WHY BUSINESS TRANSFORMATION OUTSOURCING? · PDF fileWHY BUSINESS TRANSFORMATION OUTSOURCING?...

IBM Business Consulting Services

WHY BUSINESS TRANSFORMATION OUTSOURCING?

Is revenue growth becoming increasingly difficult when balanced against cost containment objectives and resource constraints?

Do you have the agility to respond to changing market conditions?

Can you improve the customer experience and keep the bottom line in check?

Do you have the internal skills to successfully manage change?

Is your runway short to realise the benefits of changes required?

Do you have the funds to support your growth initiatives?

An introduction to Business Transformation Outsourcing from IBM

IV IBM Business Consulting Services

BP PURSUES MERGER AND ACQUISITION STRATEGY WITH BTOTo maintain its focus on strategic issues and clients during an aggressive merger and acquisition program, BP employed a BTO solution in 1996 for finance and administration. The scope included managing accounting transactions, performing financial reporting, ensuring compliance and providing decision support.

The BTO service has reduced costs by 30%, improved the quality of accounting and increased the transparency around F&A processes.

PROCTER & GAMBLE EMBRACES CONTINUOUS TRANSFORMATION WITH BTOProcter & Gamble adopted a BTO solution for its internationally admired and industry best practice human resource (HR) function to ensure it would continue to be at the leading edge. With an HR function already at leading practice, the challenge of gaining the next level of process improvement and cost reduction led Procter & Gamble to partner with IBM to provide HR services to its 98,000 employees across 80 countries.

NEXTEL’S STEP CHANGE IN CUSTOMER SATISFACTION WITH BTOTo make the immediate and large-scale changes required to address above industry customer churn rates – which was causing customer acquisition, service and retention costs to escalate – Nextel initiated a touch point strategy and implemented BTO for CRM as part of the solution. Contracting CRM processes to IBM in partnership with TeleTech in 2002 saw Nextel’s standing with customers rocket to the top of overall customer service. Nextel also derived significant upfront cost savings and expects to reduce costs by 46%, saving US$1billion, over eight years.

EXECUTIVE SUMMARY

As a business leader, you face more challenges than ever from competitors, customers, shareholders and regulators. Your business needs to grow revenues, become more agile in the face of competitive and market pressures and provide customers with optimum service.

The change management approaches of the past two decades have largely been exploited. Cost reduction and competitive positioning in the 1980s, process improvement and re-engineering in the early 1990s and enterprise resource planning, customer relationship management and Web technologies of the late 1990s have all but run their course. Creating value today means transforming your organisation into a focused, responsive, variable and resilient business.

Executing the strategies required to achieve these characteristics for your business can be challenging. Many organisations simply do not have the change management capability and resources required, and so are looking to leverage the expertise and scale of a partner who has a comparative advantage in operating key business processes that are key to the organisation’s broader strategic agenda.

With IBM Business Transformation Outsourcing (BTO), your organisation can make the large-scale changes you need to support growth, cut costs, manage risk, increase agility and develop the necessary capabilities to be competitive.

In a BTO contract, IBM commits to the continuous strategic change and operation of the client’s business processes – integrating people, process transformation, the associated applications and the information technology infrastructure. In addition, the BTO team works with the client to integrate business processes back into the client organisation, thus delivering faster, more successful and enduring business transformation. The results are measured against agreed business outcomes and the accountability for delivering those results rests with IBM.

WHY SHOULD I CONSIDER IBM BTO? You want to drive revenue growth by differentiating your products or

services and attacking new markets while cutting costs and reducing risk exposure.

You want to become more agile and respond in real time to competitive pressures and consumer demands.

You want to improve the customer experience to maximise the value of your best customers and differentiate your company from its competitors.

IBM Business Consulting Services 3

4 IBM Business Consulting Services

THE NEED FOR TRANSFORMATION

The environment in which your business operates is constantly shifting. There are macro-level shifts such as changes in consumer dynamics and workforce demographics that business leaders need to plan for in the long-term. There are advances in technology that threaten to make whole business models obsolete. There are world events that can’t be predicted. And there is the everyday micro-level dynamics of your industry and market.

