The Future of Business Process Outsourcing


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The Future of Business Process Outsourcing

  1. 1. The Future of Business Process Outsourcing
  2. 2. The BPO Hype Cycle Source: Gartner Group, “The Hype Cycle for IT Services”, June 6, 2003. <ul><li>Rising investments </li></ul><ul><li>Explosion in # of new entrants </li></ul><ul><li>Market confusion </li></ul><ul><li>Valuation spikes </li></ul><ul><li>Market CAGR estimates range from 50% - 80% for the next five years </li></ul>
  3. 3. Long-Term Business Pressures Drive More Outsourcing
  4. 4. Moving Up the Value Chain Source: Edelweiss Capital, “Business Process Outsourcing: Coming of Age?”, May 2003 Future Simple Processes Complex Processes Business Functions
  5. 5. The Evolution of BPO Models Transformational Onshore BPO Example: Sabre (Travel Services) Onshore Offshore Commodity BPO Transformational BPO Commodity Onshore BPO Example: CSC, EDS (IT Services) Commodity Offshore BPO Example: GE Capital (Payroll Services) Transformational Offshore BPO
  6. 6. Approaches to BPO Simple bulk transactions processing Broad shared services High-volume vertical processes Niche vertical apps Bottom-Up Approach Top-Down Approach Source: Cognizant Analysis of Forrester Research Report: “BPO’s Fragmented Future”, August, 2003. <ul><li>Leverage: </li></ul><ul><li>Economies of scale </li></ul><ul><li>Labor arbitrage opportunities </li></ul><ul><li>Industry best practices </li></ul><ul><li>To Create: </li></ul><ul><li>Best-of-breed commodity services </li></ul><ul><li>Immediate cost savings </li></ul><ul><li>Flawless process execution </li></ul><ul><li>Growth Opportunity: </li></ul><ul><li>Identify complex processes that require industry / domain expertise </li></ul><ul><li>Build differentiated competencies that boost market position </li></ul><ul><li>Leverage: </li></ul><ul><li>Deep process expertise in vertical industries </li></ul><ul><li>Trusted partner relationships and reputations </li></ul><ul><li>To Create: </li></ul><ul><li>Highly customized, industry-specific services </li></ul><ul><li>Long-term differentiation / competitive advantage </li></ul><ul><li>Growth Opportunity: </li></ul><ul><li>Leverage outsourcing competency to reduce costs and boost performance throughout value chain </li></ul><ul><li>Consider “retailing” services to competitors </li></ul>
  7. 7. Emerging Offshore BPO Opportunities <ul><li>Transaction processing </li></ul><ul><li>Credit Card / Check processing </li></ul><ul><li>Loan processing </li></ul><ul><li>Mortgage processing </li></ul><ul><li>Collections </li></ul><ul><li>Insurance application processing </li></ul><ul><li>Claims processing & adjudication </li></ul><ul><li>Member management services </li></ul><ul><li>Medical billing </li></ul><ul><li>Claims processing & adjudication </li></ul><ul><li>Member management services </li></ul><ul><li>Medical transcription </li></ul>Banking / Financial Services Insurance Healthcare <ul><li>R&D </li></ul><ul><li>Equity Research </li></ul><ul><li>Clinical Trials </li></ul><ul><li>Revenue Accounting (Airlines) </li></ul><ul><li>Engineering Design </li></ul><ul><li>Architecture </li></ul>Other Verticals Sales and Marketing Contact centers, telesales/telemarketing, customer care, web sales and marketing, market analysis Human Resources Payroll processing, benefits administration, HR administration Finance and Accounting Accounts receivables / payables / general accounting, financial reporting, shareholder services
  8. 8. Possible BPO Structures Service Arrangement Joint Venture Outsourced Service Build Operate Transfer Service Management People & Investment Pros Cons <ul><li>Can get going quickly </li></ul><ul><li>Lower client management overhead </li></ul><ul><li>Higher ongoing P&L cost vs. alternatives </li></ul><ul><li>Limited value creation potential for client </li></ul><ul><li>Less control </li></ul><ul><li>Eases entry into offshore operation with experienced partner </li></ul><ul><li>Lower long-term cost </li></ul><ul><li>Complete control </li></ul><ul><li>Limited value creation (captive) </li></ul><ul><li>No ownership Day 1 </li></ul><ul><li>Retention </li></ul><ul><li>Only 2nd tier partners </li></ul><ul><li>Leverage partner’s offshore infrastructure and experience </li></ul><ul><li>Ownership Day 1 </li></ul><ul><li>Lower costs (initial and long-term) </li></ul><ul><li>Limited value creation (captive) </li></ul><ul><li>Leverage partner’s offshore infrastructure and experience </li></ul><ul><li>Value creation opportunity (if non-captive) </li></ul><ul><li>Exit issues </li></ul>
