Outsourcing: Deeper in the Value Chain

Historically, business process outsourcing (BPO) providers have focused on standardizing and streamlining operations, and running business functions better, faster, and cheaper. And while those improvements have been significant, companies can only pull the same levers of labor savings and process improvements for so long before the benefits begin to sound less impressive. It's no surprise that organizations are increasingly asking their outsourcing providers, "What else can you give me?"

That something else turns out to be the ability to use the wealth of business and operational knowledge accumulated from long-term outsourcing relationships - and experience with business functions across multiple industries and clients - to go deeper into a company's value chain.

While the emphasis on efficiency, standardization, and industrialization will continue, the next generation of outsourcing solutions will place greater value on deeper relationships, more extensive analytics based insights, and the scale and experience that a provider gains across multiple industries.

Outsourcing providers have sight lines across entire industries as well as across their clients' operations, including customers, global supply chains, business units, and decision-making structures. That means they can use their scale, analytics capabilities, and insights to help create innovations that can drive better decision making, continuous operational improvements, enhanced product development processes, and more profitable customer relationships.

So, what's the catch? In a word: Acclimatization. Simply put, what was once extraordinary has become less so as companies' comfort levels about what functions can be outsourced have increased. The key question being asked today is less "How much should we keep?" and more "How much can we assign to a provider that can perform processes for us better now and into the future?"

As organizations begin to focus on the new capabilities that can be acquired through outsourcing relationships, examples emerge of outsourcing providers moving deeper into their clients' value chains. In support of a health insurance company, one outsourcing provider employs a team of nurses that monitors the medical progress of patients who may be half-a-world away.

Analytics Advantage

Beyond the willingness of organizations to entrust more significant parts of their value chain to outsourcing providers, is the ability to increase business advantage based on the insights and innovations generated by external partners. The next generation of BPO isn't only about applying old tactics to new parts of the business; it's about new ways of capturing value. One way to do this is by using analytics capabilities to look across operational data, customer behaviors, and business results to see trends and capture insights that can fuel additional innovations and higher-level business improvements.

The European arm of a leading international manufacturer of imaging equipment, for instance, has attained value beyond efficient transaction processing, thanks to a long-term outsourcing contract that covers a range of finance functions, including accounts payable, cash posting, and fixed assets administration, as well as travel expense processing. As a result of its broader understanding of the business through extensive interactions across the finance department, the external partner is able to share insights and ideas, thereby influencing future direction and strategy.

An accounts payable analytics tool enables detailed transaction monitoring, automatically flagging exceptions during processing. Additionally, data from the company's ERP system is processed through a procure-to-pay analytics tool, enabling deeper understanding of working capital efficiency and process effectiveness within the end-to-end process. This analytics capability has enabled the organization to identify areas where additional business value can be delivered.

Industry Advantage

As outsourcing providers move deeper into client's value chains, they also go deeper into entire industries. This pan-industry advantage works in 4 ways:

• The Economic Factor - Outsourcing providers achieve optimum performance by standardizing and industrializing processes and then operating them efficiently. Engagements with several clients within an industry, therefore, give them the scale necessary to gain an edge when it comes to the execution of standard processes within that industry, such as mortgage processing or insurance claims management.
• The Amortization Factor - Internal teams may find it hard to garner funds to invest in new skills and technology. However a top-notch outsourcing firm is able to make the necessary investments more readily. That's because it can not only spread the cost across multiple engagements, but it also sees direct and measurable revenue streams accruing across multiple clients.
• The Knowledge Factor - By becoming entrenched in industry, an outsourcing provider gains unparalleled knowledge and creates specialized skills that are tough for clients to duplicate. They can build on their industry subject-matter expertise in a manner that cannot be matched by their clients, whose executives have a more limited exposure.
• The Risk Factor - Third-party service providers have the advantage of lessons learned from multiple implementations, and - while never entirely immune to the vagaries of economic and business cycles - they can shorten time-to-value and eliminate a great deal of the implementation risk that companies are unable to do.

Ultimately, the success of next-generation outsourcing engagements will be increasingly based on knowledge that is a product of building trusted relationships: Cooperative and collaborative behaviors, shared goals, the exchange of intellectual capital, and the applied use of analytics technologies to drive new levels of insight and innovation.

Michael J Salvino
The author is group chief executive,
business process outsourcing, Accenture
maildqindia@cybermedia.co.in