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The complexities of working with offshore partners and the potentialrisks to the business make the investment in this book well worth the purchaseprice.Leading thinkers in the area of gl

Business Processoutsourcing

Business Process outsourcing

The Competitive Advantage

RICK L CLICK THOMAS N DUENING

John Wiley & Sons, Inc.

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Copyright © 2005 by John Wiley & Sons, Inc., Hoboken, New Jersey All rights reserved.

Published simultaneously in Canada

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of nearly any size.

My experience with BPO ranges over a number of business processes.Organizations that I manage as Chief Engineer of Occidental Oil & Gas havetaken advantage of specialized labor pools around the world As a multina-tional enterprise in a highly competitive industry, Occidental must be aggres-sive about controlling costs and employing the highest quality labor it canfind Occidental’s experience with outsourcing has mostly been positive, butthere have been many lessons learned

From time to time I have considered the prospect of writing about thelessons I have learned in initiating and managing a BPO project Time andbusiness considerations have always intruded into those thoughts and madethem unrealistic Fortunately, Rick Click and Tom Duening have taken thetime to write this book, which is a fine presentation of how to organize andmanage a BPO initiative

Click and Duening’s book is a comprehensive guide that managers andexecutives in nearly any size organization will find valuable The mix of insightand practicality that is evident in the writing will provide most readers with theconfidence to launch into the BPO waters The tools and tips contained in thisbook will make even the most experienced outsourcing manager think againabout the methods he or she uses and whether they can be improved

Of course, no book is without its drawbacks At times Click and ing take their discussions to levels of detail that are more appropriate for anacademic work For example, their discussions of change management andinterorganizational relationships are long on detail but a little short on ex-amples Still, the book reads very well and most managers and executives canusefully be reminded of the importance of effective change management tothe success of transformational initiatives such as BPO

Duen-foreword

Overall, I believe this book will be of tremendous benefit to anyone orany company currently undertaking or considering undertaking a BPO ini-tiative The complexities of working with offshore partners and the potentialrisks to the business make the investment in this book well worth the purchaseprice.

Leading thinkers in the area of global economics assure us that free trade

is a good thing for people everywhere It is likely that the world will not verse the course of the past several decades of ever broadening trade relation-ships among nations In short, BPO is here to stay and it will be a disruptiveforce in many industries Managers and executives who want to take ad-vantage of BPO should get this book to help them become successful Man-agers and executives who do not want to take advantage of BPO should getthis book so they understand what their competitors are doing In the end, noone can ignore BPO since it will surely affect the cost-structure of nearlyevery industry I predict that the hype around BPO will subside quickly, butthe business advantages it will bring to many are here to stay

re-ROBERTE PALMER

Chief Engineer, Worldwide Operations

Occidental Oil & Gas

June 2004

Business process outsourcing (BPO) has emerged as one of the leading ness and economic issues of our time A natural extension of the free-tradejuggernaut that has dominated global economics over the past two decades,BPO has been met with mixed emotions Workers whose lives have been dis-rupted because their jobs have been outsourced to lower-wage workers over-seas have understandably decried “offshoring” as a threat to their way of life.Others, especially those in the foreign locations where new jobs are rapidlybeing created, are elated about the opportunity to apply their hard-earnedand high-value skills

busi-Presidential politics have also weighed in on BPO—with both parties ticulating their positions on the issue Rarely has there been such high-leveldiscourse about a legal business activity that, in the long run, promises lowerprices on a wide range of goods and services for U.S consumers

ar-In this book, we attempt to examine BPO from the perspective of its plication and implementation in businesses of all sizes We do not address thepolitical or economic controversies swirling around outsourcing Instead, weassume that the movement of service work to lowest-cost providers, no mat-ter where they may reside, will continue in some form It seems wholly unlikelythat new barriers will be erected that will seriously limit global free trade Withthat in mind, we have developed a rigorous methodology that businesses canuse to analyze the outsourcing opportunity, to make informed decisions aboutchoosing a vendor, and to manage change and execute an outsourcing project.The team-based approach to BPO project analysis and implementation isbased on the fact that BPO is a socio-technical phenomenon That is, a well-executed outsourcing project must involve both social and technical resources

ap-of the organization BPO is transformational to the organization and requiresattention to the social and human impacts that accompany business trans-formation At the same time, one of the primary enablers of BPO is the set oftechnologies that have emerged to connect the world in a global communi-cations network As a socio-technical phenomenon, effective BPO manage-ment requires a diverse skill set that is not likely to be present in any singleindividual Thus, we recommend a team-based approach since the necessaryskills are more likely to be available in a group of people united to achievecommon objectives

preface

We also develop the concept of the BPO Life Cycle to denote clear stones in development of the BPO project and to provide more specific man-agement and leadership guidelines to be applied at different stages of the LifeCycle The BPO Life Cycle applies to any type of outsourcing project and toany size company.

mile-It has become clear that BPO provides far more than mere cost savings

to firms that use it BPO has become a strategic business choice that can beleveraged for competitive advantage as well When a business outsources aprocess to a vendor whose core competence is centered on that process, thebuyer is likely to experience service enhancements that can be turned intocompetitive advantages over rivals Furthermore, when the buyer–vendor re-lationship evolves into a business partnership, both sides will be motivated tolook for mutually beneficial ways to leverage the combined asset pool

We have divided this book into five parts to mirror the various stages ofthe BPO Life Cycle Part One is intended to provide an overview of BPO.Chapter 1 highlights the primary drivers and the various types of BPO thatare in use today Chapter 2 provides several case examples of firms that useBPO in a variety of ways