  9. 9. Offshoring and Reengineering Can Lead to Dramatic Performance Improvements
  10. 10. <ul><li>LOB </li></ul><ul><li>Bank card processing/ receivables </li></ul><ul><li>Telemarketing services </li></ul><ul><li>Mutual fund services </li></ul>Opportunity for Value Creation - FDC (FORMERLY AMEX INFORMATION SERVICES) <ul><li>Highlights </li></ul><ul><ul><li>Provides bank card processing, payment products for Mastercard, Visa, American Express, and numerous private-label cards </li></ul></ul><ul><ul><li>Recent expansion in receivables management (American Creditors Bureau, Ingram) </li></ul></ul><ul><ul><li>Provides inbound and outbound telemarketing services and, through joint venture with AT&T, interactive services for 800/900 telephone industry </li></ul></ul><ul><ul><li>Manages the processing for 20 million mutual fund shareholder accounts </li></ul></ul><ul><li>Results </li></ul><ul><ul><li>2002 Revenues: $7.636 billion 2002 Earnings: $1.238 billion </li></ul></ul><ul><ul><li>AMEX sold 40 million shares (40% ownership) in early 1992 for $22/share; recently traded at $160/share (split-adjusted) </li></ul></ul><ul><ul><li>AMEX further reduced stake to 22% through second offering worth approximately $1 billion in 1993 </li></ul></ul><ul><ul><li>Acquired FFMC (August 1995) for expanded operation and greater economies of scale </li></ul></ul><ul><ul><li>Finalizing acquisition of Concord EFS </li></ul></ul>Source: FDC annual reports; industry articles; Datamation
  11. 11. Cognizant’s Initial Approach <ul><li>Deep Process Experience </li></ul><ul><li>Deep Industry Expertise </li></ul><ul><li>Industry Value Chain </li></ul><ul><li>Industry Competitive Forces </li></ul><ul><li>Company Core Competencies </li></ul><ul><li>Business Strategy </li></ul><ul><li>Company Outsourcing Readiness </li></ul><ul><li>Excellence in Offshore Recruiting/People, Processes/Infrastructure </li></ul><ul><li>Excellence in Delivering High-quality Services Remotely </li></ul><ul><li>Established Market Leader in the India Space </li></ul>Clients Cognizant Joint Analysis Transformational Outsourcing <ul><li>Strategic Outsourcing Decisions </li></ul><ul><li>Highly Customized Service Offerings </li></ul><ul><li>Long-term Competitive Advantage </li></ul>
  12. 12. Strategy To Drive BPO Decisions Scope Discovery Analysis Feasibility Assessment <ul><li>Inventory key business processes and current SLA parameters </li></ul><ul><li>Catalog support technology platform requirements and skill sets of support staff </li></ul><ul><li>Identify root drivers of process costs and inefficiencies </li></ul><ul><li>Gather transaction volume data and model across processes </li></ul><ul><li>Map underlying support systems </li></ul><ul><li>Determine BPO structure model </li></ul><ul><li>Identify pilot </li></ul><ul><li>Determine resource requirements </li></ul><ul><li>Identify changes to support process in onshore/offshore model </li></ul><ul><li>Determine cost savings per business process based on task migration and improvement </li></ul><ul><li>Identify costs of process migrations </li></ul><ul><li>Identify any key sequencing needs </li></ul>Undertake a BPO strategy assessment to determine which processes to outsource, financial impact and implementation plan
  13. 13. Cognizant Service Offering <ul><li>Cognizant’s Business Technology Consulting Group in concert with its vertical practices, works with clients in BPO strategy engagements </li></ul><ul><li>These engagements last from 8-12 weeks, depending upon scope typically deliver: </li></ul><ul><ul><li>An assessment of suitability of select business process outsourcing based on economics, integration with other processes, systems and skill requirements </li></ul></ul><ul><ul><li>A step-by-step plan for creating a BPO operation that mitigates risk and provides senior management focused measures and controls for BPO management </li></ul></ul><ul><li>For for information, contact: </li></ul><ul><li>Kaushik Bhaumik </li></ul><ul><li>VP, Business Technology Consulting </li></ul><ul><li>(925) 790-2012 </li></ul><ul><li>[email_address] </li></ul>