Business Process Outsourcing Tag
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Richard Welke 2002
Business Process Outsourcing:
Scapegoat or Sea Change?
Richard WelkeDirector, Center for Process InnovationJ. Mack Robinson College of Business
Professor, CIS Department423 RCB
Technology Association of Georgia
Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 22
What is a business process?Defn: A collection of interrelated work tasks, initiated in
response to an event, that achieves a specific resultfor the customer of the process
Account management
Advance planning & schedule
Advertising
Assembly
Asset management
Benefits administration
Branch operations
Budget control
Build to order
Call center service
Capacity reservation
Capital expenditures
Check request processing
Collateral fulfillment
Collections
Commissions processing
Compensation
Component fabrication
Corporate communications
Credit request/authorization
Customer acquisition
Customer inquiry
Customer requirements
Customer self-service
Customer/product profitability
Demand planning
Distribution/VAR management
Facilities management
Financial planning
Financial close/consolidation
Hiring/orientation
Installation management
Integrated logistics
Internal audit
Inventory management
Investor relations
Invoicing
IT service management
Knowledge management
Manufacturing
Manuf. capability development
Market research & analysis
Market test
Materials procurement
Materials storage
Order dispatch & fulfillment
Order management
Organizational learning
Payroll processing
Performance management
Physical inventory
Planning & resource allocation
Post-sales service
Problem resolution management
Process design
Procurement
Product data management
Product design & development
Product/brand management
Production scheduling
Program management
Promotions
Property tracking/accounting
Proposal preparation
Publicity management
Real estate management
Recruitment
Returns & depot repair
Returns management
Quality control
Sales channel management
Sales commission planning
Sales cycle management
Sales planning
Service agreement management
Service fulfillment
Service provisioning
Shipping
Zero-based budgeting
Examples:
KNOWLEDGEWORK
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Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 55
Menu of possibilities (1)
SupportSupport
Customer serviceBilling queryOrder takingAccount activateNew customerComplaints
MarketingMarketing
Outbound emailTelemarketingSurveys and pollsInbound emailCampaign mgtCustomer winback
SalesSales
Inbound salesOutbound salesWeb chatProduct inquiriesReturns processing
Tech supportTech support
Data verificationApplicationAddress updatesHelp deskProblem resolution
AnalyticsAnalytics
Profit analysisQuality auditReportingComplaint analysis
Customer relatedCustomer related
TransactionalTransactional
Accounts recvblAccounts payable
Expense reimbursPayrollCredit managmt
LedgerLedger
Fixed asset acctgGeneral ledger
ReconciliationsBookkeeping
FinancialFinancial
Financial analysisManagt acctg
Cost acctgBudget & forecastsCapital planningCash managmt
ReportingReporting
StatementsConsolidations
Variance analysisExternal reportingAudit supportQ/Y-E reporting
TaxTax
Internal auditUnemployment
Quarterly/Y-EForeign exchangeSales/VATPayrollMulti-jurisdiction
Finance & accounting relatedFinance & accounting related
Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 66
Menu of possibilities (2)
CompensationCompensation
PayrollTime and attend.Stock optionsPayroll taxes
BenefitsBenefits
HealthRetirementPlanningLeave trackingBenefits terminate
EmployeeEmployee
DevelopmentCommunicationsRecordsTraining admin.Labor managementTraining solutions
WorkforceWorkforce
SelectionRecruitingApplication vettingRelocationTerminations
AnalyticsAnalytics
PlanningCompensationLabor marketsCareer progression
Human RelationsHuman Relations
Order entryOrder entry
Sales order entryProduct config.ReconciliationQuotationsBids
ClaimsClaims
Loan processingVendor paymentsAccounts payableBenefits adminExpense reimburse
Credit cardCredit card
Check processingCredit managmtCollectionsCredit card xactsDebit card xacts
LegalLegal
TrademarkPatent filingClass action mgt
TranscriptionTranscription
MedicalMedical recordsLegalCourtTranslation
Transaction ProcessingTransaction Processing
