Letting The Process Go

To compete, more companies are hiring outsourcers to help manage their business processes.
It's understandable that companies may not want to invest time and energy on optimizing nonstrategic processes themselves, but it wouldn't be surprising to find a link between that and a dirty little secret in most companies. "It's very scary how little they know about the processes they're working with," Cutter Consortium's Hayes says. Banks are moving slowly on business-process outsourcing, in part because they're finding that processes aren't holistically understood or fully documented, the Celent report says. Most suppliers these days will ask potential customers to at least measure service levels of the processes they want to outsource so that both parties can start with realistic expectations of service levels expected in BPO agreements.

And when it comes to measuring outsourcers' performance, it's time to look beyond static metrics that measure whether "a widget went from here to here in X time," argues Dominick Cavuoto, a corporate VP and president of Unisys' global financial services. "A deeper understanding of the business enterprise, of the gravity of the transaction, is really what brings life into the BPO," he says. Providers should help companies quickly respond to change, and be measured on that.

The Right Direction, pie chartIncreasingly, users agree. Pfizer Inc.'s call-center provider, Telerx, does an excellent job of assessing trends, identifying service opportunities, and providing detailed recommendations for improvement, says Ramon Vega, Pfizer's business- technology director and team leader in an E-mail. Telerx has optimized performance by using effective training, reporting, recording, and quality assurance and control practices in partnership with the drug-manufacturer, Vega says. And while survey respondents cite cost reduction, process performance levels, and adherence to schedules and time lines among their top metrics, half of them also measure customer satisfaction, 36% measure employee satisfaction, and 33% measure revenue growth.

At FirstEnergy Corp., CIO Brad Tobin monitors service-level agreements for the flow of trading hub transactions in a source-to-settlement process outsourced to Perfect Commerce Inc. Perfect Commerce, which merged last year with Pantellos, an organization founded by a consortium of utilities, including FirstEnergy, to serve as their supply-chain engine, provides services ranging from market analysis to payments. FirstEnergy has a minority stake in Perfect Commerce. One of the more critical metrics, says Tobin, is a monthly review "where we look at the total investment we have in the relationship and bounce that against the benefits we attribute to the relationship. That helps us understand which actions we're taking are providing which benefits for how much cost."

It's tricky stuff, though, says Danny Ertel, who manages the outsourcing practice at Vantage Partners LLC, as well as the company's software division, which provides software called PartnerSmith Outsourcing Manager to support outsourcing governance. "Customers for a long time have measured things that are easy to measure, because if you're applying penalties you need really objective measures," he says. "But if you're trying not to figure out how to apply penalties but [how to] improve the business, you have to agree on more qualitative and subjective metrics that influence behavior."

Given some high-profile IT outsourcing missteps, BPO providers may need to overcome skepticism. Western Digital recently requested that its outsourcer, which had sent some programming work to Indian developers, remove those developers from the project after they failed to deliver useable code. That hasn't soured CIO and VP Bob Houghton on outsourcing, but it adds to his wariness. "There have been too many times I've had to intervene," he says.

Nonetheless, business-process outsourcing is clearly on an upswing. Toshiba America Information Systems Inc., which for years has outsourced logistics to UPS for importing products, including notebooks, PDAs, and servers, into the United States, last year also began working with UPS on aftermarket service repair and parts for notebooks. Toshiba consolidated its parts warehouse into UPS's Louisville, Ky., hub so UPS can pick, pack, and ship parts directly from the warehouse to independent service providers. UPS can also quickly move them over to Toshiba's own repair depot, now located at the UPS facility, which handles 30% of all repairs, says John Mehrmann, director of service for Toshiba's digital-products division. Toshiba has about 120 UPS employees working with it on product returns, depot repairs, and warehouse parts-management processes.

First Step, pie chartSince making the switch, the percentage of repairs completed on the same day the product arrives has gone from 10% to 24%. That's critical, Mehrmann says, as the decision to outsource was made to ensure customer satisfaction as well as to cut costs. "To have a competitive selling price, you have to drive down the cost to support it," and consolidating depot operations inside one building drove out 34% of the overall cost of repairs last year.

What may be more remarkable is that although Toshiba has service-level agreements that invoke penalties and rewards for both sides based on factors such as repair time and repeat repairs, neither Toshiba nor UPS has ever claimed either when the opportunity was there. Mehrmann credits that to the fact that the two companies have worked to create a true partnership, leveraging UPS's logistics expertise and Toshiba's strength in using data to track the customer experience. There's a shared culture with common goals, which will continue to expand as the two companies move beyond sharing files to more closely integrate their software systems, he says.

It's that kind of relationship that has opened the door for Toshiba and UPS to participate in what may be the next wave of business-process outsourcing: joining with a provider to offer combined expertise to others. UPS and Toshiba have done that, taking over CompUSA Inc.'s repair and depot processes late last year, and they're now in discussions with two other national retailers to do the same, Mehrmann says.

Perhaps Weaver at Blue Cross & Blue Shield of Rhode Island best captures the state of the evolving BPO market. "The real work is just starting," he says of BCBS's relationship with Perot as the two companies start working on optimization and root-cause analysis and implementing a state-of-the-art claims-processing system beginning in December.

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