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Process-as-a-Service: The Winning Combination

By A V Amit Vaidya
A study of the evolution of process-as-a-service provides insight into the need for business transformation today

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Process-as-a-service (PaaS) has evolved from the outsourcing services of yesteryears. Outsourcing in the 90s typically comprised of off shoring of back office functions to low cost locations, application development and maintenance services to an IT powerhouses and production support activities that revolved around application and infrastructure governance

Most of these outsourcing functions were developed with the purpose of cutting costs and reducing bottom line. These outsourcing functions were successful in achieving their initial goals. However, organizations soon started to realize that the success ratios with these models were limited, essentially because they were siloed in nature and a global view to these models was missing. Organizations had to invest considerably in governance and the success of the program depended heavily on the investment of key organizational stakeholders. There were always too many partners to manage the different service layers of the solution and the organizations realized that the early objectives of cutting costs could not be achieved in siloed functions. For example, a car manufacturing unit had to invest in the infrastructure and services to govern the infrastructure for a HR solution even when the back office functions were off-shored to a player that could provide a cost benefit.

Cost structures within the organization to support the solution with siloed outsourcing also tended to be fixed in nature. A fitting example can be of fixed investments in infrastructure to support the solution and x number of people to govern the infrastructure. These fixed costs that an organization has to bear are impediments to organizational agility. For example, during global economic downturn when organizations were looking to optimize costs, fixed cost structures posed a problem in terms of the sunk capital investment and high operational costs to support solutions. Organizations were operating in areas that were not core to the business with limited skills set of people who were not experts at designing configurations that worked.

What further fueled the growth of PaaS was that the organizations were still in the learning mode. Most of the early solutions never catered to a global scale. Governance structures tended to be localized and operated within a single geography. There was no strategic organization that was driving the agenda on a global scale. IT departments across the globe worked without co-ordination and federation and derived their own solutions. Technology interoperability was still maturing and consequently a single unified view of an organization was often unavailable when needed.

Thus, the early attempts to cut costs and reduce flab offered limited success but could not meet desired goals. This paved the way for end-to-end PaaS.

PAAS: END-TO-END SERVICE

Organizations now started to realize the benefits in a solution that could provide end-to-end services. In other words this could be defined as back office functions bundled with a mature proven technology deployed on a responsive infrastructure that enabled services to be delivered on-demand with zero client footprint. The effect that this solution had was far reaching. For instance, given such a solution a financial institution did not have to invest in either technology to enable, infrastructure to execute or back office talent to operate procurement of office stationery and coffee vending machines across locations. Organizations could now cut flab by refocusing on core business functions and by consuming non-core services from experts.

RIGHT TIME FOR PAAS

The time was right for PaaS growth to be propelled. After gaining experience through multiple consulting and implementation opportunities IT services players now realized best practices across domains and verticals. They realized the benefit in standardization and template-ization (sic) that could be applied to a range of customers with similar profile vis-à-vis domain, geography, lines of business and products.

The current conditions fueled growth of PaaS into two sorts of players.

Traditional Consulting and IT Service Powerhouses: These organizations started to expand their services from siloed functions like back office functions to end-to-end PaaS where they enabled the solution operation through a proven and mature technology configured with best practices that are domain aware and verticalized. They also provisioned the infrastructure that enabled on-demand consumption (cloud services) of services and orchestration of backend system integrations transactions. Further, they deployed back office functions through shared services centers thus ensuring uninterrupted operations.

Infrastructure Vendors and Distributors: They made ample use of the technological innovations in the infrastructure space scaled up to provide services in other layers - technology and back office operations.

Stable and mature technologies enabled by ERP-based packages like Oracle and SAP made perfect candidates for these technology driven solutions. The ERP-based packages have been in existence since ages on monolithic applications and mainframes. Today, most ERP packages have embraced internet technologies to enable access from anywhere. Based on best practice recommendations these packages came pre-equipped with business ready touch points that enabled out-of-the-box operations and interactions with external entities and customer partners. They also came supplemented with SOA infrastructure that enabled extensibility and template additions to be configured on the fly.

The emergence of cloud computing technologies made on-demand service consumption a reality. Cloud computing allowed to do more with less. The same infrastructure element could enable services to be delivered to multiple consumers across vast geographical spread.

Service providers were able to build shared services configuration by base lining best practices across process solutions and domains. Standardization became the order of the day. Back office functions could now be delivered across customers by standardizing the service offering and reusing it across multiple customers. This resulted in delivering cost benefits to the customer.

PARADIGM SHIFT FOR THE CUSTOMER

The traditional view of a business process for the customer has been something that executes within an enterprise boundary with interaction between multiple customer users and an operations team. But process execution now increasingly moves outside enterprise boundaries with dependency on partners and vendors. For example, once a purchase order has been placed with a vendor and accepted by the vendor, the process moves to the next stage only on events triggered by the vendor viz., supply of goods or invoice dispatch.

End-to-end PaaS now takes this a step further where the entire process/business function execution moves from the customer boundaries to the PaaS environment with pre-defined touch points to integrate with partners and vendors. A PaaS player now offers the customer service level guarantees on the process (which is really what the customer always wanted) instead of technology/infrastructure SLAs. A PaaS player can now guarantee that if the customer moves his indirect procurement business to PaaS, cost benefit is sure to be achieved.

The end-to-end integrated offering also changes the traditional pricing model for the customer. Instead of the traditional capex centric fixed pricing models, now the customer cash outgoes are linked to consumption. For instance, a HR solution that offers employee payroll services to the customer is now charged based on transactions viz., number of employees, payroll frequency, number of employees covered under the payroll cycle, etc.

These models had far reaching consequences to the customer. The organizations did not have to invest in assets (people and technology) that were not used in the core business function. There was no dead investment where end-to-end solutions charged customers based on usage. Thus the results from such solutions did not have benefits in isolation.

