The last time the Fortune 100 company bought a new mainframe was 1985. It just spent a princely sum making its computer system Y2K compliant. Now it realizes this system can never be reprogrammed for e-commerce.
“Clients come to us and say, ‘Get me up and running in the global economy.’ They know they don’t have the infrastructure, processes or people” to do this in-house, so they turn to outsourcing, according to Maurice Rodriguez, manager of business development for LeapSource, a Phoenix, Arizona financial services Business Process Outsourcing (BPO) supplier. The BPO provides back office processing capabilities for its clients and delivers real time financial indicators to management.
Companies with older, legacy mainframes by definition have to radically change the way they operate. They must scrap their old systems for new ones that can perform Web-based transactions. “They often can’t afford $40 million in new equipment,” Rodriguez points out.
Turning to a BPO provider means they don’t have to make massive capital investments. “Outsourcing is an easy way to gain access to the latest technology without having to purchase it in-house,” says Rodriguez.
Then there’s the question about staffing. The current employees don’t know the new technology. Should the company retrain them? Or, should it hire new employees, assuming it can find them? Outsourcing to a BPO answers the people question.
Accelerating The Move To BPO Outsourcing
BPOs are able to e-enable a company within six to nine months, says Rodriguez. This is an important consideration because the Internet has compressed time; companies really can’t afford to wait since things now move at Web speed. This new pace is accelerating the move to BPO outsourcing, according to the LeapSource executive.
He points out that shareholders love BPO outsourcing because it increases shareholder value. Widget makers can invest in equipment that will make them the best widget maker in their marketplace instead of purchasing e-commerce technology that may be obsolete tomorrow. “They don’t have to invest in capital equipment that will depreciate before they make a dollar,” he says.
In addition to the drive to merge into the information superhighway, companies also have to turbocharge their profitability. They must reduce their transaction costs while increasing their operating performance to add dollars to their bottom lines. “The only way to do this is to outsource your business processes,” the LeapSource executive explains. This is a second trend explaining why BPO is becoming a popular business tool.
The BPO market is growing because poor financial management is one of the top three reasons why companies fail. Building an in-house accounting department is costly; so is hiring an accounting firm. Outsourcing BPO is becoming the option of choice, especially for growing firms.
BPO outsourcing is also cost-effective. Rodriguez says LeapSource clients report transferring their finance and accounting processes to the Phoenix-based BPO is costing them about the same amount they were paying their employees to balance the books. “At the end of the day, we are very price competitive, which doesn’t hurt,” notes Rodriguez.
Concentrating On Finances
As a BPO outsourcing supplier, LeapSource has chosen to play on only one playground: finance, accounting and administration. This core competency includes peripheral areas like human resources (HR) and tax matters. Rodriguez said LeapSource decided at the outset to focus solely on finance and accounting instead of trying to be everything to everyone like the Big Five accounting firms. “Can they do everything well?” he asks rhetorically.
LeapSource’s customers sometimes need service in other areas of their business. To solve this problem, the company has chosen to partner with other companies as monomaniacal about their businesses as LeapSource is about finance. “That way we can provide our customers with the best of the best,” says Rodriguez.
LeapSource, which has chosen to remain a traditional outsourcing supplier, is also forming alliances with Application Service Providers (ASP). The BPO partners with ASPs, then employs its own staff to perform the outsourced processes in its shared services center.
This gives LeapSource the opportunity to suggest the best solution for its clients and not be tied to any one application solution. Rodriguez believes this kind of working relationship is possible because he predicts the two flavors of outsourcing will grow together.
Some of its clients want to make the switch to outsourcing in two steps. Oklahoma-based Fleming Foods, for example, hired LeapSource to help it with invoicing for its grocery store distribution business. The company, the second largest wholesale food distributor in the United States, wants to consolidate all its financial processes for its various divisions under one roof. Once this is done, Fleming Foods plans to outsource the process to LeapSource.
Making The Transition Easier
In addition to its depth of knowledge in the finance and accounting area, LeapSource is sensitive to general outsourcing issues. The company is known for its blunt answers and immediate responses.
For example, the transition to BPO outsourcing can be difficult. “We know customers are afraid of the impact on their employees,” says Rodriguez. LeapSource tries to hire as many of the buyer’s staffers as possible. This can be a boon for the employee. “We’re striving to be one of the best places to work in America,” says the executive.
LeapSource assembles transition teams to help the newcomers understand their new positions. They become part of a profit center instead of eating up resources as a cost center. “We try to make their mundane jobs more exciting,” he says.
Another sensitive issue is the feeling of loss of control. LeapSource has created a new tool, the CxO Desktop, to help restore that feeling. Clients can log on the Web and see exactly what’s happening with their key performance indicators. “CxO is faster and more inclusive than the clients’ original system,” says Rodriguez. “When they outsource to us, they end up getting more control, not less.”
LeapSource currently has 240 employees working for nine clients.
Lessons from the Outsourcing Primer:
- The rush to e-commerce is pushing companies with old mainframe computers to select a BPO solution.
- The press for profits is a second trend encouraging BPO growth.
- BPO outsourcing often provides greater financial control than was available when the function was performed in-house.
- Partnering with ASPs allows a traditional BPO provider the ability to select the best solution for the client.