Business Process Services: Redefining Business Process Outsourcing

For many years, businesses have approached business process outsourcing as a simple cost play – valuable, but limited in impact.

A more structured approach is now emerging that infuses key business activities with technology levers to help organizations more precisely manage rule–based tasks and continuously increase process effectiveness and efficiency.

When most companies think about business process outsourcing (BPO), they rarely think about process optimization. They reflexively engage in tactical thinking. Perhaps it's a provider moving routine work offshore, taking over system management or leveraging economies of scale in procurement. These “better, faster, cheaper” projects have their place in keeping the business trim – but they are not transformative initiatives that help organizations thrive in times of change. It's time for a wider definition of BPO.

Fortunately, BPO is becoming more focused on process optimization. Known as business process services, or BPS, this new approach marries the process and technology smarts of the latest reengineering and algorithmic thinking with the domain smarts of the people who run them. It covers everything from simple task–based processes (such as payment processing or document management), all the way up to the knowledge–intensive, industry–specific processes that traditional BPO doesn't usually touch. BPS has three key service models, as illustrated in Figure 1.

Figure 1

With BPS, the initial cost savings are dramatic, but the benefits go beyond the usual techniques of offshore labor and technology automation to the introduction of better skills and industry knowledge, new technology and re–engineered/optimized processes. On the other hand, core BPO may stop at initial cost savings, without any investment in wholesale changes to the way activities things are done. In an accounting engagement, for example, BPS can focus not just on continuous improvement, but also on generating value through working capital management, reducing days sales outstanding (DSO) and identifying possible fraud scenarios, among other high priorities.

Quick Take: Transforming Accounts Payable at a Strategic Level

To get an idea of how a BPS initiative works, consider our engagement with Jewson, part of Saint–Gobain and one of the world's most recognized construction industry companies. Over three years, we transformed Jewson's accounts payable processes using a range of approaches in concert: labor arbitrage, implementation of new technology systems (such as call management tools, OCR systems and data entry tools) and complete process realignment.

The benefits in terms of Jewson business outcomes were impressive, and included:

• 68% reduction in per–invoice cost.
• Doubling of invoice processing capacity.
• Improved resolution rate for supplier queries from 65% to 85%.
• Eliminated backlog of 90,000 invoices.
• Invoice processing cycle time reduced from five days to just one.

These benefits were possible through:

• A holistic understanding of the relationship between people, processes and technology in delivering a process like accounts payable, and the ability to transform them all in concert. IT has to be considered in a wider context.
• A strategic relationship with Jewson that viewed its accounts payable process as a whole entity and understood the business measures that mattered – not just simple IT or operational measures such as system uptime or software licensing costs.
• A long–term commitment to ongoing improvement. We cut Jewson's per–invoice cost by 40% in year one and halved its invoice backlog in year two.

Taking the Next Step

When business practices, technology and customer needs are changing so rapidly, your success – even survival – depends on making sure that your business is keeping pace. But since business resources are limited, those companies that resolutely focus on what their customers are demanding, continually innovating, are the ones that get ahead.

Anything that doesn't contribute to your customer obsession is a candidate to be outsourced. To be certain of quality delivery, you need to carefully select your partner. In our experience, an effective BPS provider will do the following:

• Engage with you at a strategic level and collaborate with you over the long term, to take on processes that can be better delivered externally.
• Take ownership of your processes, end to end, understanding how each process contributes to the business in the context of your particular industry.
• Invest in continual improvement of service delivery and management, through innovative mixes of people, process and technology to deliver the service at hand.
• Show you tangible results – both with cost savings and real enhanced revenue streams – and will be happy to bet on those results with gainsharing terms in their contracts.

For more information, please read the complete white paper, Business Process Services: Redefining Business Process Outsourcing (PDF) or learn more about Cognizant's Business Process Outsourcing.