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© 2006 A Trend Analysis by Business Process Outsourcing (BPO) in Germany
Transcript of Business Process Outsourcing (BPO) in Germany - pac-online…€¦ · BPO in Germany In our modern...
© 2006
A Trend Analysis by
Business Process Outsourcing (BPO) in Germany
Trend Analysis
EDS and the EDS logo are registered trademarks of Electronic Data Systems Corporation. All other logos, identifiers,trademarks or service marks used herein are the property of their respective owners. EDS is an equal opportunityemployer and values the diversity of its people.
© 2006 Electronic Data Systems Corporation. All rights reserved.
BPO in Germany
In our modern economic environment with intensifying competition, business processes
become ever more complex. Corporate areas such as human resources, finance &
accounting or procurement involve high cost. In addition, ongoing globalisation requires
flexible processes that can be quickly adjusted to changing business requirements.
Can Business Process Outsourcing (BPO) – the outsourcing of one or several business
processes to an external IT service provider – be an adequate answer to this changing
environment?
Does BPO really support companies in lowering their cost and, at the same time,
improving their service quality? Can companies speed up reaction with the help of BPO
and thus act more flexibly?
This trend analysis on the German BPO market examines these issues.
Why did we do this trend analysis?
Over the past few years, the concept of BPO has been linked ever more closely with
traditional IT functions. Business processes of all kinds have used IT as a tool for highly
available, secure, and flexible provision. Today, the German BPO market has a volume
of €1.7 billion and the trend is pointing upwards. Until 2009, PAC expects an average
annual growth rate of 17%. This makes BPO one of the growth drivers of Germany's
IT services market.
This underlines the need to better understand users' attitude towards BPO. What
arguments do they see for and against the outsourcing of business processes? What
are their fears and expectations regarding this form of outsourcing?
This trend analysis gives you valuable insights into users' views on BPO, encouraging
you to find out more about this subject.
We hope you will enjoy reading this document.
Joachim Langmack Christophe Chalons Managing Director EDS in Germany Managing Director Pierre Audoin Consultants (PAC) GmbH
Preface
Page 3
Trend Analysis
Page 4
Preface _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 3
Table of Figures _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 5
1 Executive Summary _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 5
2 Introduction _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 7
3 Business Process Outsourcing (BPO) in Germany _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 8
3.1 Definition of BPO _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 8
3.2 Quantitative Dimension of the German BPO Market _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 8
4 Evaluation of the User Survey _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 10
4.1 Descriptive Features _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 10
4.2 BPO Decision Makers in User Companies _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 11
4.3 Experience with IT Outsourcing _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 12
4.4 Issues and Solutions for Different Business Processes _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 14
4.4.1 Human Resources _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 16
4.4.2 Finance & Accounting (F&A) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 17
4.4.3 Procurement _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 17
4.4.4 Approaches to Business Process Optimisation _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 18
4.5 Arguments for BPO from Users' Point of View _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 21
4.6 Arguments against BPO from Users' Point of View _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 22
4.7 Selected Criteria for Choosing an IT Service Provider _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 24
4.8 Optimisation Methods and Pricing Models for BPO Concepts _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 24
4.8.1 Optimisation Methods _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 24
4.8.2 Pricing Models _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 25
5 Conclusion and Outlook _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 28
6 Questions to EDS on the Subject of BPO _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 30
Table of Contents
BPO in Germany
Page 5
Fig. 01 Market Volume and Market Growth BPO 2004-2009 in Germany _ _ _ _ _ _ _ _ _ _ _ _ _ 9
Fig. 02 Returns by Number of Employees 2005 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 10
Fig. 03 Returns by Revenues 2005 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 11
Fig. 04 Returns by Sector _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 11
Fig. 05 Decision Makers for the BPO Strategy _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 12
Fig. 06 Experience with IT outsourcing _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 13
Fig. 07 Detailed experience with IT outsourcing _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 14
Fig. 08 Criteria to Define BPO _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 15
Fig. 09 Conflict between Cost and Quality in Service Delivery _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 16
Fig. 10 Approaches to Business Process Optimisation _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 19
Fig. 11 Arguments for BPO _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 21
Fig. 12 Arguments against BPO _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 22
Fig. 13 Criteria for Selecting an IT Service Provider _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 24
Fig. 14 Methods of Measuring Efficiency and Maturity of Business Processes _ _ _ _ _ _ _ 25
Fig. 15 Favored Pricing Models _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 26
Table of Figures
Executive Summary01
Trend Analysis
Page 6
BPO decision making takes place at top management level
The survey confirms this picture: More than half of those questioned (57%) consider
the management board as BPO decision makers; only 16% see this responsibility with
'traditional' IT executives.
IT outsourcing in Germany is gaining in maturity
69% of the companies taking part in our survey have already gained experience in
IT outsourcing. This result underlines the level of maturity IT outsourcing has reached
over the past 15 years.
A uniform definition of BPO exists on the market today
Nearly all those questioned (over 90%) agree that BPO refers to the transfer of one
or several business processes to an external IT service provider. Moreover, 70% of
respondents favorably rate the criterion 'assuming full responsibility of the business
process'. This result reflects the growing maturity of BPO in Germany. The BPO
business, which has so far often been transaction-oriented, meets with more and
more acceptance as an integral business model.
