BPO and the Medici Effect ...

Who would have thought that the 14th century Florentine House of Medici could hold the key to aligning the benefits of outsourcing and shared services with Small to Medium Sized Business or Enterprise (SMB/SME)? Let's start with a brief look at a concept called the Medici Effect. The Medici Effect theorizes that when you step into an intersection of fields, disciplines, or cultures, you can combine existing concepts into a large number of extraordinary new ideas. I propose that the ideas that emerge from the intersection of Cloud, Integrated Business Services, and Verticalization hold the key for Outsourcing Providers aligning with the most pressing needs of SMEs and thereby delivering much needed value to these under-served businesses. Going Beyond "Low-Cost" Services Increased competition, commodity-level pricing, and economic uncertainties are changing today’s BPO market. It's clear that to be competitive and gain broader adoption, BPOs and Shared Services providers are realizing the need to push beyond the boundaries of traditional models. To succeed in acquiring new business and retaining existing customers, BPO providers need to have in-depth knowledge of their customer's industry and business and continually evolve their services and processes. Perhaps the most important "mind-shift" required for service providers is to become strategic partners that deliver end-to-end solutions and increase value by contributing to their customer’s success. While the benefit of greater value at a lower cost remains a factor, the more compelling value will be helping clients achieve their strategic business objectives. The mind-shift is really about seeing a bigger picture. If I may pull from a sports analogy, what's needed is for every team member to be focused on winning the game for the client, not just going through the motions of playing the game. This means, for example, that the back-office services team leaders must adopt a front office mindset and think of the services as a business-within-a-business. As a result, end-to-end solutions need to be conceptualized and implemented within a collaborative and transparent service provider and client environment. Successful service providers will, in effect, be instrumental in breaking down traditional silos within both their and their client’s organization by integrating different business functions, and sharing resources, applications and platforms. The Cloud According to McKinsey & Company, Small and Medium-sized businesses are playing a growing role in the rise of the market for cloud services. By 2015, their share in the market is expected to reach USD 28 billion – with an expected profit pool of USD 3.5 billion – representing 40 to 50 percent of the total cloud market opportunity. In a McKinsey survey of SMB leaders, 60 percent of respondents indicated they have already purchased at least one cloud service and about 30 percent have purchased five or more. From a recent Forbes report titled "Roundup of Small & Medium Business Cloud Computing Forecasts & Market Estimates, 2013", 69% of SMBs with fewer than 20 employees and 55% of SMBs with 250 to 999 employees are using cloud-based applications today. As presented in an ISG paper, the future cloud model will include not only applications on cloud but also platform, infrastructure, and business process services, as defined below. Software as a Service in Cloud (SaaS): An organization uses a service provider’s software applications on Cloud, while relying on the service provider to manage and maintain the underlying cloud infrastructure. Platform as a Service (PaaS) in Cloud: An organization uses a service provider’s software, tools, and programming languages to create, acquire, or customize applications on Cloud, while relying on the service provider to manage and maintain the underlying Cloud infrastructure. Infrastructure as a Service (IaaS) in Cloud: An organization can create, acquire, or customize applications, networks, storage, operating systems, and other resources on Cloud, while relying on the service provider to manage and maintain the underlying cloud infrastructure. Business Process as a Service (BPaaS): A service provider can bundle business process services with SaaS, PaaS, and IaaS – as one integrated service! The trend is clear: cloud services are already playing key roles in business growth for SMBs and will continue a very steep upward trajectory. When we bring BPO to the Cloud we evolve into Business Process as a Service (BPaaS), which aligns very well with needs of SMBs. Consider these benefits of cloud based outsourced business services: Faster & simpler implementation time: it takes a dramatically shorter time to setup a custom BPO solution for a customer. Transparency and Collaboration: all stakeholders access the same information and easily monitor processes in real-time. Mobility: optimized 24/7 performance from anywhere at anytime. Conserve Capital: dramatically reduces up-front costs and allows clients to pay a predictable monthly fee. Bundled Services & solutions: platform technology bundled with BPO delivers end-to-end solutions Eliminate Technology obsolescence risk. By its very nature cloud based technology platforms evolve with the times – so client has comfort of always obtaining the next version platforms bundled into the BPO solution, at no extra cost or effort. Variable Engagement Model: costs align better with scale & seasonal variability, with greater emphasis on business outcomes. Verticalization Verticalization by BPOs is defined as alignment of their strategy, offering and operating model to meet the needs of specific industry verticals. The NASSCOM BPO Strategy Summit 2011 highlighted that the BPO sector is moving towards verticalization; but by all accounts the adoption of this "strategy" on the ground has been minimal. We can speculate that challenges related to organizational structures, existing silos, process migration, narrowing service focus and developing domain expertise are most likely all contributing factors to challenge implementing verticalization. Let’s look at how Verticalization aligns with research done by Bain & Company, as published in their book, "The Great Repeatable Model". Bain promotes the concept "differentiation" as one of the three core principles of "repeatability". To win, new customers brands must be clearly differentiated from their competition. Take a good look at most BPO websites and you are likely to see two prominent selling propositions: high quality and low price. Not only are most service providers competing on the same value propositions, but they also offer a broad range of services to multiple industries. I suggest that the better approach is to take a more narrow approach to the market and create differentiated verticalized solutions A good starting point for developing verticalized solutions for most service providers is within a vertical or niche where they already have expertise and have experienced some success. Do some basic market research and the math: based on achieving a reasonable market share, is the target market large enough to justify the commitment to providing solutions designed for the vertical or niche? Next, take a closer look at the target market to understand current trends and key business challenges. And lastly, look at your organizational domain expertise to explore how you might be able to "assemble" a highly specialized solution unlike any options currently offered to this target market. Now you’re ready to begin developing a verticalized market solution using the Centers of Excellence framework, which I will delve into in my next article. [inlinead] Conclusion We live in exciting times for BPO and Shared Services providers because businesses continue to be challenged with increased competition and complexity and shorter product lifecycles. More than ever, SMBs and SMEs need to conserve capital, increase their capabilities, and scale their capacity to capture new business opportunities. The timing is finally right for BPO and Shared Services providers to deliver industry specific solutions with the agility, speed, and price structure that is possible as a result of the intersection between Integrated Business Services, Cloud, and Verticalization. [Note: if you liked this article, please use the buttons on the left side of the screen to share it across your LinkedIn groups – and contribute to this discussion by posting your thoughts in the comment section, below. Thank you for being part of SSON's community - Barbara Hodge]

BPO and the Medici Effect ...

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