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Secrets to Mid-Market HR Outsourcing Success Refining the business process outsourcing process: the value of talent management BPO: The Year Ahead- A Perspective on Evolving Worldwide Requirements Best-of-Breed, Software-on-Demand, and Integrated ERP Suites - What is Best for BPO? An Investor's Guide to BPO Economics Consolidation in the Utility Industry Best Practices: Selecting a BPO Service Supplier Emergence of the Mid-Market in Business Process Outsourcing |
Transaction Engines Started Their Motors in 2003; Will Increase RPMs in 2004 By Beth Ellyn Rosenthal, Editor
What Is a Transaction Engine?What is a transaction engine? A transaction engine is an outsourcing solution that combines the powerful cost savings of labor arbitrage with other sources of leverage to handle routine, repetitive events. A transaction engine includes automation -- lots of it. But that's not the only thing that gives it horsepower. The pistons of a transaction engine are its working rules; they are so well-defined that there is no doubt how a supplier's staff will perform the work. Workers have such explicit guidelines there is no room for judgment or analysis. "Transaction engines are not really about the technology," says Kevin Campbell, president of Exult, a human resources (HR) outsourcing provider based in Irvine, California. "The days when enterprise resource planning (ERP) software promised to solve all your problems are gone." Instead, he says transaction engines are "about predictable processes and people and their supporting tools." Transaction engines are scalable. Suppliers can set up many buyers on a transaction engine. Using "mass customization," they can change some things that are unique to a particular company. But most of the work goes through the supplier's uniform, off-the-shelf process. Transaction engines allowed suppliers to develop their enormously popular self-serve options. Michel Janssen, president, Supplier Solutions, says two 2003 Everest Group surveys found "self-service a prominent theme for both human resources and finance and accounting outsourcing." The Analytical ComponentAnalytics are another critical component of transaction engines. Dan Reiff, senior vice president of business development for SourceNet Solutions, a finance and accounting (F&A) service provider specializing in accounts payables, explains that transaction engines do more than process transactions; they also produce a wealth of information. "We have a lot of knowledge about how our clients pay bills," he says. SourceNet executives analyze the trends and then help the buyers optimize their working capital by helping them get better discounts, for example. "That increases our business value by a magnitude of 10," he says. Simonson says other analytical functions could include interpreting tax laws, analyzing spending patterns, assessing employee development, staffing, and retention trends. He says these analytics are critical because the ability of the supplier to deliver business impact beyond simple cost savings is directly linked to its ability to develop insights that help the buyer manage the business impact of that particular process. At the moment, transaction engines are more widespread in the HR area since activities like payroll, employee records, and benefits administration are similar from company to company and industry to industry, points out Peter Bendor-Samuel, Everest Group CEO. Transaction engines are growing in popularity in the F&A arena, but generally by industry. That's because accounting practices vary widely across industry groups - oil and gas exploration companies have different considerations than retail banks or primary care hospitals. For example, IBM Global Services of Armonk, New York is working on a transaction engine for the energy industry and the railroads. Its shared services center in Tulsa, Oklahoma, will support this effort. Unisys Corporation of Blue Bell, Pennsylvania has developed a transaction engine for check clearing. ACS has an engine for insurance claims processing. Getting in Gear in 20032003 was the year when transaction engines became an integral part of many BPO offerings; buyers now ask about them. "They are the ante to get into the game," says Reiff. "You have to have a transaction model today because they are efficient," says the executive of College Station, Texas-based SourceNet. Adds Exult's Campbell, "You can't be a successful supplier without one." Bill Matson, general manager for HR Business Transformational Outsourcing in the US for IBM, says the BPO market has matured. "Buyers have gotten smarter and smarter. They insist on them now," he reports. In the past, Campbell says buyers purchased software and hired employees to reengineer the processes. Last year a growing number of buyers decided outsourcing to a supplier with a transaction engine was a better solution. "Buyers told us, 'We don't care about the technology. We don't want to own the people. Take care of these transactions for me,'" the Exult executive reports. Campbell says another business trend accelerated the acceptance of transaction engines: an increase in the number of mergers and acquisitions. Outsourcing HR is one of the most efficient ways to process the transition and merge the two parts into a unified whole. As mergers and acquisitions activity picked up, so did interest in transactional outsourcing. What's Ahead for 2004Everest's Simonson predicts there are three nascent areas that are likely to emerge: procurement, customer relationship management (CRM), and commercial real estate (CRE). Like HR, these areas have elements that are uniform across a variety of industries. "Depending on how much leverage suppliers can create by serving multiple customers with their solutions, transaction engines in each of these areas might emerge quickly," he says. According to Reiff, "People had better have been putting their transaction engines in place in 2003. In 2004, we will see how far up the value chain we can go. Predictions for 2004:
Publish Date: January 2004
For more information... Related Articles Copyright © 2004 - Everest Partners, L.P.
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Last year BPO buyers became believers. They now know transaction engines do save significant sums, improve processes, and yield strategic business results. "Transaction engines allow buyers to share in the software investment, in integrating people, systems, and processes, in defining best practices, in setting up security, and complying with regulations," observes Eric Simonson, a senior engagement director of 