HR is considered by respondents as offering the highest potential for optimisation
One question asks for those business processes that cause the most problems in
terms of excessive cost, inadequate cost transparency, and insufficient quality. A total
of 60% of all respondents named human resources management – the most frequently
mentioned area. Other issues are Customer Relationship Management and Supply
Chain Management.
BPO in Germany
Page 7
When it comes to solving the problems of excessive cost and insufficient quality,
outsourcing is rated higher than internal Shared Services Centres (SSC)
The results of the survey underline the fact that the outsourcing of business processes
is preferred to the setting up of an SSC. This proves that the benefits an external IT
service provider can offer become more and more predominant.
Cost savings and the concentration on core competencies are important BPO
drivers
Nearly half of the respondents consider the concentration on their core business a
very important reason for BPO implementation. This reconfirms the fact that the
tendency towards reducing the vertical range of administration follows the trend to
reduce the vertical range of manufacture. Cost savings also play an important role in
BPO decisions. Almost 40% of those questioned see a reduction in business process
cost as well as in the relevant IT cost as a very important factor in favor of BPO.
Transparent offerings are essential for provider selection
Nearly all respondents think a transparent offering is important or very important when
selecting an outsourcing partner. Another finding is the fact that the majority of those
questioned deem existing business relationships less important or even not important.
Benchmarking is the most important tool for process controlling
In our survey, benchmarking ranks at the top when it comes to measuring the degree
of efficiency and maturity of processes. More than three quarters of those questioned
use competitive comparisons to derive best practices and apply them to their own
company.
Utilisation-based pricing models are favored; profit sharing is on the rise
So far, most BPO contracts include pricing per unit (e.g. number of employees per
payroll, etc.). This pricing model is based on output figures similar to MIPS selling in
the 'traditional' IT area (MIPS = Million Instructions per Second).
Profit sharing models are currently being developed; they take into account prices per
unit as well as BPO's positive influence on the outsourcing company's business.
Introduction02With this trend analysis, PAC and EDS want to draw readers' attention
to a specific topic in the IT services area: Business Process Outsourcing
(BPO) – the externalisation of an entire business process or of individual
sub-processes.
Trend Analysis
Page 8
About PAC
About EDS
EDS has commissioned PAC to carry out this analysis. It is based on a user survey
performed among 82 decision makers in German companies with more than 1.000
employees in the period August-September 2006. PAC has for some years been
analyzing the German BPO market and has already published two market reports on
this subject.
The purpose is to provide readers with an overview of the BPO topic. This analysis
mainly targets administrative decision makers that want to become familiar with this
type of outsourcing, its pros and cons.
PAC is the leading European market research and strategic consulting firm for the
Software and IT Services Industry. We advise IT suppliers as well as users on developing
successful end-to-end growth strategies in Europe and in the U.S. through planning,
development, implementation, and ongoing support. This is done through market
analysis as well as consulting engagements.
Headquartered in Paris, we have been supporting over 300 clients worldwide for 30 years.
We manage our clients through a specialized local network with subsidiaries in Munich,
New York, London and Bucharest. The Munich office was established in 1989.
EDS is a leading global technology services company delivering business solutions to its
clients. EDS founded the information technology outsourcing industry more than 40 years
ago. Today, EDS delivers a broad portfolio of information technology and business
process outsourcing services to clients in the manufacturing, financial services, health-
care, communications, energy, transportation, and consumer and retail industries and
to governments around the world.
Business Process Outsourcing (BPO) in Germany
03
BPO in Germany
Page 9
BPO is the ultimate
form of outsourcing
IT outsourcing is
gradually moving
towards BPO
3.1 Definition of BPO
While in the beginning, outsourcing was strongly infrastructure-oriented ('Facilities
Management', i.e. outsourcing of data centres), the externalisation of applications
has become a serious option. Today, Business Process Outsourcing (BPO) is the
ultimate form of outsourcing. Infrastructure, applications, and process management are
outsourced, IT and processes merge.
PAC defines BPO as follows:
The IT service provider assumes within a long-term contract complete responsibility
for the process or sub-process. It includes the management of the underlying infra-
strcuture, applications as well as employees, thus replacing the office clerk at the
client's company.
IT outsourcing is gradually moving towards BPO. One example: For reasons of cost and
efficiency, banks want to concentrate more on their core competencies and are thus
focusing on customer-oriented processes such as consulting, sales, information, and
customer care. This means banking is moving away from universal banks with a broad
range of manufacture in their back-office towards lean, more sales-oriented banks.
This requires a thorough breaking up of value chains. Within the scope of their sourcing
strategy, some banks today already define the processes that are not part of their core
competencies. Under Business Process Outsourcing contracts, they hand them over
to specialized outsourcing partners. IT is thus losing its central role at least in the back-
office area of banking. Instead, we now find Service Level Agreements (SLA) that clearly
define the services to be provided and the price to be paid.
