Insider Business Club: outsourcing

Insider Business Club: outsourcing

Is cost still the main factor driving outsourcing? Or have quality and innovation become the main selling points?

What key performance indicators do clients ask for to deliver cost

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

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

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

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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