Business Platforms: The Emerging Alternative to the “Mess for Less” Outsourcing Deal
This article originally appeared in Outsource Magazine Issue #27 Spring 2012
Business platforms, enabled by the fusion of cloud computing, SaaS and BPO innovations in an integrated singular managed service, are emerging rapidly as the desired “one-to-many” utility service for providers and a new source of value for outsourcing buyers. Business platform outsourcing offerings combine business process outsourcing with enabling technologies and services, and the world’s largest providers are beginning to dust off existing offerings and invest aggressively to lead in niche markets. To better understand the evolution of these services and the state of the market, HfS polled 21 service providers and evaluated 112 business platforms as part of its Business Platform Map™ market survey during Q4 2011. Over three months we briefed providers on their strategy and offerings. This report outlines some highlights of our results.
What are business platforms?
HfS Research first documented the emergence of this set of offerings in our research document titled ‘What Are Business Platforms and Why Do They Represent the Future of Outsourcing?’, where we identified business platforms as having four key characteristics:
- business platforms deliver standardised business processes;
- business platform owners (service providers, not buyers) manage the business processes associated with the business platform and furnish the complete solution, including the people that operate them, the underlying software platform and the infrastructure;
- business platforms focus on business outputs or outcomes such as improved working capital and higher customer loyalty, not inputs such as labour and physical assets;
- business platforms service more than one client.
Well-executed business platforms provide customers with compelling technology-enabled business process services that help drive innovation via process re-engineering, greater business agility, and productivity improvements. They are flexible and scalable in the face of global demand fluctuations and provide high-quality process workflows.
Business platforms offer an alternative to the “mess for less” outsourcing proposition
A recent HfS research study that covered the intentions and observations of 534 outsourcing buyers, advisors and providers with their sourcing strategies, revealed what is motivating buyers to outsource in this current climate (see Fig. 1). While eliminating cost is an ever-present obligation, buyers are also equally focussed on achieving greater flexibility to scale and support their global operations and – even more significantly – prepared to explore adopting standardised business processes. Yes: 80 per cent of buyers are willing to move onto standard processes. They are increasingly unconcerned if their closest competitors use the same expense management or claims adjudication processes, the same cash applications or collections tools. They simply want to adopt quality process flows they can deploy effectively and efficiently, if there is no competitive advantage to be gained that necessitates conducting these processes in a certain unique manner.
Business platforms have been available for some time and investment is accelerating
A majority of the world’s major providers are responding to these drivers. HfS analysed 112 business platform offerings from 21 service providers (see Fig. 2) and we found that mature business platforms exist – 42 per cent of business platforms are more than three years old with some business platforms serving scores of clients (e.g. EXL’s LifePRO, Cognizant’s iTrak, iComp and iAlign, Infosys’s VPAS® Policy Administration System (McCamish), Wipro’s HIMS and HP’s Ingenium). Significantly, 43 per cent of business platforms focus on just one vertical. The Insurance, Financial Services and Life Sciences verticals appear to be the top three vertical adoption categories. Accounting for 39 per cent of business platform offerings, F&A, Sourcing and Procurement, and HR are the top three horizontal business platform adoption horizontals.
Interestingly, though most service providers are in the business platform game, the majority do not market around this term (or any similar term) yet. Significantly, we found that larger service providers have difficulty identifying business platforms. They haven’t clearly defined them as products, which greatly lessens their visibility. Smaller service providers seek differentiation through productisation and focus. But innovation is occurring and quite rapidly. Forty-one per cent of business platforms have been available for less than a year, 62 business platforms (55 per cent) had fewer then five clients, and 33 business platforms (25 per cent) had one or fewer clients.
The majority of business platforms are built on “one-to-few/many” models
To understand how services providers are designing business platforms in order to manage multiple clients and maintain the ability to win from economies of scale and support across these clients as adoption continues, we asked providers to outline the technology and delivery models of their submitted business platforms. Our research indicated three principal delivery models (one-to-one, one-to-few/many, many-to-many) (see Fig. 4).
Significantly eighty-five per cent of the business platforms offerings reviewed were delivered in a “one-to-few/many” model. In this case, buyers subscribe to services from a provider that leverages a multi-tenant software application. Service providers that deliver services from a business platform that leverage a “one-to-few/many” model have two or more buyers subscribing to the same service. We see the development of “one-to-few/many” models being particularly attractive to both medium and large enterprises in niche verticals.
Business platforms offer an alternative to the “mess for less” outsourcing proposition that is currently delivering business value to buyers. Instead of asking a service provider to manage a set of broken custom processes, organisations are looking to business platforms to provide consistent workflows, standardised processes, accountability for services delivery and responsibility for technology support. Our research indicates that mid-market companies are especially willing to outsource more scope and scale to one provider in order to make the economics of the transaction work. This delivery model is right for buyers that want to cut costs and are willing to standardise workflow processes. If you’re buying a business platform in this model, you aren’t looking to differentiate capabilities; rather, you’re looking to accelerate your ability to drive out costs and improve the manageability of their people, process and technologies. The benefits associated with using a “one-to-few/many” model include improved time-to-market via a pre-configured offering, and further cost reductions via centralised management.
The bottom line: business platforms are valuable, but many need time to mature.
HfS encourages buyers to open their minds to the opportunity presented by business platforms. Buyers can now explore transitioning more rapidly to a desired future state for a specific business process, or set of processes. Our data shows many buyers are actively evaluating this model, with early adopters already buying into these solutions. Business platforms are particularly attractive to organisations impacted by radical, fundamental shifts to their industry economics. These companies are pressured to create substantial change today. Those under the most pressure are already seeking out new and innovative ways to keep their business operations cost-competitive. By integrating technology and business processes in one singular managed service, business platforms deliver value over and above the traditional “mess for less” outsourcing models. Simply selling “products” is not the concept of business platforms – it is the provider’s ability to work with their customers to facilitate and support the ultimate business outcomes of managing the processes associated with the business platform offering. There are many business platforms that have yet to scale sufficiently.
While many service providers will provide advanced business process management capabilities that will allow for configuration of different business rules on the same platform, buyers and providers do need to avoid the slippery slope of incremental customisation in order to obtain the economies of scale this model requires for success.
Our discussions with buyers indicate that they want proven offerings from providers. Given the risk exposure and in some cases immaturity of these bundled services, invest heavily in business platform due diligence. HfS’s September 2011 outsourcing research found that 66 per cent of respondents indicated that offering maturity was a motivation to outsource in this current unstable economy. Some service providers will be more conservative than others in rolling out business platforms, but with 55 per cent of business platforms supporting fewer than five clients and 25 per cent of business platforms having one or fewer clients, there is certainly a need to see new business platforms mature. Buyers reviewing business platforms that do not have multiple clients must ensure that they understand the business platform development plans and solution road maps as the service provider may have predicated its financial plan on a minimum number of clients. Buyers need to understand how service providers are building their business platforms. Too little client traction may indicate that the business platforms are not much more than a bespoke service that risks limited future funding.