
2/16


3/16


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


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


4/16


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


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


5/16


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


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


6/16


Scope migration

OrganizationOrganization OutsourcingOutsourcing

operationoperation

BAnBAn

OffshoreOffshore


BA1BA1 BA1BA1BAnBAnBA1BA1

OrganizationOrganization OutsourcingOutsourcing

operationoperationBAnBAn

OffshoreOffshore

OutsourcingOutsourcingBA1BA1 BAnBAnBA1BA1 BAnBAnBA1BA1

OrganizationOrganization

BAnBAnBA1BA1

e.g. HR


operationoperation

BA1BA1

e.g. Travel

OffshoreOffshore


e.g. Travelclaims

Increased process understanding

Increasedoutsourcingcapab

ility

Standardization

StandardizationCommoditi

zation

Commoditization


A deeper corporate issue?


operationoperation

BAnBAnBA1BA1

OffshoreOffshore


BAnBAnBA1BA1


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)


7/16


The next step Automation


operationoperation

BAnBAnBA1BA1

OffshoreOffshoreOutsourcingOutsourcing

BAnBAnBA1BA1


BAnBAnBA1BA1


BAnBAnBA1BA1

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?


Whats being outsourced

Currently

Currently

Consider

ing

Consider

ing

Large CoLarge Cos.s. Small CoSmall Cos.s.

Source:OutsourcingInstitute


8/16


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)


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


9/16


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


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


10/16


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.


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


11/16


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


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


12/16


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


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


13/16


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


Not just a U.S. thing


14/16


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%


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


15/16


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


A different approach


operationoperation

BAnBAnBA1BA1

OffshoreOffshore


BAnBAnBA1BA1


BAnBAnBA1BA1


BAnBAnBA1BA1


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


16/16


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


BPO: Scapegoat or Sea change?

Business Process Outsourcing Tag

Documents

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