In order to deliver the growth that markets demand, business leaders are under pressure to introduce new or differentiated products and services to their existing customers and open up new markets. Facing increasing competitive pressures, you need to keep existing customers happy and leverage your relationships with loyal customers to maintain or gain market share.

In short, many businesses need to execute new strategies. Yet the IBM Global CEO Study 2004, a survey of 456 CEOs of leading companies around the world, found that the largest barrier to change within businesses was a lack of internal capabilities and the leadership resources to manage the execution of transformational projects. Less than 20 percent of CEOs surveyed said their business had a very strong internal capability to respond continuously to changing business conditions.

Business leaders are also feeling the pressure to shift their business focus quickly. More than 90 percent of CEOs surveyed expected they would need to execute their new strategy within five years and almost half thought it would need to be within two years.

Certainly these challenges are not new, although the combination of factors is unique to today’s business world. What is new is the innovative way we can now integrate technologies, people and processes.

In particular, the emergence of vastly inter-networked computing systems based on open standards is leading to the development of a new business and technology architecture. Services can be delivered from global networks and can be provided as easily by a business partner as internally.

In addition, the level of sophistication in skills sourcing and optimisation has reached a point where businesses can acquire the capabilities to execute a more flexible business model through the selective use of business partners.

At IBM, we call this Business Transformation Outsourcing.


WHAT IS BUSINESS TRANSFORMATION OUTSOURCING?

Business Transformation Outsourcing is a new approach that helps IBM’s clients rapidly transform towards a more agile, growth-oriented and customer-focused business model.

IBM Business Consulting Services has invested years of research and resources into developing its capabilities in Business Transformation Outsourcing. IBM continues to strengthen its existing capabilities in BTO, evident through its recent investments: IBM Daksh Business Process Services, Equitant and Liberty Insurance Services. These acquisitions expand IBM’s capabilities in contact centre optimisation, finance and administration (F&A) transformation services and life insurance and annuity processing and administration.

At its simplest, IBM BTO is about delivering improved revenue and cost efficiency by contracting a strategic business partner to handle the operation of an organisation’s business processes, applications and information technology infrastructure. The market has seen the strongest demand for BTO in customer relationship management, human resources, finance and administration, and procurement which is where IBM has focused to date. There are several reasons why these particular functions are good candidates for BTO. For one, these functions often inhibit the execution of strategies. As integral components in the value chain, a lack of capability and inefficiencies in these processes can cause roadblocks.

On a more complex level, it’s about operational excellence, innovating and transforming processes, change management, improving customer, employee and supplier satisfaction while reducing costs, and evolving into a lean, resourceful and more responsive business. It is a vital tool in executing change.

IBM BTO makes large-scale change projects more likely to succeed, increases the speed of change and creates an environment that promotes continuous improvement after the transformation.

Traditional business process outsourcing focuses on cost cutting. It takes an existing process, as is, and moves it somewhere else, achieving cost savings by leveraging the scale of the business partner and often through labour arbitrage.

Such one-off cost reductions may have satisfied the market when cost-cutting was the fashion. However, it becomes increasingly difficult to squeeze continuous improvements from the process once it has been outsourced. It is even harder to grow.

Extended EnterpriseContinuous strategic change

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Process EnhancementProcess improvement

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Cost reduction Cost take out

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Return on Investment


IBM BTO delivers a combination of outsourcing and transformation services to improve your organisation’s processes, people and technology. BTO may involve changing organisational structures, designing and developing new infrastructure or re-designing and automating business processes. These transformation steps are designed to create a more responsive, variable, resilient and focused organisation. BTO can also generate both short-term cost reductions and long-term returns. The results are measured against agreed business outcomes such as increased revenue, market share, profitability and share price.

