Will SAP’s Entry into BPO Cause the Market to Explode?

SAP's entrance into the business process outsourcing (BPO) market marks a major turning point in the outsourcing industry, according to market researcher Yankee Group. SAP's ERP model of the 1990s is finally transforming to adapt to the growth in outsourced services, with human resources at its center. Yankee Group says the HR BPO market is growing wildly and forecasts revenues will grow to $14 billion by 2009, up from $4.6 billion this year.

SAP has focused its new program on its vision for an SOA, with loosely coupled business processes enabling more seamless HR and business transformation, the market research firm says.

SAP has recognized the ability for BPO suppliers to deliver HR transformation as one of the key differentiators for success in the market, and has outlined its plans for integration and business transformation at both the technology and service layers. The strategy includes introducing the NetWeaver SOA platform as a key enabler to deploying loosely coupled business processes within the BPO offering, and to move its customers' non-core business processes outside the corporate firewall.

HR BPO suppliers must embrace the business process productivity that platforms from suppliers such as SAP and Oracle (including PeopleSoft) deliver, Yankee Group says.

As the first ERP vendor to create a specific program for service delivery in the HR BPO space, SAP has already engaged HR BPO service providers ACS, ADP, EDS and LogicaCMG as the first wave of partners signing up to SAP's global program. Each partner continues to build out service delivery platforms based on HR BPO value propositions and demonstrate HR outsourcing expertise based on SAP HR Solutions.

"This announcement is also a clear indication the ERP model that dominated the 1990s is rapidly transforming to meet the needs of the high-growth outsourced services market," says Phil Fersht, research vice president and leader of the Multi-Discipline BPO Practice at Yankee Group.

"SAP clearly sees market opportunity coalescing around BPO, with the human resources function being the central focal point for new BPO deals,” Ferscht says. “SAP has traditionally lauded the benefits of ERP and its associated business efficiencies. The company now needs to adopt a philosophy which focuses on the business benefits and cost efficiencies associated with outsourcing."

With the global market for BPO services heating up, SAP must work on holding the momentum it's created via its vision for SOAs and its “BPO Services Powered by SAP” slogan, Ferscht contends. “The company must work its message, amplifying the company's BPO credentials and how it can help service providers generate margin and deploy integrated platforms."

Yankee Group predicts enterprises will increasingly deploy BPO as a way to focus on strategic initiatives and core competencies rather than day-to-day business process. To deliver on that need, BPO service providers must roll together IT, services and business transformation expertise to gain market share. Enterprises adopting BPO must focus on the integrated business offering in addition to the technology solution. Their prime concern after cost must be the ability of the supplier to respond to their employees' and customers' needs and the ability to offer strong HR and business transformational expertise.