More Choice, More Caution

A greater variety of outsourcing solutions requires careful attention to the process of integration.
 
By Christian Baader and Dharman Shetty
 
Hybrid appears to be a word of choice these days among many—be it automobile manufacturers or BPO service providers. Some HRO providers are now offering what is being termed a “hybrid” solution.  But what does it mean, and what are its implications?
Past experience with outsourcing, changing business requirements, and the economic downturn have forced companies to reevaluate how they should leverage outsourcing. As in the automotive industry, buyers want better mileage (lower per unit cost), no loss in power or functionality, and lower upfront payment (pay-as-you-go), out of their sourcing relationships. With objectives to better leverage existing investments, internal capabilities, and minimize additional capital outlay, customers are critically evaluating their service delivery models.  Many second generation HRO buyers are shying away from costly and effort-intensive transformational outsourcing. They are de-scaling and de-scoping their deals to levels at which they see value.
 
The HRO providers recognize these trends and are offering various solutions and deployment models. Their customers can choose a combination of solutions and deployment models—IT-outsourcing for regular solution deployments “on premise,” on-consumption solutions provided as on-demand services, and full-service BPO.  However, merely deploying solutions without proper integration may cause severe limitations. It could fail to function as a single unified system, providing a holistic and complete view of the enterprise. Unlike the use of separate automotive vehicles for different tasks, business operations need integration of processes and sub-processes. The risk of failure increases with the number of solution combinations, number of providers, and divergence of technologies.
 
Some of the common challenges experienced when deploying multiple outsourcing solutions are:
• High cost and effort associated with integration;
• Data latency;
• Inaccurate or non-synchronized information leading to incorrect interpretation;
• Gaps in functionalities between systems, requiring manual interventions or costly technology by-passes;
• Inconsistent user experience; and
• Inflexibility of process design and inability to implement technological innovations and upgrades.
 
Some of the HRO providers have recognized the need for integration and a “single source of truth.” They use a core system to provide the base platform with add-on niche solutions. Some offer integrated solutions by stitching together several so-called ‘best-of-breed’ solutions.  Some use an industry standard ERP system as a core foundational system; this in itself provides certain protection for the buyer-proven technology, comprehensive functionalities, regular upgrades, availability of resources, and transferability in case of termination. For service providers who may not want to maintain a large IT organization, use of ERP solutions as the core service delivery platform provides considerable advantages over maintaining a combo of best-of-breed solutions. Northgate Arinso, for example, has built a hybrid offering in the HR domain based on SAP HCM product suite. They offer on-demand and full HRO services from one integrated platform, based on industry standard ERP software. Such offerings provide buyers the flexibility to choose any combination of services.
 
The advantages of delivering targeted HR services in an on-demand model also align well with today’s imperatives for cost reductions and quick ROI. Such offerings provide buyers opportunities to source services from a single provider in different ways, mixing on-demand services with full BPO as needed, while achieving consistency in HR services from an end-to-end perspective. However, buyers must determine what is most appropriate for them.  They need to decide between “own” versus “rent”; “on-premise” versus “remote location”; “self service” versus “delivered service”. Buyers must also evaluate their consumption pattern to determine if they would benefit from a fixed fee or an on-demand based arrangement.
 
In addition, buyers must determine whether the service delivery platform of their providers and their own enterprise solutions combine into a seamless whole. Buyers must test the solution for technology robustness, integration capabilities, and innovation flexibility. They must verify that the delivery systems can be integrated without major hurdles or costs. Such evaluations will help the buyer make informed decisions delivering significant and recurring benefits.
 
In the end, it is not about having a fancy set of vehicles; it is about having the right set: best suited for the tasks at hand and delivering necessary results cost efficiently. Selecting the outsourcing partner(s) with the right delivery platform will make it easier
 
Christian Baader, christian.baader@sap.com, is vice president, outsourcing and on-demand GTM, SAP. Dharman Shetty, dharman.shetty@sap.com, is director global BPO strategy, SAP.