As an aggregated, business-wide service, IBM BTO allows you to retain strategic control of your processes while improving their transparency and the granularity of information you receive. Work doesn’t need to be sent offshore to save money, although this is certainly an option to consider. Because very significant savings come from technology, people and process transformation, IBM BTO can be done in the same country and even on the premises if appropriate.

WHERE DOES THE VALUE COME FROM? Business transformation. Growing revenue. Automating and

re-engineering processes for improved productivity, quality and customer experience. Eliminating wasteful processes. Effective use of technology to support your processes.

New operating models. Transforming your organisation’s structure and way of working. Becoming more responsive to market conditions and customer needs.

Continuous improvement. Using the Six Sigma methodology for ongoing extension of skills and productivity. Lower technology refresh costs. Variable pricing models.

Lower cost. Using the large-scale and global resources of IBM’s operations to reduce costs.

Variable costs. Converting indirect fixed costs to direct variable costs.


Today, CEOs and other top executives face a complex set of challenges in setting their organisational strategy. Financial markets are now as interested in companies that can demonstrate revenue growth as those that can lift profitability through cost cutting.

But, while emphasising new growth, business leaders still have to juggle all the other aspects of running a business such as risk management, optimising capital investment and providing greater levels of transparency. Cost control may not be the number one priority, but it remains essential. And as always, the market wants results fast.

Agile organisations can release funds by reducing their spending on selling, general and administrative (SG&A) expenses. These are part of the cost of doing business and support vital business functions such as customer relationship management, human resources, finance and administration and procurement. By streamlining these functions and turning fixed costs into variable ones, your organisation can release significant funds towards achieving its growth strategy. Transforming processes to unlocking capability is also key to delivering on your growth agenda.

Using tightly integrated strategic solutions to manage selected activities, IBM BTO can support this growth agenda by:

Freeing up funds to allow investment. The money your organisation saves through transformation and outsourcing can be directed to sustaining competitive advantage.

Infrastructure that can scale to meet demand. IBM BTO provides a flexible new business model with supporting infrastructure that can rapidly adapt to changes in market conditions.

Unlocking new capabilities. Involving a partner who brings comparative advantage in operating and transforming processes means new capabilities can be obtained.

Reducing the risk of implementing large-scale change. Leveraging IBM’s expertise and track record in running large-scale change projects increases the chances your transformation will be successful. IBM is accountable for operating business process, applications and infrastructure, as well as managing the transition. The expected business results are agreed upfront and incorporated into the contract.

Rapid implementation. IBM’s experience and delivery capability significantly reduces the time taken to realise benefits.

Continuous improvement. Unlike business process outsourcing, which provides a one-off cost saving, IBM BTO includes a continuous process of benchmarking and innovation that constantly pushes the boundaries of previously set standards.

As an example, Mitsui Life Insurance, one of Japan’s largest insurers, used IBM BTO to lower its costs of administration. The insurer digitised all its paper-based forms and implemented workflow technology. This in turn allowed more funding to be focused on increasing sales performance. The insurer is overhauling its customer centre systems and supporting CRM infrastructure, promoting a more tailored approach to individual customers.

PAVING THE WAY FOR GROWTH


INCREASING AGILITY WHILE STAYING ON TARGET

As a business leader, you need to recognise, analyse and respond more effectively to continuously changing market conditions and risks. Many organisations have made agility a high priority. Yet, according to the IBM Global CEO Study 2004, very few organisations rate highly their ability to respond to these shifts and external forces.

We believe the key to success is developing a flexible business strategy that allows you to stay on target while taking into account the dynamic market environment. This model must be responsive to changes in the marketplace, have variable cost structures to deal with regular ups and downs, be resilient to sudden shocks and remain focused on those activities that give your business competitive advantage. At IBM, we call this an on demand business.

By increasing business agility through a flexible business model and an adaptable IT infrastructure, IBM BTO lets your organisation become more responsive to the dynamics of the market, customers and competitors. This is increasingly critical as companies extend their value nets and more tightly integrate partners, suppliers and customers into their processes.

