Insider Business Club: outsourcing

What key performance indicators do clients ask for to deliver cost savings?

David Poole, chief operations officer of Business Process Outsourcing at Capgemini

Cost is always there as a KPI but I think in most cases that is because a price profile, if you like, is agreed at the beginning of most contracts. In other words, the obligation to produce the same level of quality of service over time but to add a decreasing price over time, does get written into contracts. In terms of other KPIs, a lot of people are trying to move towards transaction-based pricing because it makes it easier to understand the cost you are paying per transaction.

We are seeing KPIs around people wanting to ensure that there is benchmarking to make sure that they are always up to date with the latest processes or techniques. Quality is always there as well, so I think we have a mixture of things – but the price is just embedded into the way that these deals are contracted. Quite often the price profile or the profile of the revenue that the vendor gets if you like over time is firmly written into the contract.

That said, from our experience people always want to cost save. Whatever it is, their real objective is cost saving, which is always there.

Is business process outsourcing new? Or have companies been doing this for years?

Peter Scott, global, head of finance and accounting at Alsbridge

Outsourcing is nothing new as such. People have been outsourcing for many years. In the UK, for example, payroll has been outsourced for 20 to 30 years.

Procurement cards, which have been around for a long time, are a form of outsourcing. Factoring is a form of outsourcing – that has been around for a long, long time.

What’s different is that the market can now offer a form and depth of service that just wasn’t possible before. It’s come about through technology and the opening up of Eastern Europe and India as locations for outsourcing, and through a growing confidence in the marketplace that it is possible to outsource, for example, end-to-end finance processes. Three or four years ago people really didn’t believe it was possible. Now the question has moved on from ‘I don’t believe that will work can you convince me’, to, ‘how can it work for me and what can I do to take advantage of this?’

In terms of maturity, the market isn’t mature in BPO. There is still a long way to go before it is as mature as the IT outsourcing market.

Why do organisations opt for outsourcing -is it all about cost?

Amit Badami, director of Emerging Markets Research Group

I would say that cost has always been the primary driver. Many organisations have viewed BPO less strategically then they should have done. I think there has perhaps been a knee-jerk reaction to some of their competitors moving offshore. They are doing this because they have seen that the margins in their industry sectors – particularly banking, financial services and insurance – have been squeezed and will continue to be squeezed. So cost has always been the primary driver.

What is going on in India is that people are going for cost and staying for quality and innovation. Quality can be measured in many ways, particularly within the customer contact environment, perhaps even in the back office. It depends how you measure it. The key message in the market is that that cost has been one of the key selling points for the offshore vendor community but now quality and innovation are being basically sold to the customer community.

We will have to see whether true quality and innovation really materialises or whether, as I suspect, cost will continue to be the main driver for the future.

Once you decide to outsource, how much monitoring of costs and service do you need?

Mark Gold, partner, Silver Levene

We have gone through the process of actually using outsourcing services and joint ventures in Bangalore and India and what we are finding is that the cost is increasing. But we are trying to make sure that we can keep those costs down.

One of the things that we have done is to set up an office recently in Kenya so we have two offices now going. We get all our typing done overseas and it is a service that we then sell onto other professional firms. Those people are not just interested in cost, what they are looking for is security.

They also want to make sure the timing is accurate. We take advantage of the time difference and it makes a big difference to the way people work. They can do their letters late at night and have them back for them whatever time they get in in the morning. And accuracy and quality are the next big things. All these people are a bit scared about outsourcing different things because they are worried about accuracy and quality, but if you have the right staff and the right training, then you can take care of those points.

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