Whether you’re talking about IT or back-office work, business process outsourcing contracts signed during the recession have tended to save dollars in a way that can be easily demonstrated to senior management, say BPO experts. As companies move past simple labor arbitrage, deals will share another trait: the promise of simplified execution via business process management (BPM).

Why is BPM a hot commodity? For one, it promises efficiency by helping out with best-practice deal execution and creates more clarity around business process. “Events surrounding the downturn have pointed out that longstanding inefficiencies in a series of support areas won’t cut it anymore,” says Stan Lepeak, managing director of research with EquaTerra, a global expert advisory services firm.

At the same time, the buzzword “transformation” has reemerged after relative seclusion since earlier in the decade. TPI, a human resources outsourcing specialist, defines transformational sourcing as “effecting continuous strategic change and tying the results of the outsourcing initiative to strategic business outcomes.” The firm notes that such an engagement is collaborative and requires a risk- and gain-sharing relationship among the organization and its service providers.

Part of this call for transformation is simply the result of a crowded and confusing sector that is in need of consolidation and new forms of differentiation. “There is an excess of providers in the current market,” says Scott Gildner, partner and president of TPI North America, which has U.S. headquarters in Houston. “What you’ll see, I think, is a healthy trend toward specialization. Some of this will be in the more overt areas such as industry, or operational excellence, but some of it will be platform-based.”

Enter BPM

BPM tools will help drive transformation and make these deals float. Emerging BPO deals of all types, even if ambitious in scope, with distributed IT assets in support, will rely on BPM. “Call it the amplification effect from a crossover between BPM and BPO,” says Eric Deitert, director of horizontal product marketing and analysis with Pegasystems, a BPM vendor that also functions as a go-between in BPO arrangements.

BPM can help in the end-to-end processing involved in revised mortgage workarounds in the financial services industry, for example.

In guiding and codifying workflow, BPM makes digital what used to be flow charts scribbled on white boards or sketched out on notepads. This method allows so-called child, or subordinate, processes to be more easily taken over by contracted outsiders in jobs such as loan processing, application support, or claims processing, according to experts.

Cost Savings Via Control

According to a recent article in CRM Buyer, the current business doldrums offered an opportunity for some BPM vendors—a market currently valued at about $3 billion annually—to take charge and gain market share. Companies such as IBM, which now offers BPM capabilities affiliated with Websphere; Global 360, which in July released its Process-360 10.0 program; and Software AG, with WebMethods, are all positioned to better cement the working partnership between outsourcer and client.

Why is BPM so appealing in the context of BPO? It presents the possibility of control, the ability to make higher-risk deals deliver quality work with a lighter operational footprint. Ken Volmer, principal analyst at Cambridge, Mass.-based Forrester Research, told CRM Buyer that the recession has dramatically increased the pressure to operate efficiently, perhaps with less dependency on suppliers and with easier ways to enter—and exit—arrangements.

Volmer noted that BPM tools, when used correctly, create visibility into what is or isn’t going on with business processes. BPO performance management tool Gravitant, for instance, supports metrics management and benchmarking to make sure objectives are reached.

Whether or not they’re called transformational, BPO contracts typically involve some form of business process reengineering, with or without an offshoring component. And yet traditionally, many deals have failed because of managerial issues, lack of communication, and misunderstandings over how work should be done. Anything that can standardize process can help, although some political issues are inevitable.

“As with other vendors in this sector, we have a Visio-like view into the workflows,” says Pegasystems’ Deitert. Point-and-click functionality lets users “develop flows, demonstrate to various business stakeholders what they will be, or revise them when necessary without a big, custom coding process with tons of old-school-style integration work.” Pegasystems’ BPM package includes rules-based workflows and full case management capabilities.

What used to be reserved for in-house operations is now being extended to work with third parties. “Some of the most savvy early adopters of business process management systems for internal operations want use of these tools in BPO deals,” Deitert says. “Executives being asked to manage these operations want the clarity they’ve gained in their own shops.”

Innovation and better performance were also mentioned by Manish Motiani, VP of sales for financial services at Patni Computer Systems, a global provider of IT services and business solutions headquartered in Mumbai and London. “As businesses continue to reevaluate their business strategies and cost models, they will leverage new opportunities beyond the tactical functions already explored,” observes Motiani. “BPM will help in this, without the traditionally high costs of traditional integration.”

New Ways to Do Deals?

Back in 2004 after an 18-month selection process, Hartford, Conn.-based Aetna tapped Pegasystems’ PegaHEALTH contact center solution “as part of a corporate-wide initiative to provide easy-to-use tools and resources,” according to the Pegasystems Web site.

Aetna, an $18 billion corporation offering healthcare, dental, pharmacy, group life, disability and long-term care benefits, is using the vendor’s customer service desktop product in its 40 national contact centers, which serve 590,000 healthcare service providers and 13 million members. The deal is a classic “carve out” of a key, but not yet core, operational area.

Emerging deals may slice and dice the work differently. Software-as-a-service will become more of a feature of BPO deals in the mid-market, according to Dublin-based Research and Markets.

As arrangements between service providers and their clients get more complicated, says Deitert, firms might combine the adoption of cloud-based e-mail and a BPO call-center contract. Mixing and matching so-called “lift outs” of operations and ASP-style adoption of select IT services will require more managerial expertise, as well as greater knowledge on the part of the providers. Customers will look not only for affordability, but also process excellence and fewer unhappy surprises.

After all, value is primarily determined in results. “Basically, firms contracting services with sourcing specialists want to decrease the downside risks,” says Saurabh Gupta, BPO analyst with Dallas-based Everest Research Institute. “This will be especially important once everyone gets beyond survival and into a growth mindset.”