The ideal scenario is one where both the buyer and provider have SOA so that they can communicate in the best way and so there is a minimum amount of "stranded assets" on the client side. "But the reality is most clients don't have SOA in their landscape today for most of the processes. It's changing, and there's a wave of adoption today; however, broader adoption will follow the rhythm of upgrades, so it will take 10 years," says Giacomelli. "This said, the fact that the provider is already able to use SOA on its end to build very focused 'droplets' of subfunctions is game-changing."
The big advantage of SOA in outsourcing is a win-win for buyers and providers. Giacomelli points out, "With SOA, the BPO provider needs to implement and run only a specific piece of the entire application landscape (such as the collections piece of the accounts receivable process). Therefore, the implementation will be much less complex, less lengthy