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Transcript of Thanks to these Gold Level Sponsors:
Thanks to these Gold Level Sponsors:
Presents:The Economics of Managed Outsourcing
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Performance Interim IT Management Instructional Design & Training Merger & Acquisition and
Divesture Services IT Quality Management
Established in 1981, Horn Murdock Cole is a national professional services firm providing non-attest accounting, tax, finance and corporate governance services with a staff of over 1,100 experienced professionals.
HMC is an Accretive Solutions, Inc. company.
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The Economics of Business The Economics of Business Process Outsourcing:Process Outsourcing:
Measuring the potential impact for Measuring the potential impact for high technology organizationshigh technology organizations
Don Campbell – President/CEO Virtual Management Technologies
Tom Savini – CFO AirDefense
Mike Drapeau – President The Drapeau Group
Karen Cobb – Small Business Advocate Administaff
Scott Kriscovich – Market Leader Horn Murdock Cole
Mike Janis – Senior Vice President The Hackett Group
Topics Today:+ The state of the BPO market + The key benefits of BPO+ The impact of BPO on stages of
growth+ The financial impact of BPO+ Guidelines on what functions to
outsource
Digital Health Group
BPO Terminology:+ Business Process Outsourcing: “leveraging of technology
or specialist process vendors to provide and manage an organization's critical and/or non-critical enterprise processes and applications”
+ Outsourcing: “delegation of non-core operations to a third party”
+ Offshoring: “delegation of non-core operations to a third party in another country”
+ Insourcing: “importation of knowledge worker talent to an organization (often used in economics to depict inflow of talent or exchange of talent among countries)”
The BPO RevolutionThe BPO Revolution
Broadband Internet
Broadband Internet
BusinessSpecialization
BusinessSpecialization
EducationalAttainment
EducationalAttainment
InexpensiveData Storage
InexpensiveData Storage
Online Analytical Processing
Online Analytical Processing
Internet SecurityInternet Security
BPO Drivers
Essentials of Business Process Outsourcing Thomas N. Duening, Rick L. Click 2005
BPO is a $400 billion business (Plunkett Research Ltd.)+ Largest sectors:
– Logistics, sourcing and distribution services – Information technology services
– Creation of Software– Computer Center Management
– Call centers– Financial transaction processing– Human resources management
Outsourcing for small to mid-size companies:+ Market value >$15 Billion (Gartner) + Cost savings ranging from 10-40 percent + Advantage: Level the playing field (cutting operational costs
and leveling the playing field)+ Challenges:
– Selection process– Negotiating contract– Managing the ongoing relationship– Measuring the business value– Security and privacy
“In 2005, according to the findings in the report, Georgia outpaced the national growth rate for total high-tech establishments with a 2.2% increase vs. the 1.8% national growth rate.
The state also posted impressive gains in total high-tech payroll growth with a 6.2% gain vs. the 6.0% realized nationally.”
Tino Mantella
President,TAG
State of the Industry Report, 2006
Why do organizations outsource?
• Gain access to expertise• Allow staff to focus on core business • Get rid of routine work • Reduce internal organizational costs• Reduce growth risk• Increase flexibility
corecore
What is the core of your business?
• Patentable technology
• Intellectual property
• Manufacturing process
• Software logic
• Business process
corecore
HRHR
MFGMFGSCMSCM
ITIT
What can be outsourced beyond your core competency?
• Finance
• Human Resources
• Marketing
• IT
• Supply Chain Management
• Call Center Operations
When should you outsource? Ask these questions:
• Is the function strategic to running the business, or is it a Is the function strategic to running the business, or is it a commodity? commodity?
• If the function is strategic, it should not be outsourced. If the function is strategic, it should not be outsourced.
• Is the function large enough to warrant outsourcing? Is the function large enough to warrant outsourcing? • If the function is too small, the company may not get enough If the function is too small, the company may not get enough leverage from the outsourcing relationship. leverage from the outsourcing relationship.
• Can the function be easily reproduced off site? Can the function be easily reproduced off site? • If it is too unique, outsourcing may not work.If it is too unique, outsourcing may not work.
• Do you have the data necessary to write an intelligent contract Do you have the data necessary to write an intelligent contract with measurable objectives? with measurable objectives?
• Can you manage the outsourcing relationship?Can you manage the outsourcing relationship?
Is BPO working?
+ 80% of companies claim that outsourcing has increased their competitiveness
+ 87% of companies say that by outsourcing services have helped in improving the quality of their internal processes
+ 77% of companies say they could see a significant drop in their process cost by outsourcing
NOA/NelsonHall, 2006
ROINet Margin
Sales per EmployeeInventory Turns
ROIGross Revenues
Market ShareCustomer Acquisition Cost
Cost Reduction BPO Strategic BPO
Financial Performance Metrics
Essentials of Business Process Outsourcing Thomas N. Duening, Rick L. Click 2005
Total Cost Management
Total Cost Management
Analyze Opportunity
Select Vendor
Develop Contract
Transition
Operate
Direct Costs
Hidden Costs
OpportunityCosts
BPO Total Cost Management
Project Phases Project Costs
MitigatesResults in
Essentials of Business Process Outsourcing Thomas N. Duening, Rick L. Click 2005
Hype Cycle
A Hype Cycle is a graphic representation of the maturity, adoption and business application of specific technologies.
