Three years ago, IBM Corp. struck a traditional outsourcing deal with British-based BP PLC, which included taking over the energy company’s Calgary data centre.
Since then, the arrangement has expanded into what the partners call business transformation outsourcing.
One of the IT industry’s
newest buzzwords, BTO is a merger of business process outsourcing and business process re-engineering.
Called by one Meta Group analyst an “”appealing, albeit somewhat nebulous concept,”” service providers go beyond traditional outsourcing of a service, such as hosting a data centre, to offer guarantees of running and improving a customer’s non-core business processes.
But it’s one that may be restricted to giant international technology and consulting companies such as IBM, Accenture Inc. and Cap Gemini Ernst & Young.
Almost a year ago Accenture won a 10 year, $1 billion BTO deal with B.C. Hydro covering IT, CRM and human resources, vowing to save the utility $250 million over the life of the contract. Cap Gemini signed a $1 billion contract with Ontario’s Hydro One to assume control of its finance and administration processes.
BTO “”is an area where (these companies) are converging,”” says Blake Hanna, a partner in Accenture’s financial services practice in Toronto. Only firms with expertise in both business management and IT can play, he maintains.
So far it’s a young field, but one which Don Brilz, a vice-president of BP Canada Energy Co. who oversees the company’s business transformation outsourcing arrangement in Canada with IBM, says could have a huge impact on the multinational company.
“”In terms of efficiency it could be monstrous,”” he said in an interview last month at an IBM press briefing touting its service. “”Radical is a better word.””
For example, IBM told BP Canada its process for recovering losses from partners (Brilz wouldn’t be specific) wasn’t good and suggested fixing it with a revenue sharing project within their existing contract.
BTO is not without its risks, Brilz adds. BP has realized contract management could have been done better, and in the outsourcing lost some skills needed to keep an eye on IBM’s work.
There’s also the vulnerability of being one of IBM’s earliest and biggest BTO customers. That IBM data centre at BP Canada has since expanded into one of IBM delivery points for outsourced finance and accounting services to North American companies. Part of IBM’s BTO promise to customers is lowered costs through using such centres, which would also mean lower costs to BP.
But “”the economies of scale haven’t materialized to the level we expect,”” says Brilz.
Meta Group analyst Stan Lepeak calls business transformation outsourcing “”an immature work in progress.””
“”I buy into the concept,”” he added, “”but there’s a lot IBM and others have to learn about what is process excellence. They’re going in the right direction, but the marketing and messaging is running far ahead of the actual capabilities.””