A month ago I wrote about how India's Wipro, Russia's Luxoft and other offshore service providers were moving away from traditional effort-based outsourcing pricing structures and more toward outcome-based ones.
Girish Paranjpe, co-CEO of Wipro's information technology unit, credited the company's new price strategy with a 1.5 percent boost in profit margins at Wipro's computer services unit in 2009's third quarter. Joseph Foresi, an analyst with Janney Montgomery Scott, lauded Wipro for "becoming more adaptable" with the approach and predicted more emphasis on new price models.
To offer this kind of pricing, service providers will no doubt expect to exert more control over the technology that underpins outsourcing agreements. Such control is the primary difference in what Gartner research VP Frances Karamouzis calls "platform BPO" in a Forbes article. Outsourcing companies will decide if and when to use open source software, commodity hardware and other options that allow them to more cost effectively deliver their services, Karamouzis tells Forbes. Hmmm. Think using open source software and commodity hardware sounds a little like software-as-a-service?
I've written about the possible convergence of BPO and SaaS several times over the past few years. In January 2008, I cited several experts who said using SaaS could give early adopter BPO companies a competitive edge. "Entrepreneur Journeys" author Sramana Mitra wrote on her blog that BPO providers "need to diversify their portfolios away from pure body-shopping and process competencies to technology driven advantages" and suggested SaaS as one way of doing so.
Karamouzis tells Forbes that, like SaaS, platform BPO agreements offer more predictable pricing for customers. Also like SaaS, these kinds of agreements "cut[s] out the software and hardware companies from having a direct relationship with the customer," Karamouzis says. She adds that 85 percent of SaaS customers lack a core competency with the software and do not have service-level agreements.
Wow. I wonder if the SLA part of her statement is true. That seems like a high number. Back in 2007, the Software & Information Association suggested in a white paper that well-written SLAs were crucial to SaaS success. Maybe she means SLAs offered by many SaaS providers aren't exactly comprehensive. In sharing his thoughts on what should be included in an SLA with a SaaS provider Dani Shomron writes on his blog:
The SLA provided by most on-demand companies consists of two or three paragraphs at most...
Using SaaS might make it more difficult for BPO providers to offer the kinds of SLAs to which their customers have become accustomed. But if they can figure out out a way to offer more comprehensive SLAs while still taking advantage of lower-cost delivery models, they stand to make a killing. As Phil Fersht wrote last spring on his Horses for Sources blog:
The core benefits for the customer is when the BPO provider takes responsibility for managing the SaaS application. Then the service provider is taking on the governance headaches that SaaS can bring to the table, while offering a one-to-many process workflow to its clients. The service provider can also work with its clients to transform its current processes onto the SaaS application model.