Radical, technology-powered innovation in BPO to continue

By Santosh Premdas, Strategic Outsourcing and Management Consulting Professional, Infosys BPO

It is time the BPM industry focused equally enough on incremental innovation in native BPM/core domain areas

Radical innovation aims at disruptive new advancements (often driven by new technologies that enables new capabilities) and changes paradigms. While they result in impressive changes, radical technology-powered innovation ideas are not as common and they could take longer periods to become viable. Partly owing to its IT-enabled/dependent character and the intense competitive pressure, the BPM industry is laying excessive focus on radical technology-powered innovation, often at the cost of incremental native BPM innovation that looks at smaller bites of advancement yielding rather significant changes over time. This article examines the reasons for the F&A BPM industry’s excessive fascination with radical, technology-powered innovation and makes the case why both forms of innovations need to be given equal importance. It also outlines the various incremental innovation opportunities in the areas of ‘Bold Domain’ & ‘Creative Collaboration’.

Finance & Accounting (F&A) is a mature segment in the relatively-young Business Process Management (BPM) industry. The segment faces increased commoditization of services and service providers (SPs) are constantly exploring ways to differentiate themselves and their offerings. With 25+ players, F&A BPM is facing intense competition which is driving the average billing rates southwards. BPM industry is intimately linked to the IT industry which enables and supports distributed/remote processing..

Market expects BPM industry to innovate faster without realizing that BPM cannot match the pace of innovation in the IT industry; simply because BPM deals with business processes, people and culture, where adoption of change is slower. In short, trace how little the industry has been able to shorten the transition timelines for F&A BPM implementation over the last decade or move away from the tested Time & Material commercial model….

Unable to innovate rapidly, the intense competitive pressures in F&A BPM market is forcing SPs to promise more innovative features and value-added components in their service offerings. Every provider is therefore looking at spotting the next big trend in F&A BPM and getting into a dialogue with prospects…and even contractually or otherwise committing to them. Since some of the features added are primarily driven by competitive pressures, SPs focus more on taking the idea to market rather than the idea implementation. This creates hype and increased expectations in the market and in the minds of prospective buyers, often without translating into real value.

Addition of innovative features is a healthy sign that the industry is evolving to meet client requirements. But the peculiar case with BPM industry is that while there are numerous ideas and features (mostly technology focused), many of them are either not implemented/delivered to customers or are simply unviable/take too long to deliver. The other issue is that SPs are not taking their core domain/BPM feature additions seriously enough because market participants suspect that technology powered radical innovation will automate/eliminate effort and render large parts of the current business non-relevant. This suspicion is farthest from the truth because, if anything, the technology innovations will only make BPM more domain intensive.

Being closely related to the IT industry, the BPM industry has significantly benefited from technology-powered radical innovations.  For example how Robotic Process Automation is eliminating 25-40% of all F&A BPM effort, or how cloud-enabled stack offerings are increasing the adoption of ‘As-a-Service’ models with pay-per-use commercial constructs or how combination of technology and analytics is offering customers a aggregated dashboard view of operational data which can help derive insights and drive informed decisions. These changes are modifying the way business processes are sold, bought and delivered. However, to hinge too heavily on this promise alone would be too naïve.

Analyst reports reflect that enterprises that have chosen to outsource believe that SPs aren’t working proactively to add value beyond the basic terms of the outsourcing contract. This gap between what was promised and what was eventually delivered is one of the primary reasons why buyers consider changing their vendor when the contract expires (despite being fully aware that migrating to a new vendor adds additional risk, migration costs and at least one instance of avoidable change).

Let the discussion not lead you to believe that F&A BPM industry isn’t inventing. It has covered fair amount of ground in adding BPM-enabling tools, Robotic Automation, Smart Process Catalogues, Harmonization Frameworks, Innovative transition formats, exhaustive benchmarks repository, alternative pricing models etc. But, recently, the industry seems to be focusing more on tech-driven radical innovation alone. Going by its track record so far, technology will not disappoint and will continue to add its bit and accelerate innovation. But excessive reliance on that alone takes away the focus on BPM/domain-centered incremental innovation. It is about bringing the right balance in the focus and also setting the right (and realistic) expectations with prospects/customers.

Discussions with multiple F&A BPM customers at various stages of the BPM life-cycle indicates that native BPM incremental innovations are needed in the following two areas:

1. Bold Domain: Expand and deepen domain capabilities to overcompensate for the de-skilling that outsourcing brings with it. Areas of focus could be:

• ‘BguideD’: Benchmarking guided service design and delivery
• Verticalized F&A offerings: Develop industry-specific F&A services to deepen/ extend scope into core & complex processes
• Functional adjacencies: Expand span of view of horizontal services to cover adjacencies & unlock downstream/upstream efficiencies
• Full-function take-out model: Ecosystem tie-ups (esp. in tax/regulatory areas) to offer comprehensive support in every geography – big or small
• Mirror KPIs: Simplify and reduce SP KPIs to mirror those carried by CFOs/key stakeholders on their scorecards

2. Creative Collaboration: Securing success of outsourcing initiatives by adopting ‘program-as-a-whole’ view by both SPs and customers

• Address implementation constraints on customer’s side: SPs should lend Global Business Services (GBS) /program management resources& embed integrated change components in core offerings
• Accelerate journey to ‘full potential outsourced’ state: Joint Design Thinking workshops to identify constraints and find creative solutions to accelerate journey across BUs, geographies, and functions
• Enhance collaboration: Social portals for real-time collaboration between retained and SP teams to mimic proximal working atmosphere

Finally, the BPM industry has to acknowledge that despite the attractiveness of higher arbitrage and specialist management/support when third-party BPM providers are chosen, the story of Captive SSCs / Global In-house Centers (GICs) continues to be buoyant…this is evident in steady growth in companies who choose to set-up/expand GICs. It may sound illogical but the third-party BPM providers should share the innovation ideas with GICs and, where possible, also implement it for them. If innovation (such as Robotics-as-a-Service) is extended to GICs, it will result in in situ transformation of the captives, unlocking value that they would have found it hard to unlock themselves. For the SPs, this carries the potential to bring additional lines of revenue and during the course also influence GICs to sell-out their centers or include third-party SPs in their sourcing mix. You probably just heard a bunch of SPs say Amen to that, in chorus.