Business Process Outsourcing


There are a number of companies whose IT shops are providing market competitive, rock solid IT as a shared service within the company. Some of those companies are wondering how they can turn that into a profit center. To quote a recent analysts report from CIO magazine:

This prospect is attracting a great deal of enthusiastic market interest. Diverse investors-including venture capitalists, investment banks and Systems Integrators-are placing big bets on the future of business process outsourcing (BPO). The range of strategies they are funding is dizzying, ranging from simple outsourcing to joint ventures to spin-offs, and even the outright sale of shared services operations to third parties. As any corporate development executive who has met with these would-be dealmakers will attest, the shared services value proposition has moved beyond cost reduction; these operations are now viewed as a vehicle for generating substantial shareholder value.

When I first read this article, I thought about Loudcloud. If you remember, they were formed at the height of the ASP hype my Marc Andreessen and some other Netscape refugees to package the knowledge they'd gained about running large-scale Internet services and resell it. They're still around, but as OpsWare and they sell system management software.

The article gives three steps to doing something like this. They're not surprising, they're exactly what you'd expect:

  • Stage 1: Become Operationally Efficient
  • Stage 2: Become Commercially Capable
  • Stage 3: Become Market Competitive

Even though they're, in some respects, self-evident not enough shared service organizations see anything beyond stage 1. They don't understand that becoming commercially viable ought to be their goal, even if a spin-out of JV isn't in the cards. Becoming commercially capable includes things like having a billing system that works, having pricing that's competitive, knowing your costs, having a product line and knowing what products you offer, and offering good customer service. You can be operationally efficient without being stellar at those, but you can never be a first class shared services organization until you get at least to stage 2. Every IT shop ought to have a roadmap that leads them, as an organization to these goals, even if they don't plan on going commercial, because that's how they'll add value to their organization and serve their customers.