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Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 77
Levels of task complexity
Complexity
Complexity
Data Processing- Basic data entry
- Transaction processing
- Document management
Contact Services- Inbound customer relations & helpdesk
Outbound telemarketing- Collections
Back Office- Fin. & Acctg., HR, Procurement shared
services
- Technology support
Knowledge Services- Customer analytics
- Portfolio & risk management
- Equity research
Research Services- Content development
- Product design services
- CAD / CAM services
Low
Medium
High
Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 88
How BPOs segment
Bulk Task-basedService Provider
- Simple transaction services such ascredit card and payroll processing
- ADP, First Data, TSS
Process
expert
- Process lines such as contactcenters, helpdesks
- Convergys, Teletech, Citigroup
Serviceline
expert
- Group of related services such as HR,F&A; services for a particular industry
- Exult, ACS, Mellon HR
Bundledservicesprovider
- Services that include IT andoutsourcing solutions
- TCS, Accenture, IBM GS, CSC
Need for domain,process and
technologyexpertise
Source: Tata Intl
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Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 99
BPO drivers
Business ProcessBusiness Process
OutsourcingOutsourcing
Service Delivery Complexity of services
Standardization of
processes (TQM, 6) Increased service
standards
Cost management
Changing technology
Industry Globalization of business
Increased competitive
pressures
Change in customer service
expectations
Shorter windows of
opportunity
Speed innovation adoption
Business
Demand for shareholder value
Focus on core competencies
Decrease response to market Increased customer-market focus
Agility to counter competition
Agile response to changing demand
Transaction costs
Near-zero cost digital
coordination and delivery
5-10X labor cost differential& 24X7 (offshore)
Experienced contractors
Bundled services
Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 1010
Service migration paths
Secondary
Contractor
Joint
Venture
Joint
Venture
OutsourcingOrganization
PrimaryContractor
Offshore
Operations
OffshoreOffshore
Wholly-ownedSubsidiary
Wholly-ownedSubsidiary
sharedservice
s
OffshoreContractorSupply Chain becomes Service ChainSupply Chain becomes Service Chain
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Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 1111
Scope migration
OrganizationOrganization OutsourcingOutsourcing
operationoperation
BAnBAn
OffshoreOffshore
OutsourcingOutsourcing
BA1BA1 BA1BA1BAnBAnBA1BA1
OrganizationOrganization OutsourcingOutsourcing
operationoperationBAnBAn
OffshoreOffshore
OutsourcingOutsourcingBA1BA1 BAnBAnBA1BA1 BAnBAnBA1BA1
OrganizationOrganization
BAnBAnBA1BA1
e.g. HR
OutsourcingOutsourcing
operationoperation
BA1BA1
e.g. Travel
OffshoreOffshore
OutsourcingOutsourcing
e.g. Travelclaims
Increased process understanding
Increasedoutsourcingcapab
ility
Standardization
StandardizationCommoditi
zation
Commoditization
Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 1212
A deeper corporate issue?
OutsourcingOutsourcing
operationoperation
BAnBAnBA1BA1
OffshoreOffshore
OutsourcingOutsourcing
BAnBAnBA1BA1
OrganizationOrganization
BAnBAnBA1BA1
Standardized process
BAnBAnBA1BA1
Shared
Best Practices permitwide
adoption
AMR Research findings:
Companies that practiceprocess standardization
efforts:
Decrease organizational
performance in eras oftechnological change
Stunt organizationsability to take advantage
of internally generated
opportunities
As short-term (cost-
reduction) effectsachieved, greater
application is made
Organizational
innovation lostAcademy of Management RvwBenner, Tushman (2000)
resultsin
TQM, CMMI,Six Sigma,
Lean, processstandardization
efforts,Sarbanes-Oxley
applied to
(CMM Level 5)
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Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 1313
The next step Automation
OutsourcingOutsourcing
operationoperation
BAnBAnBA1BA1
OffshoreOffshoreOutsourcingOutsourcing
BAnBAnBA1BA1
OrganizationOrganization
BAnBAnBA1BA1
Standardized process
BAnBAnBA1BA1
Outsourced/Offshored
Outsourced/Offshored
i.e. Automation
WS1WS1
WS2WS2
WS3WS3
WS4WS4
WSnWSn
Web services orchestration/BPM
Whos in the
best positionto develop and
deliver theweb services?