The German market
for Business Process
Outsourcing (BPO) is
gathering momentum
In 2005, the BPO
market had a volume
of nearly €1.7 bn
3.2 Quantitative Dimension of the German BPO Market
The German market for Business Process Outsourcing (BPO) is gathering momentum.
In the past few years, outsourcing was the fastest growing sub-segment of the IT
services market with respect to the externalisation of IT infrastructures and applications;
now, as a logic evolution of the outsourcing trend, business processes are tackled.
Companies review all their processes and determine, with the help of relevant criteria,
which of them are suitable for outsourcing and which are not.
In 2005, the BPO market according to PAC's definition had a volume of nearly €1.7 bn.
Until 2009, we expect an average annual growth rate of 17%.
Firstly, this is due to the fact that, compared to the Anglo-Saxon hemisphere, this
subject is lagging behind in Germany, and 'young' markets generally grow faster.
Secondly, BPO meets with growing acceptance in Germany. Many companies are
examining its potential, discussing the benefits of this innovative concept with BPO
providers.
Trend Analysis
Page 10
Fig. 01
Market Volume and
Market Growth
BPO 2004-2009
in Germany
0
500
2003 2004 2005 2006 2007 20092008
Market Volume [M€] Growth [%]
0
4
1000 8
1500 12
2000 16
2500 20
3000 24
3500 28
Evaluation of the User Survey 04The following analysis of user behavior concerning BPO shows what business
process-related problems users have identified in their companies, how they
approach these problems in line with their individual sourcing strategies, and
what are the reasons for and against BPO.
A total of 82 decision makers at business and IT level were questioned. The target
group in a narrower sense included corporations in Germany with more than 1,000
employees from all sectors.
4.1 Descriptive Features
Fig. 02
Returns by Number
of Employees 2005
9%
15%
22%54%
1,000-2,000 staff
2,001-5,000 staff
5,001-10,000 staff
>10,000 staff
Number of employees 2005
BPO in Germany
Page 11
Trend Analysis
Page 12
More than half of
those questioned
(57%) consider the
management board
as BPO decision
makers
Fig. 03
Returns by
Revenues 20051
13%
16%
1% 5%
65%€100-200 m
€201-500 m
€501-1,000 m
>€1 bn
Not stated
Fig. 04
Returns by Sector
26%
13%
16%
4%
7%
9%
12%
2%
3%
8%
Discrete Manufacturing
Retail & Wholesale
Services
Process Manufacturing
Transport
Insurance
Banking
Public Sector
Telecommunications
Utilities
1 For banks, the balance sheet total was considered instead of revenues.
Revenues 2005
Which sector does your company belong to?
4.2 BPO Decision Makers in User Companies
As BPO refers to the outsourcing of business processes whose actual function is not
based in the IT department, the relations between IT service provider and customer
change. The survey confirms this: More than half of those questioned (57%) consider
the management board as BPO decision makers; only 16% attribute this responsibility
to 'traditional' IT executives. This supports PAC's assertion that BPO decisions are
made by the top-level management.
BPO in Germany
Page 13
BPO is to boost
a company's
competitiveness
and innovation
IT outsourcing is
well established
among end users
According to this, BPO is a management concept, no pure IT concept. It is normally
the top management that makes decisions about the long-term outsourcing of one
or several business processes to an external IT service provider, which in its purest
form also includes people transition. The purpose of BPO is to boost a company's
competitiveness and innovation.
4.3 Experience with IT Outsourcing
More than two thirds of the companies taking part in our survey have already gained
experience with IT outsourcing. This result underlines the level of maturity IT outsourcing
has reached in Germany over the past 15 years.
The next graph shows in which fields of IT respondents have gained experience. The
findings confirm the statement made in the introduction: infrastructure-related out-
sourcing projects have existed longest on the market. Regarding central (data centre)
as well as non-central IT (desktops), more than 40% of those questioned have already
done outsourcing.
Fig. 05
Decision Makers for
the BPO Strategy
57%
16%
3%
5%
1%
2%
16%Management board
CIO
CFO
Head of operating department
No clear responsibilities
Others
Not stated
Who is responsible for BPO decisions in your company?
Fig. 06
Experinence
with IT outsourcing
69%
31%
Yes
No
Have you already gained experience with IT outsourcing?
Application-related outsourcing was named by 1/3 of respondents (33% have already
gained experience with the outsourcing of applications). The gap to infrastructure out-
sourcing is therefore with 6% no longer significant. For instance, 39% of respondents
have gathered experience with desktop outsourcing. This means, in turn, that customers
have been much more open-minded about the IT outsourcing topic since the beginning
of the new millennium; they understand the benefits it offers on both levels (infrastructure
and applications). This positive experience with IT outsourcing is a crucial factor for
pushing the BPO topic in Germany.
4.4 Issues and Solutions for Different Business Processes
Figure 8 presents the requirements on BPO services and interviewees' expectations
concerning BPO. Over 90% of respondents agree that BPO denotes the transfer of
one or several business processes to an external IT service provider.
Moreover, 70% of respondents favorably rate the criterion 'assuming full responsibility
of the business process'. This result reflects the growing maturity of BPO in Germany.
The BPO business, which has so far often been transaction-oriented, meets with more
and more acceptance as an integral business model.