Gartner Group
On the Rise:+ Knowledge Process+ Core Banking+ Direct Procurement BPO+ Payment Service BPO+ Insurance Closed-Book BPO+ Multifunction CRM BPO+ Comprehensive Finance and Accounting+ Accounts Receivable BPO+ Revenue Cycle Management
At the Peak:+ Comprehensive HR BPO+ Mortgage origination+ Accounts Receivable BPO+ Payment Services BPO+ Global Contact Center
Sliding into Trough:+ Billing BPO for Telecom+ Tele-radiology
Climbing the Slope:+ Contact Center BPO+ Payroll Outsourcing+ Benefits Administration+ Transaction Print Services+ Billing BPO
Entering the Plateau+ Telesales/Telemarketing+ Credit Card Processing
Gartner Group
BPO: Focus on Finance and Administration
Industry Best Practices:
“Finance Shared Services to drive Cost Savings of Over 20%”
“Offshoring of Back-Office Functions Could Generate $58 Billion in Annual Savings for Fortune 500”
“Despite the Hype, Few Companies Outsourcing Finance While Shared Service Centers Remain the Preferred Option”
“Outsourcing Increases HR Costs at Typical Companies, While World-Class Use it to Cut Transaction Processing Costs”
“World-Class IT Organizations Spend Less Yet Deliver More – Effective Outsourcing Among Success Factors”
Accounting and finance BPO: - 9% of total outsourcing market in U.S. - Growing at 11% annually
Benefits Management
What Finance Functions are Outsourced Today?
51
49
38
28
26
22
8
Payroll
Claims Administration
Tax Compliance
Internal Auditing
Sourcing Procurement
Finance/Accounting
Research: Yanlelovich Partners for PwC
Drill Down: Accounts Payable Functions
Outsourcing is a leading strategy• Enterprises that outsource reported cost savings approaching 10% for all invoice processing• 20% of enterprises currently outsource some part of their A/P operations• Another 15% intend to outsource in the near-term
A/P Automation offers compelling returns but is not widely adopted• Paper invoices cost between 68% - 76% more to process• 22.7% of invoices are received electronically• 35.4% of invoices are paid electronically
Measuring BPO ROI
Essentials of Business Process Outsourcing Thomas N. Duening, Rick L. Click 2005
High
HighLowLow
High Cost / Low Productivity
High Cost / High Productivity
Low Cost / Low Productivity
Low Cost / High Productivity
Hi
Hi
Hi
Hi
Lo
Lo
Lo
Lo
Mission Criticality
Mission Criticality
Mission Criticality
Mission Criticality
AccountingAccountingMarketingMarketing
ShippingShipping EDIEDI
ITIT
Productivity
Cost
BPO Selection Matrix – Manufacturing Co. Example
Source: Strassmann Inc.
Cheaper, But Not Better OUTSOURCED WORK as a percentage of sales
Comparison of Outsourcing Ratios for 1,100 Firms
Median ratio for high-ranking half
Median ratio for low-ranking half
Top-ranked 277 firms by return on shareholder equity(median ROE = 18.0%) 49.1%49.1% 54.6%54.6%
Bottom-ranked 277 firms by return on shareholder equity(median ROE = minus 55.4%) 71.1%71.1% 83.2%83.2%
Source: Strassmann, Inc.
Where do you go Where do you go from here?from here?
The New Shape of Business:+ Common business processes will
continue to standardize+ Technology platforms supporting
these processes will standardize – especially in software
+ The cost of BPO – as measured by transaction fee – will drop as standardization occurs
+ Organizations will gain competitive advantages earlier in the their life cycle
+ The definition of an organization’s ‘core’ business will be refined and narrowed
High tech companies should High tech companies should compare the investment compare the investment necessary to improve their necessary to improve their capabilities in the function vs. the capabilities in the function vs. the amount they would pay an amount they would pay an outsourcing partner for the same outsourcing partner for the same level of capability.level of capability.
Summary and Takeaways:+ Understand your ‘core’+ Keep your knowledge close+ Consider outsourcing non-core or non-
critical processes+ Be pragmatic in analyzing your options+ Understand your cost structure – at
transaction level+ BPO should add value, not just reduce
costs+ A BPO relationship is strategic+ Use industry metrics+ BPO is not a panacea+ Always apply good management
core
HR
MFGSCM
IT
Don Campbell – President/CEO Virtual Management Technologies
Tom Savini – CFO AirDefense
Mike Drapeau – President The Drapeau Group
Karen Cobb – Small Business Advocate Administaff
Scott Kriscovich – Market Leader Horn Murdock Cole
Mike Janis – Senior Vice President The Hackett Group
Thanks to these Gold Level Sponsors: