Creating a BPO Strategy: Why and Why Now?

The importance of business process outsourcing (BPO) on every organization's bottom line cannot be ignored; however, it is imperative to base outsourcing decisions on more than just cost savings. Business strategy should also be included in the decision process.

The business rationale behind BPO is that outsourcing saves money and focuses scarce management time and resources on a few core competencies. The list of outsourced functions grows daily and includes call centers, order entry, billing and collection, human resources administration, cash and investment management, tax compliance, internal audit, and payroll.

The real reason behind the surge in BPO is that companies are becoming more demanding. Cost-cutting and improved service levels are no longer the only result expected from outsourcing. These days, CEOs are demanding value. They want to see, and have come to expect, transformational change from their outsourcing efforts - from changing how human resources is managed to changing the way the supply chain operates. The ultimate goal is to link business performance to increased business value.

In BPO, the metrics that matter are business metrics. For example, the key metric for a bank is the cost to administer a mortgage every month. In the insurance marketplace, it is the cost per beneficiary per month that matters. For healthcare firms, the issue is the cost per member per month. These are the crucial business metrics for which the provider is measured and rewarded.

Some of the expected benefits from outsourcing are:

Cost reductions
Improved service quality
Superior competency
Access to leading technology
More freedom to focus on strategic activities
Increased shareholder value
Economy of scale
Shared risk
Our research tells us that the biggest cost gains and efficiency improvements from outsourcing tend to come from re-engineering organizational processes and implementing best practices.