Approach strategy for adapting the business process utility model for an Indian IT service provider

Abstract

The purpose of this project is to understand the forms of On Demand business models and suggest strategies for an Indian IT Services firm to provide the Business Utility as a new service offering to its customers or prospective firms Secondary research and literature review suggests that there are three forms of On-demand models currently existing in the industry, each at a distinct stage of evolution. The ASP model is the oldest form and is at the maturity stage currently. The most preferred form on on-demand business model currently is the Software as a Service model, which is the latest buzz word among the IT pundits. A third model, which applies the advantages of SaaS to business processing, is called the Business Process Utility model, hereinafter referred to as the BPU model or simply as Business Utilities. The focus of our project is restricted to Business Utilities, but we spend a little time understanding the other two forms as well, to derive the benefits and risks of each model, so as to better fit each model to a certain industry or customer context. As a first step, we present our understanding and analysis of the variations in these models advantages, disadvantages and some inherent risks of each on-demand form. Some of the industry implementations of each model is also illustrated briefly, which helps in re-in forcing our understanding of each. We then go on to understand the components of a Business Utility the technical/software aspects of it and questions relating to the business risks, the microeconomic aspects such as the minimum demand levels, the peaks and troughs as also the macroeconomic factors depending on the nature of the industry. An industry like the financial services would have regulatory and security related factors common to the whole industry which would be a determinant to the offering of the Business Utility in that industry. The rest of our project focus is towards creating a realization strategy for Business Utilities, from the perspective of an Indian IT Service provider, hereinafter referred to as IISP. The activities and steps in the process are quite generic in nature, but some of the current capability assessment and evaluation is more focused towards the Indian IT Service Providers. At this stage, we take a stance on the value proposition that a Business Utility Provider (BUP) can offer and hence the positioning on the cost to serve and the pricing continuum. We reason that there is a threat of commoditization of the offering because of standardization of the processes, however it could be eliminated by adopting two strategies Value added strategy where the BUP offering is enhanced for a higher price with value added features, more consultative in nature, to make a value based offering articulation. The second strategy a BUP can use is to adopt a Process Innovation strategy to continue to reduce costs and thereby add value to its offering. Market selection criteria (Segmentation and Targeting) can be derived from the above, and we also briefly point to various pricing and distribution channel approaches that are available for an IISP to take in its efforts to become a BUP. Internal capability assessment and implications for the service provider are also discussed, primarily in the context of processes, people, customers and the financial and organizational changes that are needed for making this offering a success in the market. An illustration of the approach strategy has been attempted using Payments Utilities. We go about market selection based on the adoption of Utilities model in the Financial Services sectors and then build on a case for providing payments services as a Business Utility. Value articulation of the Payments utility and Go-to Market strategies are discussed as part of this illustration. The pricing templates have been provided, for both the value pricing strategy as well as the cost plus pricing strategy. We believe that a transaction price can be arrived at, based on demand estimations, irrespective of whichever pricing strategy is used. However, as has been written in popular business marketing literature, value based pricing should be the strategic direction for the long term benefits of the firms. Articulating the value proposition, building the business networks to diffuse the value proposition and strengthen the market offering using channels and customers forms the rest of the illustration.