A PaaS model inherently incentivizes the service provider to design for optimization across all layers of the offering. By enabling a consumption-based pricing model (variable, but predictable) for the customer, the PaaS player needs to innovate to stay ahead of the game. By closely mapping the infrastructure footprint to usage, the service provider can save on operating expenses and enable profitability of the solution.

PaaS players have moved up the value chain with quality services delivered at a configuration that enables value for the customer. The focus is now to enable services delivered with quality (costs reduction, service level improvements) instead of execution at a reduced rate.

But has PaaS lived up to its promise? Can it deliver more? Have we simply used it in a way where we have failed to realize the true potential?

PAAS CAN TRANSFORM BUSINESS

Slowly but surely organizations are waking up to the fact that end-to-end PaaS can not only help optimize costs but it has the ability to transform business. The value that a PaaS player brings to the table has changed considerably. For instance, a customer chose to employ PaaS for indirect procurement for the simple fact that it helped her optimize costs and re-vector assets to line of business that are core to an organization. But now an established PaaS player opens up a plethora of opportunities through its supplier connects. The organization can now connect with the PaaS player’s supplier network. The customer can completely rediscover a new way to do business by connecting with multiple suppliers, renegotiating contracts and creating new contracts with suppliers who can supply more goods at a better rate with guaranteed reduction in delivery times. This essentially means savings on procurements, something that the procurement organization only spoke about but argued that IT was never able to help them achieve it

So, what are the key success factors for PaaS of the future?

Increase the Reach of Solution

In this age of globalization, organizations are no longer localized. The world is the playing field where there is a considerable rise in the mobile workforce. The PaaS solutions of the future will need to be able to reach consumers while they are on the move. Everybody today has access to a computer terminal to access the on-demand solution but it will be an innovative move if the solution could be reached on a converged device like a cell phone, PDA or Blackberry. Merely by increasing the reach of the solution, increased usage is guaranteed thereby establishing a win-win relationship for both the customer and the service provider.

On-demand Solutions

In this age of globalization, organizations are no longer localized. The world is the playing field where there is a considerable rise in the mobile workforce. The PaaS solutions of the future will need to be able to reach consumers while they are on the move. Everybody today has access to a computer terminal to access the on-demand solution but it will be an innovative move if the solution could be reached on a converged device like a cell phone, PDA or Blackberry. Merely by increasing the reach of the solution, increased usage is guaranteed thereby establishing a win-win relationship for both the customer and the service provider.

Increased Interoperability

PaaS solutions have the ability to transform businesses by addressing areas like procurement, establishing a market place solution where the on-demand solution is now the customer’s ticket to access a previously untapped network of resources. While a procurement platform will provide customer access to the network of service provider’s preferred suppliers, better interoperability across the supply chain can be established and supplier satisfaction can be guaranteed. For instance, post purchase order acceptance by the supplier and the shipment of goods, if interim status updates could be provided to the consumer, it gives consumer the visibility of his requisition. Also by enabling events from the customer side to flow into the supplier network – invoice receipt, invoice approval, supplier satisfaction can be increased. Increase in supplier satisfaction implies more suppliers will want to do business with the customer, win better contracts and reduce procurement lead times.

BPM engines have an increased role to play in this transformational story by enabling multiple enterprise orchestrations, flexible exception flows and multi-channel support. This will also reduce manual touch points that can be erroneous and hard to track.

Increased Customer Lifecycle Management

The current on-demand offerings will have to move from being focused on reducing cost to handling the customer business IT events throughout the lifecycle of customer. A PaaS solution should be able to respond to changes across business, operations and technology. Let us consider three situations:

  • A customer uses the PaaS offering to support operations in North America. Based on initial success the customer wants to adopt this solution for Europe as well as places where local language support is essential and compliance controls have to be adopted. By designing the solution to cater to multi-geography, the solution is ready for business on a global scale.
  • A newspaper publisher chooses to divert the current legacy online advertising system to on-demand solution. This results in no change in business but an increase in transactions and operations. By enabling cloud technologies in the platform, this increased workload can be handled by transforming the customer story, reducing advertising order fulfillment timelines with pro-active alerts to the customer about her advertising order.
  • A supplier moves from accepting purchase orders from email to standards based EDI interface. A process-as-a-service solution designed to handle this change (possibly pre-enabled through default product configuration) can ensure uninterrupted business continuity to the supplier with no change in service levels.
CONCLUSION

PaaS is a result of the outsourcing evolution. It isn’t a means to an end anymore. Technological advances have enabled consumers to consume process benefits on-demand without having to worry about technology and infrastructure. The process is now available at the click of a button with no change management within the customer’s enterprise. It is agile and not just able to absorb the change but can act as a vehicle leading the transformation in the customer’s business.

REFERENCES
  • Michael Bloch, Dejan Boskovic and Allen Wellberg, How Innovators Are Changing IT Offshoring, McKinsey on Business Technology
  • BPO/IT Bundling: Positon Paper, TPI, 2006. Available at http://www.tpi.net/pdf/papers/BPO IT Bundling - Position Whitepaper.pdf
  • Ben Pring, Robert H Brown, Peter Redshaw and Cathy Tornbohm, Business Process Utility: The Next Wave in Business Process Outsourcing, Gartner Research, September 2007. Available on www.gartner.com
  • Claudia Da Rold, William Maurer and Philip Dawson, The Impact Of Virtualization And Alternative Models On Outsourcing, Gartner Research, February 2008. Available on www.gartner.com
  • How A Tight Collaboration Between Software Vendor, BPO Provider and Customer Improves Service Delivery, SAP Position Paper – BPO Excellence Series, 2008.

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