Provider orchestration complements process-level goals
By Bobby Cameron -- Manufacturing Business Technology, 1/1/2002 12:00:00 AM
Dealing with the complexity of automating business processes that cross customers, suppliers, and partners requires the help of multiple service providers. But today's project-based provider management causes siloed apps and failed operations. Instead, companies must orchestrate their providers using process-level program offices.
Executives are ramping up the number of help firms they employ—especially for multiparty functions like logistics and customer service. A recent Forrester interview found that 55 information technology (IT) and e-Business lenders expect to triple the number of application service providers and business process outsourcers used over the next two years. Business processes are going out as companies seek lower costs, and mitigate the risks of outsourced operations—like high-tech OEMs that outsource direct materials procurement to Commerx. And companies want Web hosting and data-center help for 24x7 operations to support new realities like international, multicompany trading hubs operating across heterogeneous and widely dispersed software, hardware, and data centers.
But engaging numerous help firms impedes the execution of initiatives by magnifying coordination and integration problems. Sixty percent of the companies Forrester interviewed manage providers themselves, choosing not to engage a prime contractor. But this approach limits management to project—and functional—boundaries.
To improve their chances for success amid the complexities of multicompany business activities, companies must move beyond project-centric management of multiple providers and practice "provider orchestration." Forrester defines provider orchestration as companywide management of multiple service providers to meet the functional needs of today's organizations while enabling processes that span the organization.
Today, most users engage service providers for functional projects that mirror internal organizations—like accounting and sales—and packaged applications—like Oracle and Siebel. But these project-based service efforts must be coordinated because multicompany business runs at a process level. Multiple functional solutions—like material requirements planning, supply chain planning, and accounting—must be integrated to automate a single multicompany process, like logistics. To balance these two, provider orchestration requires a new form of program office that focuses on business process requirements.
Blends of applications, hardware, and networking that automate business activities—and the service providers that help with implementation and operations—must be coordinated through process-based program offices. These offices must acknowledge the functional realities of today's organizations and apps, but assure that projects meet process-level goals. For example, a sales and marketing program office would coordinate an eCI installing Siebel, and a hoster managing the systems on which the apps run. And a procurement process team must orchestrate the business process outsourcer managing accounts payable, as well as the e-marketplace executing MRO purchases.
But companies can't afford to orchestrate all providers directly. The organizations that Forrester interviewed allocate a hefty 15 percent of engagement fees to provider management—the equivalent of four full-time managers for every 31 consultants. To match the level of orchestration effort with its business impact and to optimize the use of internal resources, companies should employ one of two approaches, based on an each initiative's potential to create value.
Value-creating initiatives—those that directly affect revenue or competitive differentiation—require provider orchestration in which the company serves as the general contractor. Why? Because companies must ensure that providers produce high differentiation. For example, businesses like Dell that create value through trading networks should orchestrate the providers that deliver supply chain planning and fulfillment so that poor execution won't undermine just-in-time assembly.
Companies should manage enabling initiatives through third-party providers that make value creation possible but don't directly deliver value—like having an e-marketplace handle outsourced accounting and indirect materials procurement. Companies that engage a partner for arm's-length orchestration gain cost savings in exchange for foregoing the higher levels of differentiation they could have achieved with a hands-on approach.
Services as business process start point
10/01/2006