Who will best
understand theunderlyingPROCESSES?
Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 1414
Whats being outsourced
Currently
Currently
Consider
ing
Consider
ing
Large CoLarge Cos.s. Small CoSmall Cos.s.
Source:OutsourcingInstitute
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Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 1515
2nd Generation outsourcing models
PureContract
Outsourcing(TATA, WIPRO)
Globally-Distributed Work Model
Build-Operate-Transfer Model
Global Shared Services Model
Onsite OffshoreHybrid ModelHybrid Model
Multi
Multi--SourcingModel
SourcingModel
Joint Venture
(Collaborative)
Completely
Owned
Subsidiary
(GE, AMEX)
RelationshipStructure
Onsite
onshore
Offsite in same
countryOffshore in
foreign country
Geographic Location
Define-Outsource-Offshore n-tier ModelArms Length
(Current)
Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 1616
Reasons given by sectorBenefits (relative priority)1. Reduce/control operating
costs
2. Improve company focus
3. Increase access to world-class capabilities
4. Free resources for otherpurposes
5. Accelerate change6. Reduce time to market
7. Share risk8. Achieve world-class
standards
9. Function difficult to manageinternally
Barriers
1. Loss of control
2. Proprietary natureof information (e.g.financial)
3. Organizationalresistance
4. Questionableperformance
5. No outsourcingexperience
6. Inadequateplanning
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Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 1717
Attributes of offshored jobs
No face-to-face servicing requirementHigh information content
Work process is telecommutable
High wage differential with similaroccupation in destination region
Relatively low set-up barriers
Low social networking requirement
Based upon these criteria:Based upon these criteria:
13 Million jobs in the US are13 Million jobs in the US are candidatescandidates for offshoringfor offshoring
a study by thea study by the UCUC--Berkeley Fisher CenterBerkeley Fisher Centerss Real EstateReal Estateand Urban Economics group estimatesand Urban Economics group estimates
Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 1818
ROI Information technology
150
4030
20
50
80
100+
Typical IT Scenario
Annual cost per programmer (US $ 000s)1
OnsiteEmployee
OnshoreConsultant
OffshoreDeveloper
Run rate savings are often 50%+ with overall net savings of 30%
NearshoreResource
1 Fully loaded cost including salary, benefits, space, and overheadcosts like transportation, cafeteria
OffshoreQ&A
OffshoreDocument
OffshoreArchitect
A 100 person Indian softwareA 100 person Indian software
development team can resultdevelopment team can result
in $5M savings per yearin $5M savings per year
50-80,000U.S.A.
28,000Canada
3-8,000China
5-10,000Russia
7,200Malaysia
6,600Philippines
7-12,000India
4,800Poland
Average programmer salaries
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Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 1919
ROI Selected business processes
Typical Customer Care ScenarioAnnual cost per Rep (US $ 000s)1
40
15
80
Onsite
Accountant
Offshore
Resource
Run rate savings are often 50%+
with overall net savings of 30%
Nearshore
Resource
Onsite
Employee
Offshore
Resource
Nearshore
Resource
Typical F&A ScenarioAnnual cost per employee (US $000s)1
30
10
50
33-35.00
23.35
17.86
15.17
13.17
12.57
US WageUS Wage
6.00 15.00Financial analyst
6.00 15.00Accountant
6.00 8.00Paralegal
1.50 2.00Payroll clerk
1.50 2.00Health record tech
< 1.00Telephone operator
India WageIndia WageOccupationOccupation
Comparative Hourly Wages
Source: Fisher Center for Real Estate & Urban Econ.
Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 2020
Emerging offshoring rationaleProcess innovation
US is historically better at product/serviceinnovation while resisting process innovation
Offshoring can expedite the development and useof process innovations
Example1: Engineering firm doing 3-D drawings offshorefor companies where their current US-based engineersare slow to adopt and useExample2: Preponderance of CMMI Level-5 certifications
Research & developmentSingapore is inshoring R&D while offshoring lessdemanding back-office and IT work
Sophisticated computer chip design being done inBangalore for Intel
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Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 2121
Offshore predictions (1)
Financial servicesAT Kearney: 8% of all FS jobs offshored (500K jobs) in banking,insurance, brokerage by 2008Gartner: FSPs IT outsourcing 9% CAGR 2001-06Deloitte: $356 Billion of costs for FS relocated offshore in nextfive years (two million jobs)
IT ServicesIDC: Offshoring will rise from 5 to 23% of all IT services by2007Gartner: Based on ITAAs 2003 count of 10.3M IT practitionersin the US, 500,000 IT jobs may go offshore from the US by 2004Brunswick UPS: Russian offshore application developmentmarket will exceed $1 billion by 2005Yankee Group: Yankee Group predicts world-wide IToutsourcing will grow 10-12% annually ($273.9 billion by 2006)
HRBaird: Growing at 10% CAGR reaching $55B by 2005 (currentlyat 5% of total HR spend); 509 offshoring transactions between1997 & 2003
Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 2222
Offshore predictions (2)Call centers
Call Center Consortium: Call center industry employs six millionpeople or 4% of the U.S.s 143 million civilian labor force
Datamonitor: India call center employment growth
PriceWaterhouseCooper: Canadas contact center sector had4,000 centers in 1995 and has 13,500 in 2002 continuing togrow at a rate of 20 percent annually for the next three years
Health careNew Horizons: Currently ~200 medical transcription firmsemploying around 6,000 transcribers; potential for employmentof45,000 transcribers by 2008
McKinsey: Healthcare administration costs estimated to be $350billion; IT-enabled services in healthcare would bring in revenuesof$4.6B to India by 2008
IDC: Total value of the integration and outsourcing market for thehealthcare industry is anticipated to be over$31 billion by 2004
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Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 2323
Offshore predictions (3)
GeneralNASCOM: The ITES (IT Enabled Services) /BPO (BusinessProcess Outsourcing) market is likely to touch $142bn (inIndia) in 2009 (against the current cost of US$532bn for theseservices); difference of $390bn represents net saving to theUS economy
Forrester: By 2015, some 3.3 million U.S. jobs and $136billion in wages will transfer offshore to countries such asIndia, Russia, China and the Philippines
IDC: Expects the BPO market to rise 11%, to $860 billion in2004; by 2006, the market is likely to hit $1.2 trillion
Gartner: Worldwide BPO market will grow at a compoundannual rate of9.2% over the next few years, reaching $178.5
billion by 2005; financial services will account for 33% of thetotal
Yankee Group: BPO would grow 12-20% annually to $500billion by 2006
Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 2424
Predictions qualificationsForresters 3.3M jobs by 2015
John McCarthy traveled to India in Apr/02, cameback studied BLS stats on 505 white-collaroccupations, made some assumptions about thevulnerability of jobs
IDCs 23% of all white-collar tech jobs filledoffshore by 2007
Survey of 8 technology executives
Michael Shirer (IDC spokesman) states the report
methodology was a little wobbly Wereworking on a more rigorous number.