BPO meets with
more and more
acceptance as an
integral business
model
Trend Analysis
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Fig. 07
Detailed experience
with IT outsourcing
Yes Planned No Not stated
0% 50% 100%
SAP outsourcing
Storage / backup outsourcing
Outsourcing of applications (excl. SAP)
Desktop outsourcing
Data centre outsourcing
Help desk outsourcing
Have you already gained experience with IT outsourcing?
More than half of all respondents also consider other criteria such as 'transfer of
employees', 'long-term commitment', and 'transfer of relevant IT operations' as integral
elements of a BPO deal. This proves that a generally accepted basic definition of this
term exists on the market.
60% of the respondents mentioned human resource management, due to inflated cost
as well as a lack of both cost transparency and quality. Additional business areas that
cause above-average problems for companies are customer relationship management
and supply chain management.
BPO in Germany
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Fig. 09
Conflict between
Cost and Quality in
Service Delivery
0% 50% 60% 70% 80% 90%40%30%20%10% 100%
Excessive cost Inadequate cost transparency Insufficient quality
Controlling
Procurement
Finance & Accounting
Billing
Customer Care / CRM
Marketing, Sales
Logistics / SCM
Human Resources
Fig. 08
Criteria to Define
BPO
Yes No0% 50% 100%
Long-term contract (more than 5 years)
Service provider takes over employees
Service provider takes over underlying infrastructure and applications
Service provider takes over complete responsibility for the process(es)
Transfer of one or several business processes (corporate functions) to an external service provider
Which criteria do you consider crucial for the definition of Business ProcessOutsourcing?
Trend Analysis
Page 16
In most companies the
internal cost for HR
administration are not
explicitly known
Global companies
are looking for HR
BPO providers such
as EDS with global
service centre
capabilities
4.4.1 Human Resources
In Germany, the outsourcing of payroll processing to external IT service providers has
been popular since the early 1990s.
There is considerable cost saving potential in this strongly cost-driven area of BPO,
since economies of scale can be realized. What about other HR areas, however?
Germany is generally rather reluctant about outsourcing other HR functions such as
recruiting, applicant management and training.
In this context it is interesting to know about the general trends in the HR environment.
In most companies the internal cost for HR administration are not explicitly known
– process costing is mostly still in its early stages. There are differences of up to
100% between the various departments of a company, depending on wage structure,
qualifications, etc. In this respect the degree of cost optimisation is higher in industries
facing a lot of competition (manufacturing, retail) than in industries that are not too
cost sensitive (e.g. utilities). One indicator for this is, e.g., in which department HR
controlling takes place – in the HR or in the financial department or in both. In industries
that are labor-intensive (e.g. retail, services, public) or show a high degree of labor
fluctuation (e.g. hotel and restaurant industry, building industry), HR administration
(+cost) usually plays a more important role, thus being of more significance to decision
makers.
The HR environment is opening up to BPO. The implementation of activity-based costing
for better cost control or the realisation of employee self services are two indicators for
rising cost consciousness among HR executives. In general, PAC expects awareness of
HR as a corporate value to be on the rise (the HR department as a business unit).
Global companies are looking for HR BPO providers such as EDS with global service
centre capabilities that are supplemented by a network of local offices on five continents.
Companies today require comprehensive domestic and global HR delivery through
systems and processes that can generate economies of scale to reduce or eliminate
the need for future investments in technology that quickly becomes obsolete.
However, while in the past, companies just handed over some parts of payroll processing
to external providers, they nowadays call for higher savings, more process improvements
and better integration to make sure that these deals support their business goals.
What they want is a long-term business partner relationship and not just an IT service
provider arrangement. They want a business partner that can maximize the integration
opportunities available across many HR processes and can redesign several HR
processes to trigger an ongoing stream of process improvements. The aim is to deliver
enhanced service levels to employees and to lower cost. In fact, it is easier for process
BPO in Germany
Page 17
F&A departments
lack efficiency
and are thus too
cost-intensive
Transfer of separate
procurement
channels to external
IT services suppliers
improvements to be delivered when companies outsource more than just individual
transactions or functions. This means customers need to outsource entire processes
or several specific HR processes to derive maximum benefit.
4.4.2 Finance & Accounting (F&A)
Choosing from the problem areas given, a total of one third of all respondents named F&A.
The case for BPO in F&A is becoming more compelling, as cost pressure on companies
intensifies. In many German companies, F&A departments lack efficiency and are thus
too cost-intensive. According to PAC, an average of 40% of F&A resources are tied up
in transactions of no strategic importance whatsoever.
Risk management and controlling remain the two strategic pillars of an F&A department;
a company's future survival increasingly depends on far-reaching methods of analysis.
Transaction-oriented accounting for accounts payable and receivable is of little relevance
and is thus very well suited for outsourcing.
4.4.3 Procurement
Nearly one third of those questioned consider their own procurement processes as
problematic. Employing BPO in some areas of procurement can be an adequate solution
here.
Individual parts of procurement, especially regarding indirect goods, up to entire purchasing
departments are outsourced to external IT service providers. In this context, there are
considerable differences in general outsourcability between the procurement of auxiliary
supplies and that of strategic system components.
