Solution for Creating Shareholder Value | Article

hands and glasses on stock pageThere is a lot of talk about BPO being the business model of the future. “Although I don’t think that people necessarily recognize it quite this way, what is unique about BPO is that it is a win all the way around,” says Charles Gibbons, who recently joined PricewaterhouseCoopers (PwC). Gibbons, a nationally recognized expert on outsourcing and non-core operations, is responsible for developing the business for PwC’s North American BPO operations. He says he is absolutely convinced that the integration of people, business process and technology reengineered through a BPO approach is the way of the future.

Gibbons describes the unique win/win result of BPO as a situation where a supplier’s aim is not just to take over a business process for a buyer but, rather, to take it over and add strategic value and also invest in the people. “It has a unique ring in the market,” says Gibbons. “When I go out and talk to people, it really creates a huge business phenomenon and synergy. To me, this is what the enlightened executives today are starting to recognize. If I have a dollar to invest and can manage not to spend any portion of that investment dollar on my back office costs and put it instead in my real core business, that gives me a tenfold return. If my supplier partner will make investments in my back office, then I have that advantage as well. Then I have increased shareholder value.”

BPO-“B” is for Business: The Bottom Line

Increasing shareholder value is the bottom line in BPO. It will make the difference, Gibbons says, between the leaders and the followers. No matter the size of a company, they share the same problem-limited resources. By leveraging resources, intellectual power can be focused on what a company’s customers buy from it. When BPO is the approach to leveraging resources, shareholder value is increased-not because revenue has been increased, but because the BPO increases bottom-line profits. And often, a business process that has been reengineered goes even further and creates a life of its own, with revenue sharing or a greater revenue capability that is an alternate revenue stream to the company. CEOs are beginning to realize that shareholder value is in cost structure and overhead for non-core functions as much as it is in stock price, products and competitiveness.

BPO-“O” is for Outsourcing: How BPO Has Evolved

Gibbons defines outsourcing as the management of an operation of a function by a company on another company’s behalf. In the 1980s, when the word “outsourcing” actually came about, people would vend things out to a third party. Outsourcing, in its beginnings, was quite isolated to a set of tasks. It was largely a case of the buyer telling the supplier what to do, with the supplier installing less costly labor and managing a process for the buyer. But outsourcing had a misunderstood connotation in its early years, as employees faced lower salaries or being downsized.

Nevertheless, as outsourcing continued to grow, people began to see the market opportunity is huge, and they took on greater responsibility for an investment and some of the accountability. What happened then was that the vendors tried to differentiate themselves. Some companies referred to it as “insourcing;” others called it “strategic outsourcing.” Then came a change in terminology to “business process outsourcing.”

The increase in popularity of BPO came when companies (such as PwC) began to put meat behind the terminology. People began to see that there was real value in BPO. It gave companies a chance to invest in areas where they could not afford to and gave them a competitive advantage. But even with a great idea and a major name firm coming into the marketplace with the BPO approach, the early adopters found there were very few thought leaders.

Then came the Internet, changing business at a speed that senior executives cannot keep up with. Internal processes, as Gibbons says, “now go out the window faster than people can even document what the processes were.” Suddenly, the marketplace fueled a legitimacy of BPO.

BPO-“P” is for Process: Reengineering a Path to Success

BPO takes a set of activities and takes on the responsibility of reengineering the entire way the operation is done. In most cases, that process will include technology. Gibbons explains the differences between BPO and outsourcing using an example of a mailroom (a business process that often appears to be very simple and very mundane).† If the mailroom functions are outsourced, the supplier will most likely put cheap labor in to reduce costs. The supplier will also consider ways to make it operate more efficiently, such as using overnight mail companies, putting mail in the pouches differently or sorting it differently. It may even change the way mail is dropped inside a business. That would be outsourcing, handled in a fairly sophisticated manner that includes changing some of the things the mailroom is currently doing.

BPO, on the other hand, first looks at the process in the sense that nothing is sacred. So the supplier may ask, “Why are we delivering the mail in the first place? Why don’t we image the mail in the mailroom?” In the corporation of the future, many of the people will live in the same building where they work (or work out of their homes), and many of them will travel. If the mail is imaged, mailroom employees are freed. The image of the mail can be moved around. Not only the mailroom process has been changed, but technology has been used in the approach to the new process. In this example, the mail is not being moved faster or sorted faster.† Through BPO, the supplier has rethought the process and changed the whole operation of the mailroom. It is no longer just a mailroom-in a BPO context, the mailroom touches everything that goes on in a business. It touches a proposal that is being sent out, and it touches accounts payable and accounts receivable.

“What often happens inside companies,” Gibbons explains, “is that they outsource to get the costs down, but they never look at the process-and that’s really where you get the breakthrough. That is where you get the leverage of somebody else’s investment and creativity.”

BPO’s Exciting Future

Economies of scale are a competitive advantage of large companies. The small company has the advantage of speed to market and flexibility. Gibbons notes that BPO and the Internet are now allowing the small company to get the leverage, buying power and† critical mass of a large company. So larger companies are beginning to recognize that they have to change what they are doing. BPO is a management tool to recreate a company and allow it to really accelerate its ability to compete in the market.

There is an enormous untapped opportunity for BPO outside the U.S.† Japan, for example, is going through huge change in terms of lifetime employment, which is driving BPO. Russia sees BPO as a way to change the one-factory, one-town, one-industry idea and break it up into smaller pieces. As some of the cultural issues that other parts of the world deal with begin to change, huge deals are coming together.

In the U.S., Gibbons explains, there is a lot of activity with venture backers into small companies through BPO. Recognizing that speed to market is everything, the funding companies seek to put future Microsofts or Oracles in place faster, with world-class systems already in place. There is some resistance in the middle market and the larger companies, where there has been investment in history and people’s jobs will be changed. For those companies, there must be a “sales” process to push a cultural change within the senior management.

Gibbons explains the business model he sees developing. “I see partnerships where they rely on somebody else to invest in support and create ideas for them. This new management style,” he says, “is a company that knows its strategic objectives and asks what it needs to do to become more competitive in the market. The company will ask the supplier for support in particular processes, and the supplier will agree to do that, but† will also drive the operation to another level.” A supplier positioned for the BPO opportunities of the future is one that, like PricewaterhouseCoopers, has made investments in functions of a global nature and can enable cross-fertilization of the processes that run across those functions and drive the business processes to a different level.

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