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The Rationale for BPO

October 15th, 2003 · No Comments

Business process outsourcing is hot, and India is at the heart of this trend. Knowledge@Wharton has an interview with Peter Bendor-Samuel, founder and CEO of Everest Group, a consulting firm in Dallas, and Michael Quinn, president of Strategic Management Solutions. The issue being discussed: as global supply chains of information are forged, what impact will they have on corporations?

Bendor-Samuel: It has been my experience that firms outsource processes for the following reasons:

1. To save money Most of our clients who are seeking to leverage labor arbitrage are looking to achieve total process savings between 35% and 70%. This is much higher than traditional outsourcing arrangements where the cost savings often were in the range of 15% to 25%.

2. To increase focus on their core business.

3. To improve the service they are receiving from the process.

4. This improvement comes in three forms:
– Improved quality intrinsic to the service itself for example, service level agreements (SLAs) around the time it takes to answer a call or the accuracy of the data collection.
– Improved business impact or the improvement in service as experienced by the users of the service for example, improvement in end customer satisfaction (in the case of call centers) or the reduction of working capital as a result of a better F&A process, which signals greater efficiency.
– Improved strategic impact. This will come in some sort of breakthrough in cycle time gains or competitive positioning.

Quinn: India still has the best mix of breadth and depth of labor with strong English language skills and extremely well educated people.

Bendor Samuel: Clearly at this time India has the largest capability for English speaking labor arbitrage and has the most significant momentum with organic in-country firms. We do not expect any other nation to seriously challenge India for U.S.-based business over the next two years. For Europe, we expect Eastern European nations to emerge as destinations of choice, although at a higher cost point to India.

Quinn: Call-center activity is becoming almost a commodity and there is an expectation that whoever is considering outsourcing is first targeting some aspects of their call centers. Other service activities like account opening/maintenance, fulfillment, and inquiry resolution are also gaining momentum. We have already seen domestically and now internationally the various HR functions and basic accounting (payables, receivables, expense reporting) being outsourced. Now we are seeing more complex and time sensitive accounting functions (legal reporting, intra-day reconcilements, fund accounting) being teed up for possible migration.

Quinn: Firms are becoming increasingly comfortable with the concept of outsourcing and as they are successful in migrating simple functions, they begin to understand the “power” of rethinking their processes. Technology continues to become faster and cheaper, providing virtual real-time access across thousands of miles.

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