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“ BPO is the delegation of one or more IT-intensive business processes to an external provider who, in turn, owns, administrates and manages the selected process(es), based upon defined and measurable performance metrics.”
Gartner Dataquest
Business Process Outsourcing
Industry Trends for Application Outsourcing• IT application
outsourcing– Inevitable– One step in a broader
evolution– Related to infrastructure
outsourcing and business process outsourcing (BPO), but different
• Who makes the app outsourcing decisions?
• What gets outsourced and why?
Look at application outsourcing as another tool in the taming of IT
Application Outsourcing is in the cards
SERVICE LVLS
KNOWLEDGE IT DEPT.
GOVERNANCE
CEO
COMPLIANCE
PORTFOLIO
HYPE
CIO
OFFSH
ORE
Overall Cost Savings (%)
Insurance
Banking/ Finance
Automotive
Telecom
Pharmaceuticals
Airlines
10.0-15.0
8.0-12.0
5.0-6.5
5.0-6.5
5.0-6.5
5.0-6.5
EBIDTA increase (times)
40-60% cost saving
3.5 x
1.5 x
1.3 x
1.1 x
1.1 x
1.2 x
Key opportunity areas
•Back office processing•Call Center operations
•Back office processing•Call Center operations
•Research and Development
•Call Center operations•Billing
•Engineering & design
•Call Center operations•Frequent flyer programs
*Estimates based on specific representative companies**Non interest expenses
Source:McKinsey analysis; Interviews
Significant Growth in BPO
(US $bn) 2001 2005 2008
Total Business Process
Outsourcing Market
127 234 310
Percentage Offshored to
Countries such as India, Ireland, etc.
5% 15% 20%
Offshored BPO Market 6.4 35.1 62.0
India ITES Exports 1.5 9.5 21
Source: NASSCOM Mckinsey Study 2002 and, Gartner
BPO Forecast ...
Gartner estimates*Gartner estimates*
CAGRCAGR14.7%14.7%
IDC estimates**IDC estimates**
CAGRCAGR13.1%13.1%
*Excludes logistics and manufacturing outsourcing to show addressable market
$ Bn $ Bn
109
2000
20042005
20002004
200591
157181 177
202
Source: Gartner; IDC
Rapid growth in global BPO marketto continue
**Includes transaction processing
Simplify, Streamline, Consolidate
1
2
3
4
Moving to an outsourced environment brings efficiency gains – thru scale, technology & expertise
Moving to lower cost environments brings reduced cost of inputs – Labour Arbitrage
Global, centre based distributed delivery brings further economies of scale & process efficiency
Further Technology best practice leverage
Th
e co
st o
f in
effi
cie
ncy
ScaleLow costlocation
High costlocation
1
34
20.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
Europe East Europe India China
•
Drivers for Adoption of BPO
Controlling cost and integrity are top issues
Organisations embark on BPO for cost savings, and then achieve business optimisation &process standardisation
Ratings of “likely to provide best-in-class application management services”
3.89
3.493.43
3.403.26
3.263.25
3.21
3.183.14
3.103.09
3.082.97
2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9 4.1
IBM Global Services EDS
Hewlett Packard Oracle
PeopleSoft
Accenture SAP
CSC Perot Systems
JD Edwards Keane
Deloitte Consulting
BearingPoint (was KPMG) CGI
Similarly to leadership perceptions, Top-tier Outsourcers face App. Vendors as principal competitors
Source: 2003 META Group Application Management Multiclient Study
Source: McKinsey-Nasscom
Productivity
Productivity
CostCost
Quality
Quality
40-60% cost reduction for offshored process Labour cost arbitrage, the reason for cost savings, likely to exist for
next 20-30 years
Faster turnaround time Time zone difference 24 x 7 service Learning curve effect
Established methodologies and processes for better performance Well defined quantifiable quality and process metrics Access to highly qualified skill pool
BPO Value Proposition
12%
29%
35%
91%
85%
0% 20% 40% 60% 80% 100%
De-risk the business
Achieve high productivity
Improved Operational Quality
Reduced Costs
Focus on Core Activity
% Respondents
Source Gartner
Top 5 Outsourcing Objectives
• Delivering step change in performance
• Enabling transformation & re-transformation capability
• Deep, broad and enduring partnership
• Targeting cost reduction in smooth running areas
• Accessing best practice and economies of scale
• Shedding non-core services
Decide Scope
Traditional as-isOutsourcing
Problem-solving Outsourcing
Transformational Outsourcing
• Targeting operational fixes in problem areas
• Delivering cost reduction and operational performance improvement
“Sweating assets”
Operational performance improvement
Changing the model
BPO What??
• Commodities: IT Enterprise applications and infrastructure, IT support
• Mature Markets: HR – payroll, benefits, admin. HR training, finance services and analysis, call center, customer service
• Growth markets: Accounting, Corp. finance, check processing, claims processing, Legal & Medical Records management & transcription, telemarketing
• Early Adoption: tax planning, budgeting & reporting, risk management, operations planning, scheduling
Making the App Outsourcing Decisions
Involve the right management – both business and IT – to select the best application outsourcing candidates
Involved Final decision maker
42%
26%
58%
18%
21%
17%
32%
34%
58%
29%
8%
4%
9%
40%
0%
1%
0%
5%
2%
4%
3%
0%
31%
5%
27%
4%
0% 10% 20% 30% 40% 50% 60% 70%
CEO
CFO
CTO
CIO
Sales VP/Director/Manager
Service VP/Director/Manager
Marketing VP/Director/Manager
LOB VP/Director/Manager
Other non-IT management
Other IT professionals
Application strategy team (internal)
3rd party assessment service (external)
Other (specify)
Source: 2003 META Group Application Management Multiclient Study
Source: Mckinsey & Co.
