Many different factors contribute to the cost of a business process outsourcing (BPO) engagement. Among them, IT, especially software, is a key cost determinant that is often underestimated. While software licenses and maintenance typically represent no more than 3% to 5% of a BPO provider’s total cost, they
directly drive process automation that immediately impacts the cost of operations.

Technology drives the BPO cost structure in three ways: it enables economies of scale, supports sustainable process optimization, and makes labor arbitrage possible by connecting and controlling remote location workflows.

With the right software, organizations can balance their needs for personalization and standardization of outsourced processes by creating the capacity to design process and IT implementation jointly. In addition, software is the key enabler for integration between buyer and service provider, both on process and IT
levels. Finally, the software choice has a substantial long-term impact on cost as it influences the organization’s flexibility to accommodate changes in scope including process coverage and regional scope, or scale; allow for organizational developments, such as reorganization or merger and acquisition activities; and
cater for potential changes in sourcing strategy.

This white paper is the first in a series of SAP white papers, which examines the cost structure associated with BPO and shows that a diligent assessment needs to address several cost components that are not included in the provider’s total contract value (TCV), and are often overlooked by buyers. Subse-
quent white papers will look at how technology impacts all BPO cost components in detail and compare the cost of different BPO delivery methods based on comprehensive modeling.