Davenport article in HBR

If you missed Tom Davenport’s excellent article “The Coming Commoditization of Processes” in last month’s Harvard Business Review, they’ve published an excerpt to entice you to buy the full reprint. Mr. Davenport, as always, has brilliant insights:

“Despite the trend toward outsourcing, however, most companies have remained in do-it-yourself mode for most processes… Because of a paucity of process standards, it would be risky to do otherwise…

However, a new world is coming, and it will lead to dramatic changes in the shape and structure of corporations. A broad set of process standards will soon make it easy to determine whether a business capability can be improved by outsourcing it. Such standards will also make it easier to compare service providers and evaluate the costs versus the benefits of outsourcing. Eventually these costs and benefits will be so visible to buyers that outsourced processes will become a commodity, and prices will fall dramatically. The low costs and low risk of outsourcing will accelerate the flow of jobs offshore, force companies to look differently at their strategies, and change the basis of competition. These changes are already happening in some process domains, and there are many indications that they will spread across virtually all commonly performed processes.”

The full article contains a lot more detail than the excerpt, including using CMM as a great example of a standardized process that has enabled software development outsourcing. Less technical business processes are quickly following.

I’ve been mulling over thoughts about business process outsourcing (BPO) for some time, collecting ideas for an article (or even just a blog post), and this has really started me thinking about outsourcing. One of my recent customers provides BPO services for financial transaction processing (as do several other less-recent customers), so Mr. Davenport’s final words apply directly to them:

If your organization provides process services, you may have mixed feelings about the development of process standards. Standards will lead to commoditization, more competitors, and lower prices for the services you offer. However, the move to process standards makes so much economic sense that it is probably inexorable — whether or not your company gets involved. It’s better to help shape a standard than to be put out of business by it.

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