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Today's technology — pervasive computing, Internet, mobile technologies and business process management — is geared to driving down transaction cost. Two things will emerge. One is same kind of 40-fold improvement in white-collar productivity that we saw in blue-collar productivity; the other is that businesses will disaggregate where it cost less to perform an activity outside organization than inside it. So if a 40- to 50-fold improvement in transaction cost occurs, we should expect to see new kinds of organization, and all the assumptions that we make currently about industry configuration, company organization and achievable levels of productivity will change radically.

True process outsourcing and true process transformations demand a level of industry knowledge and domain skill that make it extraordinarily unlikely that, at least under current model, the equivalent of IBM, CSC or EDS in the ITO market is going to materialize in BPO. Desegregation and BPO are going to mean managing 30, 40 or even 50 providers of business process services, and processes will span many organization.

A potential solution is emerging in form of an Enterprise Process Repository. This enables both customer and vendor to understand the current state and the planned future state of all processes, so that they can identify synergies, collaboration opportunities and consequential opportunities. Once customers have that plan, they can source more intelligently and vendors can understand potential for the future.

Because continuous fundamental change and innovation are crucial to successful BPO, BPO deals cannot be handled in the same way as ITO deal. The approach is different, the outcomes are different and value drivers are different — so don't treat them the same. Every ITO deal that we have witnessed has featured heated debate about who controls architecture, who controls strategy and who decides if vendor should buy from Dell or HP; but none of this actually affects the success of deal.

Business Process Management (BPM) as the enabler of BPO

If vendors are to offer BPO at anything approaching world-class level, they need outsourcing "science". Vendors should be more interested in the business process management, which gives them a method for managing collaborative processes and a method for managing processes across multiple clients and multiple enterprises. BPO is impossible without a method for intelligently aggregating, orchestrating and controlling processes. Thus BPM is enabler of BPO.

BPM enables process outsourcer and process aggregator to discover, design, deploy, execute and redesign business processes. Running processes that were designed for the single company operation and getting economies of scale and scope across multiple clients is a nontrivial task. BPO vendors need to demonstrate mastery of complex program managements, including the ability to manage people, behavioral and cultural issues. If vendor does not understand change management and behavioral management, they should not be offering BPO.

BPM and BPO should be key parts of every business' sourcing strategy. The strategy should recognize that a successful BPO requires a very different approach to ITO and facilities management. BPO is about the continuous innovation, collaboration, iteration and co-creation. It needs a process aggregator. Smart vendors should be working on exactly how they will fulfill those roles.