“Most large companies have already made the decision to outsource large portions of their business applications,” says Pascal Manhes, MD, Application Outsourcing, Accenture. Key business drivers include economic pressures to reduce costs, the need for process and industry knowledge, speed-to-solution, managing demand cycles, movement to enterprise wide solutions and globalization and regulatory challenges.

More than 80% of Accenture’s outsourcing deals include some form of application outsourcing. When software involves critical business functions, such as customer-relationship management, Accenture will customize it. Other functions, such as HR and finance, will get the plain vanilla treatment. For human resources applications, for example, Accenture has created a separate BPO unit called HR Services, which handles not only clients’ HR needs but those of Accenture itself. In fact, as a professional-services company, Accenture regards HR as a strategic business function, and as something which can be outsourced.

“Accenture has invested heavily into scheduling and skills management — both functions which could be outsourced, and we’re starting to outsource specific HR applications to HR Services. Thus, the same entity that services British Telecom’s global HR requirements also services our own,” says Manhes.

Accenture supports application outsourcing through a series of capabilities “suites.” A Rapid Transition Suite enables the capture and transfer of knowledge from the client in order to kick off managed operations quickly — typically a two-to-six month process, depending on the complexity of the operation. A Performance Management Suite gives clients visibility and a higher degree of management control over services and performance, and clients can select up to 120 key process indicators. An Application Optimization Suite evaluates and optimizes the value delivered by a portfolio of applications through assessment, renewal and portfolio management.

A Service Management Suite manages and controls the delivery of outsourced client services from some 40 service delivery centers around the world. Teams of experts may be simultaneously working on software development and maintenance, and business-process re-design. Individual “cells” supply specific expertise in business processes such as order to cash, procurement to pay, general ledger, etc. Each supported software suite, such as SAP or Oracle, is broken down into ten such cells.

Going End-to-End

Increasingly, application outsourcing is being bundled with other outsourcing services, such as Business Process Outsourcing (BPO). In this case, application outsourcing is bundled with BPO for related business systems.

Accenture employs two types of bundling, multifunction and end-to-end process. In multifunction bundling, one or more business functions are outsourced to Accenture in a single contract. Multifunction bundling provides traditional benefits of single-function outsourcing — labor arbitrage and low-cost delivery — and the additional cost reduction and operational efficiencies of IT standardization and rationalization.

End-to-end process bundling moulds the common IT platforms and governance models from multifunction bundling into a shared-service model, enabling Accenture to commit to business-process outcomes, for example, speed-to-value, reduced startup capital requirements.

Conventional wisdom states that only functions that are core to the business should be customized and retained in-house; everything else should be outsourced. That thinking is being stood on its head by initiatives such as IBM’s Center for Business Optimization, part of IBM’s Global Services business. The center develops and deploys high-powered analytic and optimization software, often in conjunction with high-performance computing platforms.

The idea is that certain business processes that are core to an industry, such as insurance claims processing, can be optimized using advanced software development techniques in IBM development centers around the world. “We've set it up in a way that customization is done in a modular way, so we can share it among clients,” says William Pulleyblank, VP, Center for Business Optimization.

For example, an IBM-developed Fraud and Abuse Management system is designed to detect medical-claims fraud. The system analyzes claims broken down by medical specialty, develops profiles of normal claims and identifies claims that deviate from the norm using visualization reporting tools. The system is in use by 30 of IBM’s clients in the private sector, as well as New York State’s Medicaid system.

The advances in software engineering, coupled with the rise of application outsourcing, have enabled companies to think in terms other than either plain vanilla or customization; perhaps plain vanilla with sprinkles might be more apropos...