A Mckinsey study shows that when processes are outsourced to India, companies not only get the advantage of low cost but also experience improvement in productivity and Quality.
BPO Advantage
India 38%
China 6%
Mexico 5%
Ireland 5%
Canada 5%
Malaysia 4%
Philippines 4%
Russia 4%
Singapore 4%
Survey respondents shows the following outsourcing destination:
India has transformed into the global outsourcing center of choice.
It employs world class technology and efficient delivery mechanisms to ensure that clients get cost effective solutions for all their BPO needs.
And more ………Source: Computer world and InterUnity Group Inc., Concord
BPO Leaders
Top Drivers for Outsourcing to India
Two million graduates each year (Existing Pool: over 25 million) 120,000 Engineers every year vs. 63000 in US English speaking and IT savvy workforce Cost reduction up to 50% Government support for IT and BPO industry Improving telecom infrastructure Lower infrastructure costs Favorable time lag: 12 hours with US & 5 hours with Europe Overnight turnarounds possible Resources with experience of financial and legal systems
similar to the west Strong domestic IT services industry to support IT led BPO
Indian Outsourcing American Backlash
• Highly visible issue due to steady American unemployment levels
• Campaign issue for Presidential Candidates
• Rise in anti-Outsourcing websites– http://nojobsforindia.com– http://yourjobisgoingtoindia.com– http://www.nomoreh1b.com
• Consultants predict large numbers of varied Professional jobs to be outsourced as well as Information Technology jobs
Managing Indian Resources
• Cross-Cultural Difficulties– Indians use the word “Yes” to
acknowledge understanding– Indian employees rarely
disagree
• Knowledge Transfer– Most difficult aspect of
offshoring– Western employees often
reluctant to participate fully
Indian OutsourcingWorldspan Experience
• Pilot project involved two Indian Quality Assurance Engineers
• Communication is largest problem• Two hours of overlapping schedules
between Indian employee and Atlanta headquarters
• Tendency to not ask questions even when there is incomplete understanding
Location, Location, Location…
• Offshore = Offsite– Geography is but one
variable to consider– Distance = complexity
• Location-related issues– Intellectual property
laws– Legal jurisdiction– Regulatory compliance
• EU Data Privacy Initiative• Patriot Act• more to follow
The right mix of polygeographic resources enables application outsourcing
strategy(ies)
Offshore, Near Shore, Best Shore, No Shore,
Rationales and Risks
• Reduce costs: Are we just outsourcing a broken process?
• Focus on Core Competencies: Do we outsource something that is critical if controls breakdown?
• Introduce market discipline: do bad practices become right if we just move them outside the company?
• Improve Flexibility: Are we really eliminating fixed costs?
• Improve Technology: Will the applications and processes need fixing anyway?
BPO Failure: Bargain Shopping
• Find highest quality provider- go after lowest cost from them
• More difficult: highest quality from cheapest provider
• Due Diligence: references, employee churn, financial health, security procedures, Int Prop protection,
BPO Failure: Security
• Political and economic stability:– Canada and Ireland, high– Russia, China, India, Brazil, Philippines, low
• Stability of government, asset nationalization, threat of war, strikes, terrorism, medical outbreaks
• Disaster recovery procedures, reliability of infrastructure, security procedures
BPO Failure: Poor planning
• Outsource processes, not strategy
• Management of expectations
• SLAs:– Start and end date for service– Schedule for reviewing performance– Documentation & metrics to be used for measuring
performance– Penalties and procedure for underperformance– Procedures for conflict resolution
BPO Failure: Internal Communication
• Focus on your own employees!!
• Unhappy employees can wreck BPO transition process
• Outsourcing treated like a dark secret: fear and distrust
• Tell them what, why and how
• Consider extra compensation for employees that train offshore counterparts.
BPO Failure: Poor transition Management
• Most difficult stage, taking 3 months to 1 year.
• Detailed, knowledge transfer and documentation of all tasks, technologies, workflows and functions
• Motivating current employees to share knowledge
• May include legal obligations, licenses, infrastructure and assets
2. Feasibility2. Feasibility 4. Transition4. Transition 5. Delivery5. Delivery3. Preparation3. Preparation1. Scoping1. Scoping
Refinement of scopeBenefits caseCommercial
frameworkRisk managementHR approachService parameters
Refinement of scopeBenefits caseCommercial
frameworkRisk managementHR approachService parameters
Business objectivesParticipantsKey issuesInitial scope and
constraintsHR implicationsHigh level service
requirements
Business objectivesParticipantsKey issuesInitial scope and
constraintsHR implicationsHigh level service
requirements
Service consolidationTransfers of: - staff - responsibilities - assetsNew service start-up
Service consolidationTransfers of: - staff - responsibilities - assetsNew service start-up
Service management and reporting
Benefits realisationContinuous
improvement
Service management and reporting
Benefits realisationContinuous
improvement
Due DiligenceService definitionHR preparationsContract preparationAgreed budgetBusiness case update
Due DiligenceService definitionHR preparationsContract preparationAgreed budgetBusiness case update
Fast-track
8 weeks to contract signature
2. Feasibility2. Feasibility1. Scoping1. Scoping 4. Transition4. Transition 5. Delivery5. Delivery3.Preparation3.Preparation
2. Feasibility2. Feasibility1. Scoping1. Scoping 4. Transition4. Transition 5. Delivery5. Delivery3. Preparation3. Preparation
Typical
6 months to contract signature
2 weeks2 weeks2 weeks2 weeks 3 months3 months OngoingOngoing4 weeks4 weeks
2 months2 months2 months2 months 6 months6 months OngoingOngoing2 months2 months
BPO Processes..
