Lack of BPO standards can mean higher IT costs

Business process outsourcing (BPO) is still so new that when Sharon Taylor, vice president of corporate human resources at Prudential Financial, describes her experience, she has the authority of a veteran -- even though her company is just four years into a seven-year contract.

But four years of experience is "about as mature as it gets in this space," said Taylor, who helped build a business case for Prudential, which has some 40,000 employees, to outsource its human resources functions.

"There really wasn't much of a road map, but we knew the outcome that we needed to have," she told attendees at an IDC outsourcing forum here today. Prudential outsourced HR to Exult, which merged with Hewitt Associates in 2004.

Taylor, recently elected chairwoman of the Human Resources Outsourcing Association in Washington, is now helping to write a road map that may help other users. The group is developing a set of best practices and "next practices" -- things that users are likely to need from service providers as the industry develops, she said.

BPO covers a galaxy of services, especially in finance, such as claims processing, reconciliation, collection, transaction services and tax preparation -- anything that can be delivered via the Internet -- and it's growing rapidly, according to IDC. Worldwide spending on BPO last year was about US$425 billion, and it's expected to grow 11 percent annually through 2009.

"It's definitely becoming a more accepted way of managing a business," said Katrina Menzigian, vice president of business solutions for BPO services research at IDC. "It's not quite mainstream, but it's on the path."

One thing that many BPO services don't yet have are standards similar those commonly used in IT, such as the Information Technology Infrastructure Library and the Capability Maturity Model developed by Carnegie Mellon University's Software Engineering Institute.

While there are some standards for business processes, they're far from universal and, more important, there's no push to adopt them, as the U.S. Department of Defense has done with Carnegie Mellon's software maturity standards.

If a vendor claims to be good at providing human resources BPO, "you have to take their word for it, because there is no standard for them to adhere [to]," said Tom Davenport, a professor of IT and management at Babson College in Wellesley, Mass. Davenport also spoke at the conference.

This lack of BPO standards increases IT costs, said Davenport. If business services use various methods and procedures for processing similar work, that means applications must be customized to meet the unique needs of those internal processes. Business process commoditization would mean "less customization of software" and would also accelerate the use of BPO, he said.

Similarly, Michael Monaghan, senior vice president of Wachovia's outsourcing strategy group, said that some of the processes at his bank adhere to standards, while others don't. "It's on a case-by-case basis. It's not universal or ubiquitous," he said. But standards would help reduce cost in areas such as application support, he added.

Prudential's Taylor said she believes that the work of the association she now heads may ultimately help users develop better performance measures for checking the work of a service provider and use that collective experience to create "a convergence of what excellence looks like."

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