BTO buzz rises at TechXNY

NEW YORK – Technology executives can add a new acronym to their list of IT buzzwords: BTO, for business transformation outsourcing. The concept has been touted by a variety of service providers for the past year or so, but judging from panel discussions at OutsourceWorld in New York, which ended Thursday, BTO is gaining currency as a term of art and as an innovative way of thinking about how to take advantage of outsource providers.

Businesses can get more out of outsourcing than basic, operational cost-savings, according to service providers and financial management advisors at the show, which was part of TechXNY. Panelists at the show urged corporate executives to consider outsourcers as strategic partners when tackling, for example, business process redesign projects.

“Outsourcing provides many values beyond cost savings,” said Frank Koelsch, president and chief executive officer of advisory services company Everest Group Canada, based in Mississauga, Ontario.

Everest analyzes outsourcing activities according to a three-part model. Basic outsourcing services can curb direct, “keep-the-lights-on” type costs, Koelsch said, citing as an example hardware and software maintenance and operation costs. At the second stage, outsourcing helps lower “indirect” costs and achieve efficiencies in areas related to, for example, business processes such as call center management. At the highest level, outsourcers can enable companies to achieve strategic goals and transform the way they do business.

Though the number-one reason why most businesses turn to outsourcers is to save money, outsourcing projects can help companies speed up efforts to do business in new ways, he said. For instance, a company that does not have the expertise or capital to quickly ramp up e-commerce activities may take advantage of an outsourcing company that can use its own economies of scale to offer

cost-efficient Web services. In this case, Koelsch said, the costs of doing business in a new way are lowered, while long-term strategic goals, such as using the Internet to expand sales, are met.

Examples of how businesses are transforming themselves were bandied about by a variety of speakers at the show. The U.S. Postal Service, an Electronic Data Services Corp. customer, transformed customer relations management and redesigned internal processes in the course of offering a “one call does it all” help service, according to Carol Wyatt, EDS’ global offering executive for Distributed Systems & Solutions.

Rather than call different numbers to get help for different types of service, customers now just have to dial 1-800-ASK-USPS. To do this, however, USPS needed to consolidate sites and integrate contact management systems.

The concept of business transformation outsourcing was given a big vote of confidence by IBM Corp., the largest services company in the world, which for the past 12 months has had a Global Business Transformation Outsourcing group.

“Cutting costs is a given but it’s not good enough,” said Katherine Heggman, general manager of the group, based in Somers, New York.

The new IBM group aims to help companies understand how they stack up against competitors, using a variety of indices and models to determine, for example, how efficiently a company is doing business relative to industry norms. Then, according to Heggman, IBM can help a company put in place business procedures to help a company catch up to, or stay ahead of, its rivals.

“The model … and criteria vary from industry to industry, but we offer service level agreements that help companies achieve 20 percent to 40 percent cost savings” while revamping business processes, she said. These service level agreements offer customers guaranteed cost targets, she said.

While short- and medium-term cost savings are important, Heggman stressed, her remarks reflected other speakers at the show, who urged companies to think strategically, keeping in mind long-term goals, when they consider outsourcing. IBM, for example, looks to sign business transformation deals for eight or 10-year terms, she said.