Providers of Software as a Service and Business Process Outsourcing should work together to create business utility services to serve the market better.
 
By Phil Fersht
 
Where many clients need help implementing and managing an SaaS (software as a service) application, BPO service providers have the business process acumen and IT expertise to manage not only an SaaS application, but also the service operations needed to deliver the processes supported by that application. Moreover, BPO services often lack the common applications, processes and standards to deliver to multiple clients at low cost, and SaaS can provide some of the answers. The following article discusses how BPO and SaaS delivery models can come together to deliver real low-cost business utility.
 
For today’s business executive, it’s easy to get excited by the potential of SaaS-based offerings. The low-cost upfront investment and pay-by-the-drink pricing can quickly delivery the business services they need without the painful customization and implementation impediments of yesteryear. SaaS creates a business utility service that is revolutionizing the software and outsourcing industries (see figure below), especially in the worlds of manufacturing, sales and marketing, and HR.
 
At the same time, we’ve seen strong uptake in the adoption of Business Process Outsourcing (BPO) services, which often suffer from the lack of low-cost application delivery, common business processes and standards. Is SaaS the answer to solving these issues with BPO?
 
While SaaS delivery shares many similarities with outsourcing as a delivery model, there are caveats customers need to consider with regards to the business process transformation, data management, and governance issues needed to take full advantage of SaaS.
 
SaaS: Too Simple?
It is a serious step for companies to enter into an outsourcing engagement, with significant change management required to establish governance over those processes. With SaaS, companies can sign up, flip a switch, and they’re up and running with little upfront investment. Does this mean they are going to invest nearly as much attention on governing these processes? Our experience so far is no. Companies move into SaaS because it is cheap and easy, and they often overlook the internal business transformation they need to go through to manage these processes effectively in an outsourced environment. 
 
However, when you examine the maturing Business Process Outsourcing delivery models across processes such as supply chain, finance and HR, the synergies between outsourcing delivery and SaaS become compelling.
 
BPO versus ITO
SaaS delivery is much more suitable within a BPO environment, where the fundamental delivery is business process-based, as opposed to a complex IT outsourcing (ITO) environment. In an ITO context, the service provider is basing its revenue model on developing and supporting an application/suite of applications. Hence, SaaS can conflict directly in this context, when it is eradicating the need for application customization.
 
Where clients request SaaS delivery from their ITO providers, for example Salesforce.com, they can expect their service provider to service the application for them, but they may benefit even further from a BPO provider running the Salesforce.com application, where they can also provide call center support, inbound customer service support, etc. The same context can be used for SaaS-based applications in other areas, for example Patersons (payroll), Workday (HR and other ERP) and NetSuite (ERP).
 
Several of the leading ITO providers—for example Accenture, HP, and IBM—have developed very strong BPO competences in recent years, so they can cater for SaaS/BPO delivery, but it will take some time for them to move away from the lucrative revenue models managing global ERP implementations. Examples of this SaaS/BPO delivery scenario are HP (EDS)’s delivery of Microsoft’s CRM dynamics application for customer management services, or IBM’s delivery of Saba and Successfactors for SaaS-based human capital services. We have also seen Capgemini partner with Google to delivery Google Apps to its clients.
 
Many ITOs, which are struggling to compete with the market leaders in this climate, are already being forced to pursue the SaaS/BPO route to offer a highly cost-competitive alternative for clients, especially in the mid-market. We will discuss more of these SaaS/BPO partnerships in due course, but many of these discussions are currently taking place.
 
BPO is a different ball game, where common standards and common processes are the critical ingredient, and SaaS fits the bill. BPO service providers want simplicity and utility, and complex technology customization is not always well suited to their business models. This can often be a deal-breaker where cost reduction is the prime buying motivation.
 Click here to view chart: Enterprise Software Purchasing Model
Data and Governance
The answer to many of these questions lies in the service contracts. As with any contract, exits should be considered in the case of poor delivery, security, or compliance. The critical issue here is your ability to extract the database of information developed under the SaaS model, and ensuring it is compliant with porting to a different model, another SaaS service provider. We recommend periodic delivery of a copy of the database and then an investigation into the portability of the data. The service contract should specify the data model and rules for how data are represented.
 
The lack of any upfront investment could significantly impact the governance over that SaaS-based process. The massive appeal of SaaS to outsourcing service providers is the reduction in customization for new customers, which makes their services less appealing from a price perspective.
 
We believe BPO service providers can address many of these issues by taking on SaaS applications within their delivery portfolios. The outsourcing Holy Grail is the one-to-many model, where they can deliver common processes to multiple clients in a standard format. SaaS delivers that model in spades. If outsourcing service providers can acquire, or partner with successful SaaS applications, they could hit a home run with a utility delivery model, especially for business processes where buyers are willing to standardize onto a vendor model; for example, payroll, general accounting, performance management, or CRM.
 
The Bottom Line
SaaS and BPO are perfect complements in many client situations. Where customers need help and business transformation in implementing an SaaS application successfully, BPO service providers have the business process acumen and IT expertise needed to manage not only an SaaS application, but also the service operations needed to deliver the processes supported by that application. Hence, our recommendation to SaaS providers is to explore the BPO service provider ecosystem for strategic partnerships—and vice versa.
The BPO channel can create major new client opportunities for SaaS providers, while the one-to-many SaaS model creates common standards and processes that BPO providers desperately need to remain profitable in an increasingly price-competitive market.
 
Phil Fersht is director of research, AMR Research. He can be reached at pfersht@amrresearch.com