BPO: Big political opportunity

In the past few months, Peter Baker has conducted interviews with a handful of business process outsourcing (BPO) providers and invited a couple of them back to Emcor Group's headquarters for further conversation. Emcor, a $US4.7 billion construction and facilities maintenance company, has no solid plans to engage a BPO provider; Baker, director of applications, is simply keeping on top of the BPO trend. "We're six months away from even having any senior executive at Emcor agree to an audience," he says.

This is exactly the kind of activity and analysis IT executives should be engaged in during this BPO-crazed era, experts say. BPO providers are on the hunt for fresh deals, and if IT doesn't take the lead, it could get left out of the conversation. Then it would have to deal with the terms of whatever contract was signed.

"If they were to get to an executive and sell them on something that IT would have to implement, we'd have to do a lot of backtracking and backpedalling," Baker says. And although BPO providers such as Hewlett-Packard say they often start their BPO conversations with the CIO, others say there's a tendency to sidestep IT until later.

"It happens all the time," says Vinnie Merchandani, CEO of Deal Architect, a consulting firm that helps clients negotiate technology contracts. BPO providers "like to go straight to the end user because the margins are better and there's less to negotiate."

But it's much more advantageous for IT to be involved at the front end, says Phil Fersht, an analyst at The Yankee Group.

"The CIO has to ensure he's the No. 1 point of contact with the CEO and CFO when the decision is being made, or risk getting caught in the tide," he says.

And the tide is rising. Gartner projects that spending on BPO will grow worldwide from $112.9 billion in 2003 to $176.1 billion in 2008. Leading the trend are CEOs and chief financial officers targeting non core business processes to shave expenses, and BPO providers hoping to supplement their IT outsourcing businesses.

While taking the lead in BPO discussions is partly a defensive move for CIOs, they also have a lot to offer from both a technology and a business perspective. In fact, according to Patrick Grady, CEO of Rearden Commerce, a BPO-enabling technology provider, only the CIO can help companies avoid costly BPO disasters.

For example, Grady says that too many BPO vendors are offering more than they can provide with traditional host-based technology platforms. Over time, he says, as vendors add more customers and have to make modifications to applications, service levels will inevitably fall off. "It looks like a win to the CFO," Grady says, "but if the BPO vendor is haemorrhaging, it's going to come back to bite the customer."

In Grady's view, only the CIO or an IT architect can appreciate how the underlying technology capabilities will affect the vendor's ability to meet its end of the bargain over the long term.

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