Business processes—the common theme in IT and BPO

Understanding business processes and creating innovative models that combine business logic, operations and use of IT will help organisations rationalise processes, cut costs and improve their competitive advantage, says Chandra Kant

Much has been touted about the success of the Indian IT industry, but has it really made progress? Since Y2K and the dot-com days, it has moved from professional services (read body shopping) to projects (first onsite and then offshore). It has packaged itself beyond application development to value-added services like application management, migration, re-engineering, testing and enterprise integration. It has also provided a vertical industry flavour.

At the same time, the global economy has deteriorated. The IT industry has capitalised on this by providing cost-effective quality services and Nasscom is bullish about the future. From application processes, the industry has now moved to business process outsourcing. Here too, its mantra is 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?"

How do we differentiate?

If an outsourcing vendor has control of all the 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 a customer’s 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 CIO (till recently) 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 better bang for the buck.

If the hapless vendor gets sucked into price negotiations, 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 service level agreements.

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

Issues facing vendors

The first problem arises due to the short-sightedness of the vendor CEO who needs to demonstrate to his board a capacity to earn profits on a quarterly basis. This prevents him from allowing a reduction in revenues by suggesting applications rationalisation. However, he knows that if this is not done, he would either have to renegotiate a lower price per unit or lose the account altogether. On the positive side, he can also negotiate for additional business with the customer in lieu of the reduced overall revenues at the same price per unit. Typically, such business would come out of projects that arise out of market-mandated initiatives, like Basel II or US Patriot Act-based development for investment banks.

The second problem arises due to the type of vendor organisation. Most Indian vendors have evolved from professional services to projects and typically have technologically-oriented project managers who have risen through the ranks, starting as programmers. Most project directors (handling multiple projects) have a myopic view of project management and value-addition, which is narrowly focused on resource management and project P&L. They have no idea about the business of the customer, nor do they think they are capable of understanding it and therefore provide business-oriented value-add. If they do hire industry business analysts to provide the vertical expertise, they do not know how to use them to provide value to the customer. Such business analysts either become project-centric, providing services like functional requirements analysis or functional testing, or they run project offices (acting as glorified assistants to project directors) or provide documentation services.

Processes hold key

Although 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 processes.

The term ‘business processes’ was conjured up in the early 1990s when business process re-engineering (BPR) was touted as the killer app that would revolutionalise the way business was done. It was quickly followed by ERP as a manifestation of reengineered processes. However, both were done as a one-time implementation and the cost of re-doing it due to market changes was so prohibitive that most organisations retained the reorganised structure and tried quick fixes to meet market demands.

The major reason why business processes have not been in favour is that implementation was controlled not by the users of the process but by the IT department. IT implementation was at best an inefficient replica of the business process and did not deliver what business users envisioned. Furthermore, when market competition demanded a change in business processes, there was no way that the IT representation of these processes could be modified in time to represent these new processes. This was specially true of erstwhile ERP implementations.

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 business users. If the organisation, on a proactive basis and aided by its vertical business analysts, presented its client with a process model of their business along with process inefficiencies both in the IT implementations as well as the outsourced business processes, the client would get the value-add required from an IT organisation that purports to be a strategic partner.

For example, an 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 BPO. In case an IT organisation is into application maintenance, it can now present a case why it is the ideal candidate for BPO. 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 and not just IT. The value-add is then more apparent to 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. Most requirement analysis techniques focus on single applications, at best interfaces with other applications, without focusing on business processes. Even workflow representation techniques, which are a manifestation of process dependencies do not focus on throughput, delays and process inefficiencies. Unless there is a formal method of representation of business processes in terms of temporal and collaborative dependencies, all conventional requirement analysis can do is represent current processes, including its inefficiencies. Furthermore, these IT representations by themselves add to the inefficiencies, both in term of actual implementation as well as the inability to modify monolithic systems when such processes need to be modified.

At some juncture a new model of business process modeling needs to emerge that would combine traditional methodologies of process representation in the IT world to operations research techniques, cost accounting concepts of value chains and artificial intelligence 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.

Business Process Management Language (BPML) has a syntax that supports multiple process participants, data flow separation from control flow, produces/consumes messaging, dynamic process branching, transparent persistence, embedded business rules, nested processes, distributed transactions and exception handling. The chief benefits of BPML are its capabilities both to model and to execute complete business processes. These processes are end-to-end, that is, wide across multiple participants; and deep, that is, able to model deep into the existing IT infrastructure. The execution of those processes creates persistent process data that becomes the new enterprise asset.

Chandra Kant is the head of Banking, Financial Services & Insurance (BFSI) at HPS. He can be reached at Chandra.Kant@blr.hpsglobal.com