Auxiliary supplies are of little strategic value. The procurement process involves hardly
any know-how about the actual core business. For system components, things are
different. Here the supplier's engineering capabilities are of strong significance to further
product development. This is why a close relationship with the supplier as part of a
company's supplier management remains crucial.
Like for all other functions, the outsourcing of procurement processes makes it possible
to realize economies of scale on the part of the IT service provider and thus to reduce
prices through quantity discounts. This means an IT service provider can become the
central interface for a company's strategically oriented inhouse purchasing department.
The external procurement of non-critical goods improves cost transparency and offers
considerable cost-cutting potential.
Trend Analysis
Page 18
Respondents rate
the outsourcing of
business processes
higher than the
setting up of an own
Shared Services
Centre (SSC)
4.4.4 Approaches to Business Process Optimisation
Internal optimisation is the main approach to tackle the issues. 90% of those questioned
named it as a solution.
Among the sourcing options given, process optimisation with the help of external con-
sultants was selected by nearly 70%. Within a project framework, external consultants
work for a pre-defined period of time on optimizing specific business processes.
Moreover, respondents rate the outsourcing of business processes higher than setting
up an own Shared Services Centre (SSC). This reconfirms the trend that companies are
increasingly aware of the benefits an external IT service provider can offer. It is true that
the establishment of an in-house SSC makes it possible to boost efficiency to a similar
extent. However, companies often reach an impasse with their own SSC, as they offer
little flexibility, making it difficult to generate future innovative value contribution for their
'internal' customer. Due to a lack of experience, internal SSC often find it more difficult
to flexibly adapt to a constantly changing business environment than external IT service
providers.
Basically, we distinguish three different operating models:
1) Establish an in-house SSC
The SSC bundles and centralizes in one (sometimes several) place(s) tasks, functions,
or activities that used to be performed in the same or a similar way by several entities.
The company's core units then share the utilisation and cost of such an SSC.
Fig. 10
Approaches to
Business Process
Optimisation
0% 50% 60% 70% 80% 90%40%30%20%10% 100%
Internal optimisation of the process
Optimisation of the process with the help of external consultants
Outsourcing
Set up an internal Shared Services Centre
Others
Not stated
How do you meet these challenges?
BPO in Germany
Page 19
In the long run, PAC
expects a similar
increase in the sale
of internal SSC to
external providers
2) An SSC as a joint venture between customer and IT service provider
The joint venture model makes it possible to share the risk between two parties
and to make maximum use of both partners' core competencies. Drawbacks are
the more complicated control of the SSC as well as difficulty in clearly defining
responsibilities and decision-making. There is a rather high risk for the partners to
blame each other for mistakes.
3) Complete outsourcing to an IT service provider
Cost and risk are minimized for the outsourcing client and are mostly taken over by
the IT service provider. This way, companies can gain quick access to established
infrastructures and keep the risk low, while normally being able to realize greater
benefits at an earlier time than with the internal SSC model.
Historically speaking, there used to be no clear favorite among these three approaches.
However, the trend increasingly moves towards in-house SSC being sold or transferred
to BPO IT providers. This tendency is in line with a specifically German trend: the sale
of so-called 'IT-GmbHs'. In the long run, PAC expects a similar increase in the sale of
internal SSC to external providers, which will then take over the centralized execution of
business processes. PAC sees three main reasons why companies opt for the outsour-
cing of business processes to external providers instead of setting up and operating in-
house SSC.
Firstly, building up and operating an internal SSC is a complex task that requires the
right combination of experience, skills, proved best practices, and suitable technology.
Already established, industrialized SSC operated by BPO providers, on the other hand,
minimize time-to-value and offer considerable economies of scale.
Secondly, newly established centres rarely work with optimum efficiency after the
transfer of services has been completed. This means additional technologies as well
as further optimisation measures are necessary to enhance process automation and,
in the end, create potential for reducing the need for resources. Investing in process
improvements does have its limits. Return on investment takes rather long given the high
cost of reengineering resources. By using a BPO provider's reengineering capacities,
however, the benefits of optimisation and reengineering can be realized earlier on.
Finally, optimized SSC call for continuous investment and constant service improvement
in order to maintain cost savings and competitive advantages. Established BPO providers
can offer these sophisticated solutions as a standard, splitting the cost among several
clients.
The providers of BPO services are able to benefit more strongly from shared services
solutions than companies with their own SSC. This is due to the fact that they invest
in capabilities, processes, and infrastructure that are part of their core business.
4.5 Arguments for BPO from Users' Point of View
In this question about arguments in favor of BPO, respondents could rate the criteria
given according to 4 grades (1 = very important, 4 = not important).
For almost half of all respondents, concentration on the core business is a very important
reason for implementing BPO. This reconfirms the fact that the tendency towards
reducing the vertical range of administration follows the trend to reduce the vertical
range of manufacture.
Cost savings also play an important role in BPO decisions. Almost 40% of those
questioned see a reduction in business process cost as well as in the relevant IT cost
as a very important factor in favor of BPO.
This also involves the criterion of improved cost transparency, which can be reached
through a fully transparent BPO concept. Based on detailed service level agreements,
the IT service provider reports at regular intervals on the service quality delivered. Issues
around the quality of service provision were also given as significant reasons for BPO.
