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Is BPO The Way To Go?

Business-process outsourcing can transform performance without the capital investment. The catch: You'll have to settle for standard processes.
The service also transforms remittance advice and payment from slow, paper-based delivery to same-day electronic delivery. Payment data is posted to the provider's practice management system automatically and can be accessed through EDI and the Web.

Moving From Tasks to Processes

As companies master the art of BPO, they're pushing more comprehensive processes out to third-party providers. To date, most BPO has been focused on tasks within processes. MIT Lending, for example, outsourced document capture, indexing and hosting, but the lender's employees continue to execute and manage the core process steps. Whole processes, such as benefits administration, payroll and accounts payable, are now commonly outsourced, and the trend is moving toward even more comprehensive BPO, says Stone, the Gartner analyst.

"Companies are increasingly turning over all or most of human resources, most finance processes and all of their accounting processes to service providers," Stone says, citing financial services and utilities companies among the early adopters. "The companies that have been most interested are in competitive marketplaces, with factors such as deregulation and globalization forcing them to focus on core competencies."

When hardpressed companies review their processes, they sometimes find their practices and supporting IT infrastructure are outdated, yet they might not have the time or budget to develop a state-of-the-art approach. Such was the case at Philips Consumer Electronics, which outsourced all North American after-sales service processes for its TVs, DVD and MP3 players and other equipment to IBM in a $300 million, seven-year deal (more on this in the Transformation box, page 12). IBM already had a customer service infrastructure in place for its laptops, desktops, servers and mainframes, and according to Carroll Thompson, vice president of service at Philips, it offered a state-of-the-art, lower-cost alternative that the consumer electronics manufacturer couldn't hope to build on its own.

"The value creation is not about going offshore because [the move to IBM] will bring service calls onshore," Thompson says. "We'll be paying more on a cost-per-minute basis, but we have more technically skilled agents who solve the problems on the first call."

In September, IBM launched a Center for Business Optimization that combines management consulting, business performance management software and advanced research and computing power available through IBM data centers. The company expects what it calls "business performance transformation services" to grow into a $500 billion market.

In some cases, outsourcing is about lower costs, as when a business unit is about to be spun off. Leaders of the smaller unit know they'll lose the support of the parent company, so they outsource their human resources or finance and accounting to a BPO service provider.

The prospect of outsourcing forces companies to examine and identify their core competencies. In many cases it's possible to outsource what might be thought of as critical processes, Stone says.

"Claims processing is mission-critical for insurance companies, but depending on how much you can automate, it can be outsourced," she says. "The claims are paid and approved based on the codes that are housed in a system. [The insurer] builds the rules engines and business intelligence, but somebody else can handle the processing."

How do you know when BPO is the right way to go? If you're prepared to change to a standardized approach, then you're in a position to save money through outsourcing, Stone says. She compares BPO to the shared services centers that many conglomerates create to standardize processes such as human resources, finance and accounting across business units.

"BPO is a step beyond the shared services center in that it's a multiclient shared services center," Stone explains. "The more you mess with it and make it specific to your enterprise, the more you erode the value of using the service."