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As companies invest for growth, many embrace the mantra, “focus on the core.” They richly fund strategic and differentiating activities, while assigning other companies to handle technology-heavy, non-core business processes. This approach often moves processes to the cloud while freeing up IT costs that can be reinvested in other business areas.

By shifting to an operating model known as business process as a service (BPaaS), companies rely on others to manage processes such as payroll administration or, in the case of insurers and healthcare providers, policy and claims administration.

A shift to BPaaS puts the processes in the hands of specialized providers who bring experienced resources, pre-built platforms, technologies and automation capabilities to the function — all provided as a pay-per-use service with no ownership overhead. BPaaS is a growing approach to business operations management, now accounting for about 25% of all public cloud spending.

The lure of BPaaS is compelling. But it is vital to know that not all such claimed solutions are truly BPaaS and capable of delivering the expected value. In fact, some offerings just wrap old ways of provider service in new packaging. Others are incomplete variations of BPaaS that lack essential elements to generate anticipated cost savings, modernization, speed, efficiency and scale.

Making the shift is a major transformational and organizational commitment. Getting it wrong can be a costly mistake that’s not easily undone. Make the right BPaaS choice, however, and performance and cost savings will flourish.

To avoid being stuck with a solution that isn’t truly BPaaS, look for these warning signs when evaluating solutions and assessing providers:

1    Fees are input-based.

The days of service agreements based on time and materials are giving way to more performance-oriented measures of output and results. With true BPaaS, all services should be provided on a pay-per-use or output basis that includes:

  • Processes.
  • People.
  • Technology.

If all three are not covered exclusively under such a structure, then targeted cost reductions, scalability and the ability to remain in step with changes in technology and best practices might be at risk. Moreover, costs related to infrastructure and application upgrades also should be included. Otherwise, lacking such an arrangement can invite large, unpredictable capital expenses down the road.

Pay-per-use incentivizes service providers to continuously improve their speed, efficiency and agility. Conversely, an input-based payment model can prioritize work effort over results, which can cause initially high service levels to quickly erode. Ultimately, the company’s customers will share the tab for the cost of inefficiency.

2    Unclear service accountability.

Typically, a BPaaS arrangement works through a single or primary provider that’s accountable for all solution stacks: infrastructure, software, IT and operations. Watch for handoffs among multiple players, which can limit the primary provider’s ability to lead decisions across the stack (for example, when to automate a process to reduce operations effort or increase speed). If there’s more than one agreement for various solution components, the benefits of BPaaS are sure to plummet as complexity grows.

Additionally, the trusted service provider should track industry best practices and continuously optimize processes to evolve and improve service delivery. The same goes for engaging new technologies. This frees the client company from the pressure to explore and stay relevant on the latest technology developments and the best ways to plan and implement them. Genuine BPaaS calls for the provider to commit to keeping the company well-armed with the most modern ways of doing business.

3    Time-to-market remains stagnant.

In our experience with BPaaS, benefits come 30–50% faster than when a company chooses to deploy a fully custom solution. Implementations are significantly faster as all technology, core processes and trained talent are included.

This speed enables companies to more quickly launch new products and services and better serve customers. Depending on the need, services can be ramped up or down significantly faster than with custom solutions. For example, a large U.S. provider of travel medicine services launched a new Medicare plan within six months by enlisting our BPaaS offering. Without BPaaS, the new plan would have likely taken two or more years to launch. The company pays for the solution based on how many new members register.

Vet for genuine BPaaS

To reap the full benefits of a BPaaS agreement, understand all the relationship dynamics and ensure providers clearly address these questions:

  • Payment structure: How much up-front investment is required and is the agreement based on a pay-as-you-go structure?
  • Payment schedule: Upon what conditions will payments be made, such as after successful transactions, number of system users, customer volume or meeting performance KPIs?
  • Ownership: Who is responsible for the various solution layers (infrastructure, software, IT and operations)?
  • System performance: What are the goals and expected service levels for each, and how will these service levels be delivered and measured?
  • Applied expertise: How will industry best practices be introduced, and what process changes are required?

By properly vetting providers and watching for these three warnings signs, organizations can best reap the full benefits of BPaaS and avoid unexpected pain down the road.

To learn more about BPaaS, visit the Digital Operations section of our website.