At IT as well as business process levels, customers expect marked improvements.
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Fig. 11
Arguments for BPO
1 = very important 4 = not important2 3
0% 50% 100%
Access to new technologies
Faster adjustment to strategic change
Cope with the shortage of qualified staff
Faster adjustment to technological change
Quality improvement in the IT environment
Quality improvement in the business process
Non-existent / insufficient internal kow-how
Transfer of employees or job cuts
Higher cost transparency
Reduction of IT cost
Reduction of business process cost
Concentration on core business
How would you rate the following arguments for BPO?
Concentration on
the core business
Cost savings
Improved cost
transparency
Service quality
BPO in Germany
Page 21
Another factor is the ability to adapt more rapidly to technological change; this was
deemed very important or important by more than half of the respondents. Classic
IT service providers have their core competencies in the selection and implementation
of state-of-the-art technologies; in this area, they act as professional partners for their
customers.
Providing highly available and solid infrastructure and selecting optimum applications
are an advantage of the cooperation between companies and external BPO providers.
This way, BPO clients can free up resources for the strategic development of their core
competencies.
Moreover, finding the right degree of cost reduction and quality improvement after
intense analysis is among the main requirements on IT service providers and customers
involved in BPO projects.
4.6 Arguments against BPO from Users' Point of View
Fig. 12
Arguments
against BPO
1 = very important 4 = not important2 3
0% 50% 100%
Transfer of employees or job cuts
Acceptance by customers
Insufficient technological competence of providers (systems consolidation, interfaces, etc.)
Necessary adjustment of processes to the infrastructure
Reversibility is difficult or impossible
Weak confidence in outsourcing providers
Insufficient (data) security
Insufficient process competence of providers
Legal problems (data protection, BaFin, etc.)
Dependency on provider
Business process is too strategic
No cost advantage
1 = very important 4 = not important2 3
0% 50% 100%
Transfer of employees or job cuts
Acceptance by customers
Insufficient technological competence of providers (systems consolidation, interfaces, etc.)
Necessary adjustment of processes to the infrastructure
Reversibility is difficult or impossible
Weak confidence in outsourcing providers
Insufficient (data) security
Insufficient process competence of providers
Legal problems (data protection, BaFin, etc.)
Dependency on provider
Business process is too strategic
No cost advantage
How would you rate the following arguments against BPO?
Ability to adapt
more rapidly to
technological
change
The arguments against BPO illustrated in Fig. 12 are rated as very important or important
by more than 50% of respondents. Nearly half of them believe that no cost savings can
be achieved through BPO measures.
The rating of cost saving potentials is ambivalent; in fact, when asked for arguments
in favor of BPO, almost three quarters of the respondents considered them important.
This means that potential customers should clearly determine their requirements
concerning price and quality. The BPO project's strategic aim should be as transparent
as possible. In their portfolios, BPO service providers offer highly variable service levels
that can be precisely adjusted to customer requirements.
Another important argument against BPO is the fact that a business process is too
strategic. Companies are still reluctant about handing over the management of HR or
procurement processes, for instance, to external providers; this is seen as involving
too much loss of control. From PAC's point of view, this hesitation is in many cases
unjustified, as the exact definition of service level agreements ensures maximum trans-
parency of the processes; moreover, each BPO contract signed should be based on
a real partnership.
The following arguments against BPO were also seen as very important or important by
at least 50% of those questioned:
• Dependence on the service provider;
• Legal problems;
• Lack of trust in outsourcing providers;
• Inadequate process capabilities of providers;
• Reversibility is difficult or impossible to achieve.
The trend towards complete automation and thus towards cutting staff numbers is
unstoppable. This explains why the issue of employee transfers/job cuts is considered
the least important argument against BPO.
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Clear definition
of requirements
in terms of price
and quality
Business process
is too strategic
4.7 Selected Criteria for Choosing an IT Service Provider
The criteria that play a major role when choosing an IT service provider show that
there is still need for action particularly on the provider side. For instance, nearly all
users consider a transparent offering as important or very important. Here uniform,
standardized Service Level Agreements (SLAs) may help, for instance, as they create
an unprecedented level of transparency.
Also worth mentioning is the fact that a majority of respondents deem already existing
business relations less important or not important. PAC sees need for action on
both sides. On the one hand, users too rarely appreciate the benefits of a long-term
cooperation ('partnership' instead of 'customer-supplier-relationship'); on the other
hand, most of the providers still have not managed to convince their customers of
these very benefits.
Fig. 13
Criteria for Selecting
an IT Service
Provider
1 = very important 4 = not important Not stated2 3
0% 50% 100%
Existing business relationships
Awareness / image on the market
Broad services portfolio ("one-stop services")
Innovation
International provider/ global player
Specific industry know-how
Business Process Re-engineering capabilities
References
Willingness to take over risks
HR policy (change management) / ability to integrate employees
Specific process know-how
Technological know-how
Price / pricing models
Flexibility
Transparent offering
BPO in Germany
Page 23
Transparent
offering
Already existing
business relations
Trend Analysis
Page 24
Benchmarking
Key Performance
Indicators (KPI)
4.8 Optimisation Methods and Pricing Models for BPO Concepts
4.8.1 Optimisation Methods
In our survey, benchmarking ranks at the top when it comes to measuring the degree
of efficiency and maturity of processes. More than three quarters of those questioned
use competitive comparisons to derive best practices and apply them to their own
company.