IBM BTO maximises business flexibility by matching costs dynamically with revenues. IBM BTO enables an organisation to adapt cost structures and business processes flexibly through:

Margin improvement. Your organisation can reduce SG&A expenses through cost structures that can scale to meet peaks and troughs in demand.

Capital optimisation. By leveraging the resources of a partner like IBM, you can gain all the benefits of transformation while reducing your capital requirements by paying for what you use, not what you need to have available.

Risk management. Shifting fixed costs to variable ones, your organisation can reduce its risk exposure by minimising its investment in inefficient assets and reducing the amount of debt required to finance them.

Revenue growth. Putting in place an infrastructure that can respond rapidly to changes in the market environment allows your organisation to introduce new products and services faster and with greater success. You can keep existing market share and focus on expanding into new markets and gaining new customers.

For example, global conglomerate United Technologies centralised its procurement systems with an IBM BTO solution. Orders and payments now flow through a common system, maverick buying has decreased, stock inventory has been reduced or eliminated, contract compliance has increased and real-time visibility to transactions and data has allowed greater control over spending. This made the supply chain more responsive to market shifts and significantly reduced costs.


IMPROVING THE CUSTOMER EXPERIENCE

The majority of CEOs believe a vital element of any growth strategy is becoming more responsive to customer needs, according to the Global CRM Study 2004 conducted by the IBM Institute for Business Value. The survey found that in order to achieve product differentiation, businesses should increase the voice of the customers by involving them in the process of designing products and improving service quality.

Responsive companies need to capture customer details, needs and preferences and use this information to make swift decisions. IBM’s approach to customer relationship management outsourcing uses a multi-channel customer contact process. This provides differentiated customer care, reduces costs through increased self service and generates revenue through cross-selling, up-selling and better customer retention.

IBM BTO Customer Relationship Management (CRM) can transform your organisation’s customer facing processes and supporting infrastructure to create:

Service as a sustainable differentiator. Through IBM BTO CRM, your organisation can create a customer-driven service model that has the flexibility to respond swiftly to customer requirements. The customer service centre becomes a “centre of excellence” providing a sustainable competitive advantage.

A customer-responsive organisation. IBM BTO CRM enables a flexible customer-focused business model outside the restrictions of your current structures and ways of working.

A better experience for customers. By transforming the management of customer interactions through IBM BTO CRM, your organisation can focus on understanding and improving each step in the customer experience cycle. All the “breaks” in the cycle are mended and “makes” extended to create an outstanding customer experience.

For example, Sprint is a global integrated communications provider that used IBM BTO to transform its customer service. The BTO project encompassed eleven transformation projects in areas such as customer experience, revenue generation, marketing integration and HR processes. Sprint has improved customer satisfaction through better customer segmentation, more efficient call routing, reduced call handling time and a higher rate of first-call resolution. Sprint also expects to save about US$550 million over the next 3 years.

“ Business Transformation Outsourcing will help us dramatically improve customer satisfaction and provide innovative services to our clients. IBM’s BTO operating model incorporates leading practice capabilities and the flexibility to easily scale in line with our business requirements” – Johnson Controls Australia


WHERE TO START?

For some companies, knowing where to start is clear however many others find it difficult to determine just where to start. The first step in the IBM BTO journey is to understand the components within your business model and how each component interacts.

Once you understand the structure of your business, you can decide which components give your organisation the greatest competitive advantage and which need to be improved. Of those that need improvement, you can decide whether to invest in-house in making them world class or whether to buy that capability from an experienced provider.

IBM Business Consulting Services uses Component Business ModellingTM to assist you with this analysis.

Component Business Modelling allows you to:

1. Identify the components of your business. Using a tailored model for each industry, Component Business Modelling divides your organisation into a unique set of components. This is an important first step towards transformation because it allows the changes in business processes and technology infrastructure to accurately reflect the structure of your organisation.

2. Distinguish between differentiating and operating components. Having broken your business into components, you can now understand which business processes really help you differentiate your organisation from the competition and which are simply the things you have to run to maintain the operation of your company.

