The Future of Business Process Outsourcing

1
The Future of Business Process Outsourcing
2
The BPO Hype Cycle

• Rising investments
• Explosion in of new entrants
• Market confusion
• Valuation spikes
• Market CAGR estimates range from 50 - 80 for
  the next five years

Source Gartner Group, The Hype Cycle for IT
Services, June 6, 2003.
3
Long-Term Business Pressures Drive More
Outsourcing
4
Moving Up the Value Chain
Source Edelweiss Capital, Business Process
Outsourcing Coming of Age?, May 2003
5
The Evolution of BPO Models
Commodity Offshore BPO Example GE Capital
(Payroll Services)
Transformational Offshore BPO
Offshore
Transformational Onshore BPO Example
Sabre (Travel Services)
Commodity Onshore BPO Example CSC, EDS (IT
Services)
Onshore
Commodity BPO
Transformational BPO
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Approaches to BPO
Bottom-Up Approach

• Top-Down Approach

Niche vertical apps

• Growth Opportunity
• Identify complex processes that require industry
  / domain expertise
• Build differentiated competencies that boost
  market position

• Leverage
• Deep process expertise in vertical industries
• Trusted partner relationships and reputations

High-volume vertical processes

• To Create
• Highly customized, industry-specific services
• Long-term differentiation / competitive advantage

• To Create
• Best-of-breed commodity services
• Immediate cost savings
• Flawless process execution

Broad shared services

• Growth Opportunity
• Leverage outsourcing competency to reduce costs
  and boost performance throughout value chain
• Consider retailing services to competitors

• Leverage
• Economies of scale
• Labor arbitrage opportunities
• Industry best practices

Simple bulk transactions processing
Source Cognizant Analysis of Forrester Research
Report BPOs Fragmented Future, August, 2003.
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Emerging Offshore BPO Opportunities
Banking / Financial Services
Insurance
Healthcare
Other Verticals

• Transaction processing
• Credit Card / Check processing
• Loan processing
• Mortgage processing
• Collections

• Insurance application processing
• Claims processing adjudication
• Member management services

• Medical billing
• Claims processing adjudication
• Member management services
• Medical transcription

• RD
• Equity Research
• Clinical Trials
• Revenue Accounting (Airlines)
• Engineering Design
• Architecture

Sales and Marketing Contact centers,
telesales/telemarketing, customer care, web sales
and marketing, market analysis
Human Resources Payroll processing, benefits
administration, HR administration
Finance and Accounting Accounts receivables /
payables / general accounting, financial
reporting, shareholder services
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Possible BPO Structures
Pros
Cons
Outsourced Service

• Can get going quickly
• Lower client management overhead

• Higher ongoing PL cost vs. alternatives
• Limited value creation potential for client
• Less control

Service Arrangement

• Eases entry into offshore operation with
  experienced partner
• Lower long-term cost
• Complete control

• Limited value creation (captive)
• No ownership Day 1
• Retention
• Only 2nd tier partners

Build Operate Transfer
Service Management

• Leverage partners offshore infrastructure and
  experience
• Ownership Day 1
• Lower costs (initial and long-term)

• Limited value creation (captive)

Joint Venture

• Leverage partners offshore infrastructure and
  experience

• Value creation opportunity (if non-captive)
• Exit issues

People Investment
9
Offshoring and Reengineering Can Lead to Dramatic
Performance Improvements
10
Opportunity for Value Creation - FDC
(FORMERLY AMEX INFORMATION SERVICES)

• LOB
• Bank card processing/ receivables
• Telemarketing services
• Mutual fund services

• Highlights
• Provides bank card processing, payment products
  for Mastercard, Visa, American Express, and
  numerous private-label cards
• Recent expansion in receivables management
  (American Creditors Bureau, Ingram)
• Provides inbound and outbound telemarketing
  services and, through joint venture with ATT,
  interactive services for 800/900 telephone
  industry
• Manages the processing for 20 million mutual fund
  shareholder accounts

• Results
• 2002 Revenues 7.636 billion 2002 Earnings
  1.238 billion
• AMEX sold 40 million shares (40 ownership) in
  early 1992 for 22/share recently traded at
  160/share (split-adjusted)
• AMEX further reduced stake to 22 through second
  offering worth approximately 1 billion in 1993
• Acquired FFMC (August 1995) for expanded
  operation and greater economies of scale
• Finalizing acquisition of Concord EFS

Source FDC annual reports industry articles
Datamation
11
Cognizants Initial Approach
Transformational Outsourcing
Clients
Cognizant
Joint Analysis

• Industry Value Chain
• Industry Competitive Forces
• Company Core Competencies
• Business Strategy
• Company Outsourcing Readiness

• Excellence in Offshore Recruiting/People,
  Processes/Infrastructure
• Excellence in Delivering High-quality Services
  Remotely
• Established Market Leader in the India Space

• Deep Process Experience
• Deep Industry Expertise

• Strategic Outsourcing Decisions
• Highly Customized Service Offerings
• Long-term Competitive Advantage

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Strategy To Drive BPO Decisions
Feasibility Assessment
Scope
Discovery
Analysis

• Inventory key business processes and current SLA
  parameters
• Catalog support technology platform requirements
  and skill sets of support staff

• Identify root drivers of process costs and
  inefficiencies
• Gather transaction volume data and model across
  processes
• Map underlying support systems

• Determine BPO structure model
• Identify pilot
• Determine resource requirements
• Identify changes to support process in
  onshore/offshore model

• Determine cost savings per business process based
  on task migration and improvement
• Identify costs of process migrations
• Identify any key sequencing needs

• Undertake a BPO strategy assessment to determine
  which processes to outsource, financial impact
  and implementation plan

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Cognizant Service Offering

• Cognizants Business Technology Consulting Group
  in concert with its vertical practices, works
  with clients in BPO strategy engagements
• These engagements last from 8-12 weeks, depending
  upon scope typically deliver
• An assessment of suitability of select business
  process outsourcing based on economics,
  integration with other processes, systems and
  skill requirements
• A step-by-step plan for creating a BPO operation
  that mitigates risk and provides senior
  management focused measures and controls for BPO
  management
• For for information, contact
• Kaushik Bhaumik
• VP, Business Technology Consulting
• [phone]
• Kaushik.bhaumik_at_cognizant.com