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Report
Welcome
Off Shoring & Review
Jonathan D. Wareham
[email protected]
Business Process Outsourcing
“ 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
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?
Application Outsourcing
is in the cards
SERVICE LVLS
HYPE
CEO
COMPLIANCE
CIO
PORTFOLIO
GOVERNANCE
KNOWLEDGE
IT DEPT.
Look at application outsourcing as another
tool in the taming of IT
Significant Growth in BPO
Overall Cost Savings (%)
Insurance
10.0-15.0
Banking/ Finance
Pharmaceuticals
Telecom
Automotive
Airlines
EBIDTA increase
(times)
8.0-12.0
5.0-6.5
5.0-6.5
5.0-6.5
40-60% cost
saving
5.0-6.5
Key opportunity
areas
3.5 x
•Back office processing
•Call Center operations
1.5 x
•Back office processing
•Call Center operations
1.3 x
•Research and
Development
1.1 x
•Call Center operations
•Billing
1.1 x
•Engineering & design
1.2 x
•Call Center operations
•Frequent flyer
programs
* Estimates based on specific representative companies
** Non interest expenses
Source: McKinsey analysis; Interviews
BPO Forecast ...
(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
Rapid growth in global BPO market
to continue
Gartner estimates*
IDC estimates**
$ Bn
CAGR
14.7%
157
91
2004
$ Bn
CAGR
13.1%
181
177
109
2005
2000
* Excludes logistics and manufacturing outsourcing to
show addressable market
2004
202
2005
2000
** Includes transaction processing
Source: Gartner; IDC
The cost of
inefficiency
Simplify, Streamline, Consolidate
1
Moving to an outsourced
environment brings
efficiency gains – thru
scale, technology &
expertise
2
Moving to lower cost
environments brings
reduced cost of inputs –
Labour Arbitrage
3
Global, centre based
distributed delivery
brings further
economies of scale &
process efficiency
4
Further Technology
best practice leverage
1
3
4
100.00
90.00
80.00
70.00
60.00
2
50.00
40.00
30.00
20.00
10.00
0.00
Europe
Low cost
location
Scale
East Europe
India
China
High cost
location
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
best-in-class application
management services”
3.89
IBM Global Services
EDS
Hewlett Packard
Oracle
PeopleSoft
Accenture
SAP
CSC
Perot Systems
JD Edwards
Keane
Deloitte Consulting
BearingPoint (was KPMG)
CGI
3.49
3.43
3.40
3.26
3.26
3.25
3.21
3.18
3.14
3.10
3.09
3.08
2.97
2.5
2.7
2.9
3.1
3.3
3.5
3.7
3.9
4.1
Source: 2003 META Group Application Management Multiclient Study
Similarly to leadership perceptions, Top-tier
Outsourcers face App. Vendors as principal competitors
BPO Value Proposition


40-60% cost reduction for offshored process
Labour cost arbitrage, the reason for cost savings, likely to exist for
next 20-30 years
Cost







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
Source: McKinsey-Nasscom
Top 5 Outsourcing Objectives
Focus on Core Activity
91%
85%
Reduced Costs
35%
Improved Operational Quality
29%
Achieve high productivity
12%
De-risk the business
0%
20%
40%
60%
80%
100%
% Respondents
Source Gartner
Decide Scope
Transformational
Outsourcing
Traditional as-is
Outsourcing
• Targeting cost
reduction in smooth
running areas
• Accessing best
practice and
economies of scale
• Shedding non-core
services
“Sweating
assets”
Problem-solving
Outsourcing
• Targeting operational
fixes
in problem areas
• Delivering cost
reduction and
operational
performance
improvement
Operational
performance
improvement
• Delivering step
change in
performance
• Enabling
transformation &
re-transformation
capability
• Deep, broad and
enduring partnership
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
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)
31%
27%
4%
26%
9%
58%
40%
18%
0%
42%
21%
1%
17%
0%
32%
5%
34%
2%
58%
4%
29%
3%
0%
8%
5%
Involved
Final decision maker
4%
0%
10%
20%
30%
40%
50%
60%
70%
Source: 2003 META Group Application Management Multiclient Study
Involve the right management – both
business and IT – to select the best
application outsourcing candidates
BPO Advantage
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 Leaders
Survey respondents shows the following outsourcing destination:
India
38%
China
6%
Mexico
5%
Ireland
5%
Canada
5%
Malaysia
4%
Philippines
4%
Russia
4%
Singapore
4%
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.
Source: Computer world and InterUnity Group Inc., Concord
And more ………
India's dominance
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
Political backlash
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 Outsourcing
Worldspan 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
Offshore, Near Shore, Best
Shore, No Shore,
The right mix of polygeographic resources
enables application outsourcing strategy(ies)
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
BPO Processes..
1. Scoping
Business objectives
Participants
Key issues
Initial scope and
constraints
HR implications
High level service
requirements
2. Feasibility
3. Preparation
4. Transition
Refinement of scope
Benefits case
Commercial
framework
Risk management
HR approach
Service parameters
Due Diligence
Service definition
HR preparations
Contract preparation
Agreed budget
Business case update
Service consolidation
Transfers of:
- staff
- responsibilities
- assets
New service start-up
5. Delivery
Service management
and reporting
Benefits realisation
Continuous
improvement
Typical
1. Scoping
2. Feasibility
3. Preparation
4. Transition
5. Delivery
2 months
2 months
2 months
6 months
Ongoing
6 months to contract signature
Fast-track
1. Scoping
2. Feasibility
3.Preparation
4. Transition
5. Delivery
2 weeks
2 weeks
4 weeks
3 months
Ongoing
8 weeks to contract signature
Final Exam
•
•
•
•
Permitted:1 page, 2 sides, something to write with
Not Permitted: anything else
6-8 questions, open-ended
Use diagrams, tables, bullets, organize your
information…

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