SaaS and BPO -- "The New Boundary" -- October 24, 2006 (Also appearing in the MBA NewsLink)
Software as a Service (SaaS) and Business Process Outsourcing (BPO) both have gained considerable popularity since 2000. SaaS was built from the successes and failures of the ASP and hosted solution providers utilizing a unique operating model. In general, it satisfied client needs for new software without the traditional TCO (total costs of ownership) for purchase, installation, configuration, upgrading, infrastructure improvements, and on-going maintenance. It was a “win-win” for those organizations who wanted to limit capital expenditures while reducing overall maintenance liabilities.
BPO greatly benefited from the 20 years of lessons learned within the IT outsourcing (ITO) industry and global operating trends. In an on-going effort to implement best-in-class not just in technology, company’s fractionalized business processes or “compartments” available for BPO now include traditional core competencies rather than “non-value added” efforts. Additionally current market projections depending upon the research group of your choice, indicate that the BPO markets could be three to five times greater in valuation than the historical ITO which hovers at over $70 billion for the last five years (i.e., >$200 billion annually).
So how are these two market offerings related? What we are witnessing now is a convergence of these two disciplines by innovative mortgage vendors and providers to take advantage of both with offerings that naturally extend the BPO improvement phases (e.g., transformational outsourcing). For example, if we examine the pre and post settlement efforts we find new providers delivering functionality that includes electronic notary, secure documents, secure signing all wrapped around process enhancements and changes that decrease warehousing costs, improves loan turnover, and streamlines the total cost of back-office efforts with savings ranging from 20% to 50% of settlement expenses (including cycle times). Another area witnessing convergence resides within the problematic and growing mortgage fraud area. Once handled internally by leading originators, this effort is being segmented out to best-in-class leaders to assist with identification, remediation, and elimination of risky clients, brokers, and appraisers.
Moreover, the convergence of these two disciplines has been aided by the ubiquitous nature of computing, system availability, and network security and reliability. Through the integration of SaaS and parameter driven process streams, organizations are now able to adopt new business models and practices with less variability of results than ever before. With secure connectivity, incorporating new settlement, closing, fraud detection, and MBS capabilities, changes can be adopted quickly for 2nd and 3rd tier market makers and not just tier one organizations. Aided by defacto and industry standards, the interoperability of software and sharing of information has become much greater as the barriers to adoption have been lessened.
As the globalization of our markets is accelerated by technology savvy firms, the singular implementation of SaaS and BPO will be burred by more cohesive and complimentary products and services. As non-traditional equity and Wall Street firms continue to expand their horizontal mortgage offerings, their integration of SaaS and BPO solutions will take advantage of global time zones, economies of scale, sharing of risks and experiences, and of course improved cost efficiencies. So as new market entrants infuse new ideas to the traditional mortgage offerings and processes, look for a rapid retrenchment (and partnering) of existing vendors as they struggle to compete with the need for greater efficiency and functionality.
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