The Future of Business Process Outsourcing

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