Part Two asks the question “To BPO or not to BPO?” Firms of all sizesare faced with a decision about whether outsourcing can help them achievecost savings, or scale or competitive advantages Chapter 3 introduces theconcepts of core competence identification, process mapping, and our rec-ommended team-based approach, beginning with the BPO Analysis Team(BAT) Chapter 4 provides a framework for analyzing the costs associatedwith a BPO project, both obvious and hidden

Part Three examines the variables and factors associated with BPO vendorselection Chapter 5 describes a systematic approach to vendor selection andrecommends appointing a Vendor Selection Team (VST) to manage thatprocess Chapter 6 examines the considerations and nuances involved in de-veloping a workable BPO contract, including service level agreements, penal-ties, rewards, and remedies

Part Four is the largest of the five parts, discussing the various aspects

of effectively managing an operating BPO project Chapter 7 deals with thetransition phase, where the outsourced process is formally migrated to the ven-dor Chapter 8 provides tips and insights into effectively managing thebuyer–vendor relationship on an ongoing basis Chapter 9 examines the or-ganizational infrastructure issues that arise during the transition and operatingphases of the BPO project Chapter 10 explores the various business risks in-herent to a BPO project and suggests mitigation strategies

Finally, Part Five briefly explores the future of BPO and the likely cations it will have on business, economics, workers, and education Chapter

impli-11 provides extrapolations and educated guesses about how BPO is likely tounfold in the coming years

Each chapter is populated with inserts that provide additional insightsinto the BPO revolution Inserts include case studies, ethics and governance,and executive viewpoints.

As this book is going to press, outsourcing has become an important newforce in the global economy It is our hope that the prescriptions, guidelines,concepts, and tools provided in this book will be useful to managers in or-ganizations of all sizes as they struggle to determine their best opportunitiesfor outsourcing With the rapid evolution of outsourcing techniques andmethodologies, we are certain that this book only makes a dent in the grow-ing understanding of the BPO revolution At the same time, there are timelesschange management lessons in this book that apply to outsourcing andglobal, interorganizational business relationships We hope that readers willenjoy this book and that it provides managers with insights and concepts tomake informed decisions and choices

The BPO revolution is upon us, and we are hopeful that the global omy will become more tightly integrated and interdependent as a result Wecannot expect that all will be made well as a result of a more tightly inte-grated and more prosperous global economy, but it might make things a lit-tle better than they are today Who could ask for more?

econ-RICKCLICK

TOMDUENING

June 2004

This book has been an incredibly stimulating challenge and has introduced us

to many fascinating people on several continents Any book ultimately isthe result of input and feedback from a wide range of people, and this one is

no exception We thank everyone who contributed his or her time and efforts

to this project Especially notable has been the contributions of the executivesand outsourcing professionals that we consulted time and again to understandmore deeply the nuances of an effective project We also want to acknowledge

Mr David Piper of the law firm Boyer & Ketchand for his contributions toChapter 6; Mr Lalit Ahuja of Suntech Data Systems for his assistance onChapter 8; and Mr Matt Castleman for his exceptional work on the graphicsand exhibits in this book Our Wiley editor, Mr Sheck Cho, is to be com-mended for his vision in signing this project before outsourcing became ahousehold word Of course, we take full responsibility for any errors that re-main in this book

Foremost among those we feel compelled to acknowledge are the members

of our families This project consumed many hours over the course of the pastyear and meant that vacations, weekends, and family dinners were placed onhold as the relentless pressure of deadlines kept us at our writing tasks AmyClick and Charlene Duening, our wives, were, as usual, our strongest sup-porters along the way, and we could not have written this book without them

acknowledgments

it will survive in some form regardless of which party dominates U.S politics

in the coming years

Chapter 1 consists of an analysis of the primary drivers of BPO and thevarious types of BPO that are being practiced today The chapter includessome of the latest projections of the size of the outsourcing industry and thenumber of jobs that are likely to be affected It also points out that BPO is asocio-technical phenomenon that impacts both technical and social systems

of the organization

Chapter 2 provides examples of successful and unsuccessful outsourcingprojects implemented by a wide variety of firms The brief case studies exam-ine decision-making processes, BPO implementation challenges and tactics,and outcomes The case studies are derived from the popular business lit-erature or from actual experiences and provide a broad look at how compa-nies are using innovative approaches to BPO to reduce costs and to improvetheir strategic advantages

1

We ought not be over anxious to encourage innovation, in case of doubtful improvement, for an old system must ever have two advantages over a new one; it is established and it is understood.

—C.C Colton, British author

The Internet bubble bursts, and the world keeps on turning Terrorists tack the World Trade Center, and the world keeps on turning The globaleconomy reels in the throes of a major recession, and the world keeps onturning Despite their unpredictable—and sometimes despicable—natures,humans are nothing if not innovators and perpetual optimists In the face ofdoubt, ambiguity, and even terror they continue to strive to build a betterworld We are fortunate to be so resilient

at-And so, as our hopes for an easy peace and “new economy” prosperity

in the twenty-first century were dashed within months of its arrival, humanshave continued to strive to create a better world Part of that striving is based

on the technological breakthroughs that seemed to arrive breathtakingly fastduring the 1990s Standing on the shoulders of those innovators, a new gen-eration of visionaries has created compelling new business opportunities.Among the vast array of novelties introduced in the past few years, none ismore important than the creation of the global communications and infor-mation infrastructure that has now burrowed into nearly every city, village,hamlet, and encampment around the world Fiber-optic cable spans oceansand continents Low-earth-orbit satellites provide streaming images, data,and voice to the most remote locations Tragedy and joy each mark the onset

of this communications revolution A doomed climber places a phone callfrom the top of Mount Everest to say goodbye to loved ones as he succumbs

CHAPTER 1

What Is So Revolutionary

about BPO?