Cheaper, Faster System Development Using Offshore Outsourcing

By John Harney, Business Writer

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Cheaper, Faster System Development Using Offshore Outsourcing

The current economy has forced a lot of people out of work. As unpleasant as that is, however, applying for unemployment benefits is no picnic either. Claimants can often spend most of a day applying for benefits. Then they’re required to report back weekly with a list of job interviews they’ve gone on.

In a state like New Mexico, the process can be doubly onerous because workers often live so far from unemployment administration offices that they waste additional hours in travel. This does not mean that there are fewer cases, however.

According to Arthur Martinez, Unemployment Insurance Bureau Chief for the New Mexico Department of Labor (NMDOL), his 24 field offices processed about 72,000 claims last year and distributed about $125 million in benefits.

To make matters worse, says Martinez, until recently NMDOL’s claims processing system was largely paper-based. Claimants filled out a paper form, then a claims representative entered basic information from the form into a 30-year old mainframe system and mailed the paper forms and any related documents to the central administrative office in Albuquerque.

Here they were stored and used for various purposes like claims appeals. Needless to say, manual data entry was slow and prone to error, while the mainframe stored the data in independent silos not easily shared across departments and agencies. Due to these inefficiencies, even with a staff of 46, Martinez says, processing one claim could take a day or more.

But while NMDOL needed a new system, building it in-house was out of the question. Martinez says it’s difficult for the agency to put a team together to do large-scale IT development – it simply lacks the internal staff and expertise. Also, Martinez wanted to migrate to a Web-based system and implement workflow and imaging — and no one was qualified in those areas either. Further complicating matters was the speed-to-market issue: implementation needed to be rapid. Outsourcing was the only answer.

Why New Mexico Selected an Indian Provider

Three vendors bid on the NMDOL job — IBM bid $12 million, TRW about $18 million and the winner, Tata Consultancy Services (TCS) based in India, came in at less than $6 million.

While cost was critical, it wasn’t the only consideration. Martinez was also impressed with TCS’ reference accounts in the insurance field, among them Prudential Insurance and the American Insurance Group. He also felt confident TCS could “produce quality products and meet some very aggressive time frames.” Key also was the fact that TCS had strong software development centers based in India, 15 of which have been recognized for achieving the System Engineering Institute Capability Maturity Model (SEI CMM) Level 5, the industry’s highest quality standards.

Not only was the labor pool highly qualified, but it also was cheaper and more available. IT Labor rates in India are anywhere from 33 percent to 50 percent cheaper than in the U.S., so Indian companies “can put more resources on any given project,” says Allie Young, Research Vice President, Sourcing and Services at Gartner.

According to Alajuraj Balakrishnan, Project Manager for the NMDOL project at TCS, his company quickly set up two teams. The first was comprised of 30 people working in an onsite facility at NMDOL in Albuquerque who did the requirements analysis and system design; the second was comprised of 80 people in Chennai, India who did system development and testing.

To ensure quality control and consistency, design team leaders designed code in logical increments in Albuquerque, then returned to Chennai to lead each iteration of system development. They installed the completed code in the NMDOL production environment during off hours.

Phase 1 of the system was completed in 15 months – a notable feat since Martinez claims projects of this scope often take four to six years.

Outsourcing Revamps the Claims Process

Balakrishnan says with the new system claimants “can file claims at any NMDOL call center using the interactive voice response (IVR) system or do it over the Internet or walk into any local office and do it with a paper form – the system is up 24×7.” If claimants require help to complete the form, they can contact representatives using the IVR system or deal with a real person. Representatives then put claims through a browser-based, automated approval process. Simultaneously, any collateral paper materials are scanned and indexed by case and the images stored in a central NMDOL repository in Albuquerque.

Balakrishnan says the system then automatically verifies that information (is the claimant’s social security number correct?) by interfacing with various federal and state agencies like the Department of Motor Vehicles. This used to be done by mail in the old system.

With the new automated workflow, Martinez says “we’re projecting a 30 percent increase in operational efficiency.” He adds they’ve also cut staff; “We’re now able to do the same work with about 29 staff and be much more efficient at it.”

With Phase 1 completed, TCS began implementing Phase 2 in May. Meanwhile, TCS has contracted to do training and maintenance of the system for a full year after Phase 2 is finished.

Lessons from the Outsourcing Journal:

  • Outsourcing system development in India is less expensive because labor rates are lower.
  • It also accelerates time-to-market because staff can work round-the-clock given the time difference with the U.S.
  • End-to-end automation reduces manual data entry errors, speeds claims processing and reduces staff. The end result: a more pleasant experience for the unemployed of New Mexico.

About the Author: Ben Trowbridge is an accomplished Outsourcing Consultant with extensive experience in outsourcing and managed services. As a former EY Partner and CEO of Alsbridge, he built successful practices in Transformational Outsourcing, Managed services provider, strategic sourcing, BPO, Cybersecurity Managed Services, and IT Outsourcing. Throughout his career, Ben has advised a broad range of clients on outsourcing and global business services strategy and transactions. As the current CEO of the Outsourcing Center, he provides invaluable insights and guidance to buyers and managed services executives. Contact him at [email protected].

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