Shorter is Better: BPO Outsourcing Reduces Cycle Time | Article

sprintingIf there’s one phrase that describes businesses today, it’s that they are “in a hurry.” Being first to market produces a decided advantage in a changing world. And companies can’t reengineer their processes fast enough. Speed is important when changing a business process. Today, the time it takes to get there is important.

In most cases, doing it yourself takes far more time than you have available. And that’s particularly the case in the BPO arena because BPO outsourcing providers deliver the entire process.

How can companies shorten cycle time when the underlying technology takes forever to iron out the kinks and building new facilities can take months if not years? Shrinking cycle time is one of the key benefits of outsourcing. In fact, it may be the most significant. Outsourcing compresses cycle time because buyers are able to use someone else’s process — a process that’s already been tested and tweaked and now is a template for success.

Suppliers have also invested the time it takes to conquer the learning curve. Companies can duplicate the investment required for a process (although they never will be able to enjoy the economic benefits of economies of scale), but it’s not possible to shorten a learning curve. Learning how to do a process is something every company must find out for itself. It takes years to establish world class procedures.

Gaining Experience is Time Consuming

Moreover, companies have to gain experience in a process before they can drive down costs. I’ve seen companies on a two-year plan that are still not achieving the level of quality and the reduction in costs they anticipated three years later. Often, it takes three to five years to get the battle scars necessary to derive economic benefit from a process.

Even if a company has the people and the capital, it takes time to build a facility like a shared services center. Construction short cuts usually are a recipe for future headaches and are not a good way to shorten cycle time.

If you outsource, you can reap the benefits of experience much faster than if you go it alone. You certainly can increase the quality of your services almost immediately.

Reengineering on the Fast Track

We worked with a recent client who wanted to reengineer its human resources (HR) department so it could provide better services to its employees and take advantage of the latest Web-based technology to reduce its costs.

The first option was to do the reengineering work in-house. The firm was looking at a two-year design-and-build project using PeopleSoft. Then there was another 12-month shake down period as the company learned how to use its new technology.

The company didn’t have three years to wait. So it decided to outsource the HR function. Nine months later the company was able to enjoy all the benefits of reengineering this process: improved services to its employees and lower HR costs. And they discovered the levels of service their outsourcing supplier provided was higher than they could afford to do at home. Of course, they eliminated much of the capital investment required, too.

Reducing Risk

Our research shows that reducing cycle time also reduces business risk. First, buyers tap into an established infrastructure and a process with few learning curves. Someone else has learned from the mistakes made early on. Second, they lowered the risk that the technology would radically change during their implementation period. Our HR client had a better chance of meeting its target with the planned technology when the arrival time was just nine months out. The world might have been a radically different place 36 months later. At Everest Group, we have found this worry is a key reason why companies are deciding to outsource.

The desire to reduce cycle time has been a significant driver for clients of Exult and PricewaterhouseCoopers, two prominent BPO vendors. They have made significant investments in best practices, so their processes are at the top of the efficiency and productivity chart. They have recruited the best people. They have established economies of scale in their purchasing power. These capital outlays substantially improve the likelihood of high quality delivery of services to their buyers.

For this reason, outsourcing vendors are willing to provide substantial guarantees that they can deliver. They can assume the risk of performance because experience gives them the confidence to know they can complete the transactions promised.

Moving the Process to Foreign Soil

Substitution is one of the powerful leverage points of BPO outsourcing. Companies can enjoy the advantage of lower labor costs if they employ labor in India, the Philippines or Costa Rica.

However, establishing a presence on foreign soil is costly and time consuming, not to mention the steep learning curve. First you have to find a suitable office. Then you have to establish the infrastructure: reliable power, telecommunications and transportation. Next is the ability to find, recruit and retain the appropriate personnel. You can’t ignore governance issues. Finally, there’s the learning curve associated with operating in a different country with a different political system and language. Often, this is a two- to three-year process to get the operating humming.

Buyers can tap into this educated but inexpensive talent pool almost immediately by outsourcing to a supplier with a foreign operation already established.

Outsourcing has one additional benefit: it is a powerful agent of change. An external party, shielded from internal politics, is free to trim deadwood, change cherished ways of doing things and build momentum for the new procedures. This is extremely difficult for tenured personnel to do.

Lessons from the Outsourcing Primer:

  • Reducing cycle time is a significant benefit of outsourcing, especially when a project is on the fast track.
  • Outsourcing vendors have the battle scars from experience; their buyers can benefit by tapping into a tested process.
  • Outsourcing eliminates construction time.
  • Outsourcing compresses the time required for reengineering.
  • Outsourcing is the fastest way to tap into the foreign labor market.

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