Deloittes estimate of FSA offshoringBased upon a linear extrapolation of a selected setof FSA interviewees current plans for outsourcing
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Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 2525
The pipeline
Current outsourcing contracting underconsiderationSource: Outsourcing Institute survey (2003)
Assessment
57%
RFP
10%
Selection
12%
Governance
22%
Of those organizations considering outsourcing ofservices, overtwo-thirds havent yet outsourced
CFO Magazine and AMR Research found that 68.3% of companies(all sizes) already outsource some business processes; 63.6%
expect to do more
Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 2626
Not just a U.S. thing
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Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 2727
Some European predictionsCall Centers
Datamonitor: Outsourced call center agents in Europe has risen from58,000 in 1998 to a projected 127,000 by 2003
Financial servicesNelson Hall (UK): Life and pensions BPO market is currently estimated ataround 5bn, versus 500m five years ago
Amicus (UK): 200,000 finance sector jobs will be lost in Britain by 2008
Deloitte: 33% of the globe's major financial institutions are alreadyutilizing offshore outsourcing; 75% reporting they will be doing so in thenext 24 months
GeneralBooz-Allen Hamilton: Worldwide the outsourcing trend is growing at aCAGR of 25%
Gartner: 75% of European enterprises and the largest medium -sized
companies will consider offshore services by end-2004 (Britain currentlyleads Europe)
UK companies potential to outsource 46% more than current levels(2008) -- if they do UKs historic 28% productivity gap with its mainglobal competitors could be cut by 10%
Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 2828
Worldwide predictionsOutsourcing Industry Growth
38%38%
1.5%
26%26%
Onshore
outsourcing& shared services
Offshore
outsourcing
Captive
offshoring
CAGR
(2003-20
08)
Source: Tata
26%18235Captive offshoring
38%16417Offshore outsourcing
1.5%3,3643,304Onshore & sharedservices
CAGR20082001Category
USD Billions
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Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 2929
Legislative anti-offshoring agendas
1. Colorado - Senate: 04-169 and 04-1702. Connecticut - process of reintroducing3. Georgia - House: 12814. Indiana - House: 11015. Kansas - House 25246. Maryland - House: HB183 or HB1767. Minnesota - House - 18168. Missouri - Senate - 10299. Nebraska - LB122310. New Jersey - Senate: 49411. New York Assembly: A0956712. North Carolina Senate: 99113. South Carolina House: 443414. Vermont House: 647 and 702
15. Washington House: 3623 and 3686etc.
Source: Natl Foundation for American Policy
Public Law No. 108Public Law No. 108--199199
An activity or function of anAn activity or function of an
executive agency that isexecutive agency that is
converted to contractorconverted to contractor
performance under Office ofperformance under Office of
Management and BudgetManagement and Budget
Circular ACircular A--76 may not be76 may not be
performed by the contractorperformed by the contractor
at a location outside theat a location outside the
United States except to theUnited States except to the
extent that such activity orextent that such activity or
function was previously beenfunction was previously been
performed by Federalperformed by Federal
Government employeesGovernment employeesoutside the United States.outside the United States.
Over 80 bills introduced at the State or Federal level. To dateOver 80 bills introduced at the State or Federal level. To dateonly two have passed; Alabama & one at the Federal levelonly two have passed; Alabama & one at the Federal level
Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 3030
A different approach
OutsourcingOutsourcing
operationoperation
BAnBAnBA1BA1
OffshoreOffshore
OutsourcingOutsourcing
BAnBAnBA1BA1
OrganizationOrganization
BAnBAnBA1BA1
Standardized process
BAnBAnBA1BA1
Outsourced/Offshored
Outsourced/Offshored Process Innovation
Process redefinition Process redesign
Digital enablement
Sense-and-respond
KW empowerment
Intrapreneurship
BAnBAnBA1BA1
These are notThese are not
offshorable skillsoffshorable skills
Business Process Innovation
BAyBAyBAxBAx
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Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 3131
The bigger issues
Aging workforces (US, Europe, Asia)Shortfall of 10M workers projected by BLS for 2010By 2020Italy, Germany, Japan in far worse shape
Education85% of jobs require some post-secondary education
25% of students dont complete high schoolService-oriented economy requires innovationUS ranks 19th in 8th grade math rankings; 18th in science
Singapore, Korea, Asia in general, northern Europe, Canadawell ahead of US
Cost of business$18,000/worker for benefits
Highest corporate tax rates; highest litigation and liabilitycosts
LegislationThe dont call law displaced 10X more call centerworkers than offshoring
Richard Welke (Spring 2004) Technology Association of GA SIG: Outsourcing 3232
BPO: Scapegoat or Sea change?