More than half of all respondents also use so-called Key Performance Indicators (KPI).
This involves defined measurements for individual processes, which the process owner
can optimize through continuous monitoring.
This leads to systematic and constantly monitored process enhancement. A link between
benchmarking and KPI may be created through obtaining best practices as a basis for
fixing measurements or for assessing the level of optimisation. This means both models
are interlinked, but they can also deliver valuable information for process optimisation
when used separately.
Moreover, under 'Others', various additional methods for optimizing processes were
quoted, such as Six Sigma or the use of Balanced Scorecards. Overall, 93% of those
questioned employ tools for measuring and optimizing processes. This indicates
companies' general maturity; they are already investing into continuous and systematic
process optimisation. The majority of companies are thus highly aware of inefficient
business processes.
Fig. 14
Methods of
Measuring Efficiency
and Maturity of
Business Processes
0
20
[%]
40
60
80
100
Through KeyPerformance
Indicators (KPI)
Throughbenchmarking
Not statedNot at allOthers
How do you measure the level of efficiency and maturity in your company?
BPO in Germany
Page 25
Change from fixed
cost to variable cost
Guaranteed unit
cost with a fixed
maximum/minimum
Profit sharing
models
Innovative
capabilities of a
BPO provider
have become a
significant factor
Potential BPO clients should benefit from this awareness to step-by-step discuss with
potential IT service providers the advantages of BPO for process optimisation.
4.8.2 Pricing Models
So far, most BPO contracts include pricing per unit (e.g. number of employees per
payroll, etc.). This pricing model is based on output figures similar to MIPS selling in
the 'traditional' IT area (MIPS = Million Instructions per Second).
For customers, this means a change from fixed cost to variable cost. The IT service
provider's task is to provide an efficient and flexible infrastructure and organisation.
With this form of pricing, customers agree to pay BPO IT service providers a flat fee
per unit of work.
Profit sharing models are currently being developed as an alternative to utilisation-based
pricing; they not only take into account prices per unit, but also BPO's positive influence
on the client company's business, for instance on the basis of the number of new
customers or of revenue growth generated with existing customers. 30% of respondents
prefer risk/profit sharing as a suitable pricing model.
This underlines the importance of cost cutting for BPO decisions today and is proof of a
certain lack of innovation on both sides – customers and suppliers. In these cases, the
outsourcer has usually no influence on demand; he is only responsible for the flexible
and efficient functioning of the services – and the main emphasis is on cost reduction.
A look at Fig. 13 also shows that the innovative capabilities of a BPO provider have
become a significant factor. More than three quarters of those questioned consider this
criterion as important or very important when selecting an IT service provider.
Fig. 15
Favored Pricing
Models
0
20
[%]
40
60
OthersNot statedRisk sharingFixed priceUtilisation-basedpricing
Which pricing model do you prefer for charging BPO services?
Conclusion and Outlook05The market for Business Process Outsourcing (BPO) in Germany is gaining in
maturity. IT providers are gradually professionalizing their offerings and end
users are increasingly open-minded about this modern management concept.
The current market situation remains transaction-oriented, i.e. focused on
cost reduction through the realisation of economies of scale. The innovative
approach of business process transformation with a high share of consulting
and simultaneous operation by an external IT service provider is bound to
gain momentum in Germany – it is only a question of time. In 2005, revenues
of almost €1.7 billion were generated with BPO projects in Germany.
The 'concentration on core business' is quoted as an argument in favor of BPO.
Customers are to focus on their actual business, while external IT service providers
deliver those services they are specializing in. This concept proved its worth in
production and IT.
Will outsourcing be the ideal solution of the future for administrative business
processes, too?
A strict separation between IT and business processes is a thing of the past. Many
IT service providers today have know-how about process consulting and optimisation
as well as about IT. Taking over the operation after doing a consulting project is a
logical consequence that promises long-term customer relationships.
IT service providers extend their service offerings by taking the next step from consulting
to BPO (permanent/recurrent business) or from IT outsourcing to BPO. Traditional IT
service providers' primary aim is to make their customers' business more efficient and
flexible through the intelligent deployment of information technology. Understanding
customers' processes is indispensable in this context. If infrastructure and applications
deliver satisfactory performance, and if some sub-processes are perhaps already
supported in administrative terms (e.g. payroll processing), then would it not make
sense to go one step further towards BPO?
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BPO in Germany
Page 27
There are various approaches to place BPO services on the market that all point into
the same direction. Apart from crucial sector and process know-how, providers require
dedicated methodologies and procedure models, especially in the change management
environment. On top of this, they need global delivery capabilities to ensure efficient
international delivery terms, including nearshore and offshore resources.
