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Business Process Virtualization, Outsourcing and Process Reengineering

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Martha Young and Michael Jude illustrate the differences and similarities of BPV to two earlier approaches: process reengineering and outsourcing.
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Nova Amber has been asked repeatedly whether business process virtualization (BPV) is, in fact, just a new name for management approaches that have been evolving over the last decade or so. The answer to this question is that BPV is fundamentally different than earlier attempts to streamline business, yet owes its genealogy to these earlier attempts. In this column we will try to illustrate the differences and similarities of BPV to two earlier approaches: process reengineering and outsourcing. Of course, both of these previous approaches are still in vogue in various areas, but it helps to review them in historical context.

The '90s were characterized by the reengineering craze with literally every big business attempting to apply the then new approaches of distributed computing and organizational downsizing to reinvent business processes. These reengineering attempts were less than successful, with analyst firms such as Gartner Group and Forrester providing estimated success rates of 10% or less.

Reengineering began with the assumption that a business process was bad because it was established. It was based on the notion that old processes must be inefficient processes; ones where too many people were applied to producing too little. Reengineering also advocated flash cut approaches where new technology and organizational structures were thrown into operation without adequate testing and before people had a chance to acclimate. In fact, since downsizing was a primary objective of reengineering, the aftermath of reengineering was often overworked personnel trying to keep things going with automation that was in a constant state of failure mode.

A paradoxical result of reengineering is that many market and financial analysts still view it with favor. Many executives are still making their reputations by radical reengineering of otherwise healthy companies. The result of such efforts is usually hearty endorsements by market and financial analysts who should know better by now.

In many cases, the result of reengineering was the search for the guilty initiator. It wasn't hard to blame the failures of half-brained reengineering efforts on IT. After all, the distributed technology would have worked if only IT had been more responsive. As the '90s rolled into the '00s, and as the dot bomb put the final nails into the notion of efficiency through automation, it became increasingly clear to management gurus that IT was a significant expense that could be simply excised from the company's overhead. How was this to be done: outsourcing, naturally.

Outsourcing, of course, had been a viable part of business process definition for some time. Drucker, for one, had advocated in the early '80s, for moving non-critical functions to dedicated suppliers who could be expected, through their focus on a single function, to be more efficient and less costly than in-house provisioning of the same function. For things like janitorial work, light manufacturing, and so forth this idea works remarkably well. For critical functions such as R&D and strategic IT functions outsourcing has worked less well.

Outsourcing, of late, has been applied to just about every function in a corporation. Once again, the results have been less than stellar since the entire focus of outsourcing has been to reduce costs. This is a short-term objective that ignores the long-term viability of the corporation.

This brings us to BPV. Like outsourcing, it advocates a close examination of the cost of in-house provisioning of a particular business function. Unlike outsourcing, it views cost in a larger value dynamic. Value is not a short-term cost analysis, it also depends on a longer term view of corporate viability. Decisions based on high value acquisition are rarely short term.

Like reengineering, BPV also looks at the application of technology, notably networked technology, to improve efficiency and reduce overhead. Unlike reengineering, BPV is focused on conserving personnel rather than removing them. It is also focused on a "try before you buy" approach to technology adoption. BPV processes are run in parallel with the processes they replace and are run by the people doing the old processes. In fact, BPV tends to apply new technology to old process rather than reinventing processes to use new technology.

The bottom line is that BPV essentially takes the germs of wisdom from reengineering and outsourcing and rationalizes them to return measurable value in the short-term while maximizing the long-term prospects for the company. BPV effectively merges the science of decision analysis with financial and business analysis, and technology, to build a new paradigm for business process: one that places a premium on putting people in contact with people using technology to increase customer satisfaction, increase revenue, increase the speed of competitive response, and reduce costs. And unlike outsourcing or reengineering by themselves, BPV also provides short-term results while maximizing the potential for long term success.

Martha Young has more than nineteen years of experience in the technology market and is a partner in Nova Amber, LLC, a consulting firm. Martha is the co-author of The Case for Virtual Business Processes, published by Cisco Press. She can be reached at info@novaamber.com.

Michael Jude, Ph.D. is a well-known industry analyst with more than twenty years of experience in telecommunications and management automation. Michael is the co-author of The Case for Virtual Business Processes, published by Cisco Press.

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