3. Analyse the costs. The next step is to identify components that require high capital outlays, are high cost or are both high capital and high cost.

4. Choose components for transformation. As a result of viewing the organisation in multiple dimensions, you can identify components that need to be transformed to maintain competitive edge. Components that you decide can be better serviced by buying in world class expertise as opposed to developing in-house capability are prime candidates for IBM BTO. These typically include customer relationship management, human resources, procurement and finance and administration.

MYTHS ABOUT BTO Work has to go offshore. Unlike business process outsourcing, which derives much of its value from cutting

labour costs, much of the value created by IBM BTO comes from transforming your processes and the technology that supports them so the jobs can stay in the country or even onsite.

People will always need to be fired. The IBM BTO model is flexible enough that staff can be retained onsite if that is required. Often, local employees are freed up from administration to focus on front-office tasks. Also, our experience has been that some staff experience improved career opportunities as part of the IBM BTO organisation.

We will lose control. IBM BTO provides greater levels of transparency and granularity of information about your business processes than you are likely to have had while running them yourself.

We won’t save money. By combining process transformation with the latest technology and advanced outsourcing techniques, IBM BTO ensures your company can save money in several different ways. The cost savings and the expected business results are agreed upfront and a gain sharing contract commits both companies to continuous improvement.

It’s too risky. IBM has the experience in change management, global scale and financial resources to reduce the risk your company faces in implementing large-scale change.


IBM BTO OFFERING

In 2002, IBM acquired PricewaterhouseCoopers Consulting to create IBM Business Consulting Services (BCS). IBM BCS uses innovative ways to help companies unlock value faster by challenging assumptions and delivering new answers. We stand behind our advice and execute what we recommend to ensure real business outcomes with far reaching impact and sustainable results.

IBM BCS has invested in developing strategies such as Component Business Modelling to help companies find out where they can start with IBM BTO and develop a roadmap for long-term change. We have also developed capabilities in change management and delivering service excellence. We have continued to acquire capabilities where it made sense to, such as the mergers in 2004 with BPO provider IBM Daksh Business Process Services and insurance processing firm Liberty Insurance Services and most recently Equitant.

IBM has a global network of more than 20 delivery centres that deliver consulting services and business process solutions to IBM clients. In the Asia-Pacific region we have a total of eight centres in The Philippines, Australia, Japan, China and India.

We continue to invest in innovation to drive advances in technology and infrastructure that allow businesses to integrate processes and become more responsive to change.

Our Business Transformation Outsourcing services can help your business capture the next wave of value creation. IBM BTO services go far beyond the limited role of trimming costs and make outsourcing a strategic element in business transformation.

Communications

John MontgomeryPhone: +61 2 9478 8899 Email: [email protected]

Industrial

Michael DevlinPhone: +61 2 8514 6234 Email: [email protected]

Financial Services

John PapatheohariPhone: +61 3 9626 6307 Email: [email protected]

Public Sector

Michael DixonPhone: + 61 3 8646 5666 Email: [email protected]

Distribution

Michael VenterPhone: +61 2 9397 8728 Email: [email protected]

Small to Medium Business (SMB)

Michelle BendschneiderPhone: + 61 3 8645 5127 Email: [email protected]

GETTING STARTED

If you wish to understand more about Business Transformation Outsourcing and how to get started please contact our BTO Partner Australia /New Zealand: Peter Monk on +61 2 9397 8726 (Email: [email protected]) or one of our sector leaders below.

© Copyright IBM Australia Limited 2005 © Copyright IBM Corporation 2005

IBM Global Services IBM Centre Level 13, 601 Pacific Highway St Leonards NSW 2065 Australia

Produced in Australia 04/05 All Rights Reserved

IBM, the IBM logo, Component Business Modelling and the on demand business logo are trademarks or registered trademarks of International Business Machines Corporation in the United States, other countries or both.

Other company, product and service names may be trademarks or service marks of others.

References in this publication to IBM products and services do not imply that IBM intends to make them available in all countries in which IBM operates.

ibm.com/bcs/au

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