Particularly if BPO providers take over core processes, client companies demand proof
of their profound sector and process know-how, especially in the form of reference
projects in the same sector or covering the same business processes. Customer
confidence plays a central role when concluding BPO contracts - even more than with
other IT services.
The combination of business process competences and IT services capabilities in a
BPO provider is what accounts for the added value of externalisation. By optimizing
their processes, e.g. by setting up a Shared Services Centre through an IT service
provider, user companies can reach high efficiency levels and thus long-term innovative
capabilities and constant cost cutting.
According to PAC, cost transparency is more important for users than pure cost cutting.
Moreover, BPO providers accommodate their customers with flexible payment models
such as performance-related pricing. BPO promises customers higher flexibility and
shorter time-to-market, thus enhancing service quality. At the same time, BPO users
can concentrate on their core business.
Successful BPO providers of the future should develop unique selling points to differentiate
themselves from their competitors. The innovative ability to act as IT service provider/BPO
supplier, proactively supporting customers in all aspects of their corporate strategy, will
be a key element.
Questions to EDS on the Subject of BPO06Interview withJoachim LangmackManaging Director EDS in Germany
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EDS is known to be one of the world's biggest infrastructure outsourcing
providers. What are the specific requirements of BPO on an IT service provider?
Joachim Langmack: As pioneer among IT outsourcing providers, EDS is predestined
to also offer business process outsourcing (BPO) services to its customers. For seen
from the perspective of a customer-oriented organisation, BPO includes the performance-
based combination of systems, applications and the processes they support. Here
EDS can profit from its infrastructure and application know-how gathered during many
years of successful work as well as from the comprehensive industry expertise gained
from this know-how. In the HR BPO area, for instance, EDS has offered services for as
many as 25 years. Our Consulting Service Line and the partnership with Towers Perrin
enable us to actively get involved in process design. The solutions are individually
developed and implemented to fit the customer processes to be optimised. At this
point I would like to underline that the customer of course retains full responsibility
for strategic decisions and the jointly created governance model. Thanks to its Agile
Enterprise concept, EDS is highly flexible and can thus support individual customers'
constantly growing and changing requirements by offering innovative solutions.
What business processes does EDS focus on in BPO contracts?
Joachim Langmack: EDS' business process outsourcing portfolio ranges from
administrative services to CRM services to HR services and F&A services. The two
latter are our focal services in Central Europe, as we believe that they will account
for the main share of BPO services in the coming three to five years.
BPO in Germany
Page 29
What is your delivery model for HR BPO?
Joachim Langmack: In cooperation with the human resource management consulting
firm Towers Perrin, EDS offers its customers the complete range of HR outsourcing
services through their joint subsidiary ExcellerateHRO. ExcellerateHRO takes over
customers' administrative processes so that they can focus on core competencies,
strategy and its implementation. Across all services involved and the underlying techno-
logy, ExcellerateHRO ensures improved cost efficiency and smooth implementation
and handling.
Many users expect a transparently structured offering from IT service providers.
How does EDS handle this issue?
Joachim Langmack: Our cooperation with customers is based on the detailed Service
Level Agreements (SLA). These can be part of an all-embracing Business Level
Agreement (BLA). BLA make it possible to fully align the service to be delivered to clients'
core business during analysis, execution, control, and billing. In BLA, EDS agrees with
its customers on what services are to be delivered in what way. These agreements are
based on standard services composed of best-in-class processes tested by EDS, which
are then adapted to individual customer requirements. EDS chose this procedure to
enable customers to assess services and compare them with their own cost already in
the offer phase. Let's take payroll accounting as an example: We agree on a price per
pay slip. This price includes all necessary cost for creating and administrating a pay
slip. This enables customers to make exact calculations. In addition, they are flexible
enough to react to fluctuations when the number of employees changes. According to
our experience, our customers are very satisfied with this pricing model.
In your opinion, what are the advantages for local and global players of working
with a global BPO service provider?
Joachim Langmack: A global BPO provider like EDS with its global reach is available
for customers all around the world at any time; moreover, we can deliver a consistent
level of service quality. Thanks to its global delivery model, EDS works according to
the same standards and processes all over the world. This benefits not only globally
acting customers, but also local companies, as it gives them worldwide access to best-
in-class solutions. Traditionally it has been one of EDS' strengths to help internationally
expanding companies enter new markets; this is an advantage for local businesses.
Customers can of course use the entire EDS portfolio. They can achieve maximum
cost savings by realising economies of scale through a shared service centre – this
benefit is available to all customers.
Author:
Editors:
Publisher:
For more information:
Stephan Kaiser, Pierre Audoin Consultants (PAC) GmbH
Stephan Kaiser, Pierre Audoin Consultants (PAC) GmbHGertrud Nöth, EDS Deutschland GmbH
EDS Deutschland GmbHEisenstraße 5665428 Rüsselsheim
Tel. +49 (6142) 80 02Fax +49 (6142) 80 20 19 oder 80 25 90
Please contact:
Stephan Kaiser (PAC), Tel. +49 (89) 23 23 68-0, E-Mail: [email protected]
Sven Wagner (EDS), Global Sales & Client Solutions EMEA Central RegionTel. +49 (0) 6142 80-1170, E-Mail: [email protected]
Trend Analysis
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