Monday, August 25, 2003		Guest Speak

New model of business process should emerge
Chandra Kant

MUCH has been touted about the success of the Indian IT industry, especially so for establishing itself as an IT outsourcing hub. The mantra of success being ‘cost and quality’. However, as customers get used to outsourcing to India and as competition increases within India and from countries like Canada, Philippines and China, a question arises: "Quality and cost are given. All Indian companies provide the same. What is the value add that the outsourcing company is providing to the customer?"

If an outsourcing vendor has control of all business applications of the customer, and sometimes, applications of multiple customers of the same vertical industry, does it not behove it to compare and analyse systems to reduce the total cost of ownership of these applications without sacrificing the customers competitive advantage?

As an example: a typical investment bank would have the same functionality duplicated across multiple systems, primarily due to mergers or acquisitions of business and therefore technology or due to centralisation of geographies. A typical outsourcing vendor would happily service all these applications because it is paid to do so, and a typical Chief Information Officer (CIO) would have allowed it because he would get commensurate budgets. However, a CIO is now under pressure to reduce these allocations and he would typically renegotiate rates and service level agreements to get a better deal. The CIO would also trot out of the woodwork, other vendors, eager to get a marquee account, even at cost.

If the hapless extant vendor gets sucked into a price negotiation, he would be at the mercy of the CIO when the same exercise is repeated next year. He may have to compromise on quality (and quantity) in order to retain his margins, which would cause a downward spiral next year in terms of negative customer perception, reduced prices as well as penalties for not meeting SLAs.

If however, the extant vendor is able to provide value add which provides a bigger bang for the same buck, and is able to demonstrate the same proactively, the CIO would be able to prove to his board the justification of budgets and retention of the existing vendors. A win-win situation.

Although typically BPO is looked down upon by project managers as being non-IT focused, there is a common thread that runs between Application Outsourcing, Business Process Outsourcing and the business value add that the customer demands. That thread is business process. But a closer look reveals that it is still IT-centric. However what is required is an ability to link IT processes and business processes in such a way that IT processes can be modified based on changes in business processes. Further, it would be beneficial if the business users can control and redesign the business processes without IT processes hampering either the redesign or the implementation of the processes.

An IT organisation has insight into the business processes of its customer by virtue of supporting the existing technical applications and direct or indirect access to the business users. For example, a typical analysis of back office systems in an investment bank would reveal that trade capture is done by multiple systems because of historical reasons, either due to different systems in different geographies, exchanges and financial products. These represent the same business process in different systems and add to the cost of the business process. This creates a case of application rationalisation that will reduce the cost of maintenance and therefore ownership of the application, and provide application development revenue to the IT organisation. The positive feedback within the client organisation would improve marketing exposure and generate additional business. A reasonable negotiation, augmented with this goodwill, can lead to business compensating for the loss of revenue due to decrease in applications to be maintained. The HR aspects within the IT organisation because of new systems development instead of monotonous maintenance also cannot be ignored.

The focus on business processes also creates a link between IT application maintenance as well as Business Process Outsourcing. In case an IT organisation is doing application maintenance, it can now present a case why it is the ideal candidate for BP outsourcing. Business process modelling can help create a common business oriented help desk and business process rationalisation. It can also help in the creation of SLAs that are related to business, not just IT. The value-add is then more apparent to the business users, who ultimately control the purse strings.

It therefore behoves the IT industry to create a formal representation of business processes and its link to IT processes. So at some juncture, a new model of business process modelling needs to emerge that would combine the traditional methodologies of process representation in the IT world to operations research techniques, cost accounting concepts of value chains and AI techniques for rationalising business rules. This needs to be represented in a formal mathematical notation similar to pi-calculus so that in future, computer-aided tools would be available to optimise the processes, identify bottlenecks in terms of time, throughput and costs.