Outsourcing’s New Imperative: "Collaborate or Die"

Business process outsourcing isn’t just a passing trend. It’s the new imperative.

No company can be an expert at everything, and today’s competitive landscape doesn’t allow for second-rate customer service or inefficient processes. By collaborating with a global outsourcing provider, companies can get access to streamlined processes and best practices.

"BPO is the intersection of imperatives and enablers-the must-do’s and can-do’s. The main imperative is collaborate or die!" said author and speaker Peter Keen, who shared his views on outsourcing in April at CSC’s Senior Management Interchange in Pinehurst, North Carolina.

BPO - when one company assumes responsibility for one or more of another company’s business functions including supporting staff and information technology - clearly has the attention of business leaders. In a recent cross-industry survey of 151 senior managers, 90 percent of those executives said they would consider BPO. In another survey, focusing on financial services, 51 percent of life and health insurers and 48 percent of property and casualty insurers outsourced at least one business process in 2001.

Attitudes about BPO are changing. Most large companies are no longer interested in owning the entire supply chain to achieve economies of scale. Today, companies are focusing on what they do best and outsourcing the rest - in virtually every sector.

In the manufacturing sector, Toyota needed to find a way to improve its supply chain to compete in the U.S. market. The leading auto manufacturer made supply chain collaboration the core of its production system, and now Toyota sells more cars in the U.S. than it does in Japan.

In financial services, global reinsurer Swiss Re saw the opportunity to expand by acquiring blocks of business from companies exiting the life insurance market. Swiss Re had substantial expertise in mergers and acquisitions, but faced the problem of smoothly integrating the acquired companies’ operations into its own without complex IT investments, large-scale reorganizations and conversion to its own procedures.

After acquiring its first book of business from John Deere Life in 1995, Swiss Re turned over the 50,000 life insurance contracts to CSC for full contract administration. By March 2002, Swiss Re had acquired 24 more blocks of business and outsourced more than 2 million policies and contracts.

As Swiss Re learned, BPO is a cost-effective way to get access to best-in-class practices and processes - when it would be difficult to build them from the ground up. Few companies can achieve best in class for more than two or three processes, so why wouldn’t they outsource the rest?

There was a time when success was possible by doing one thing well and getting by on the rest. Mediocre processes used to be acceptable in the financial services sector, but that was before deregulation led to increased competition and numerous mergers and acquisitions.

So, why wouldn’t financial services companies adopt the same goals as manufacturers like Toyota? Shouldn’t every business process be a best practice with zero defects?

"Well within the next three years there will be no valid excuse for flawed processes in any area that affects a value chain," predicted Keen, who recently collaborated with CSC on a research paper, "BPO: Imperative, Historically Inevitable, Ready to Go."

The worldwide market for BPO is expected to nearly double by 2005, reaching $234 billion. And, according to Gartner Dataquest’s April 2002 survey of 115 financial services companies, "BPO is increasingly being considered as a business strategy for enterprises that want access to best-in-class processes and cost predictability."

Only a handful of vendors can deliver outsourcing solutions at that level of sophistication - and on a global scale. Fewer still have the depth of experience in financial services to truly transform business processes.

CSC, the leader in outsourcing solutions to the insurance industry, has built a global network of service centers in the United States, Europe, Africa and the Asia-Pacific region. In the U.S., CSC manages nearly 17 million insurance policies, contracts and annuities for nearly 200 companies. CSC also services loans for more than 60 lending institutions. In addition to back-office processing and customer service, CSC provides a wide range of solutions such as application and Web hosting, virtual company startup, digital imaging and information security services.

"By outsourcing business processes to a top-tier provider like CSC, financial services companies not only get access to skilled resources on a global scale, they also benefit from best-in-class processes leveraged across an $11 billion corporation," said Jim Cook, president of CSC’s Financial Services Group.

In today’s competitive environment, highly efficient business processes can distinguish the leader from an also-ran. Keen argues that a company’s competitive advantage rests on three types of capital: customer relationship capital, knowledge and intellectual capital, and business process capital.

"BPO is part of a portfolio of assets - the base to which a firm builds sustainable capabilities and competitive differentiation," Keen said. "The more uncertain and volatile the environment, the stronger the case for BPO."

Sidebar: CSC Manages $2 Billion in Annuities for Leading Carrier

What if your company had to process an extra 50,000 variable annuity contracts- and hundreds of new applications were already pouring in each week? Could you do it with your existing staff and meet aggressive deadlines?

Those vexing questions faced the processing division of one of the country’s largest and most respected insurance companies in March 2001. The company was launching an ambitious exchange program expected to generate $2 billion in annuity sales. The carrier analyzed training, facilities, equipment and the available workforce and concluded the expansion wouldn’t work within its existing resources and cost structure.

After weighing all of the options, the insurer turned to CSC, the leading BPO provider to the insurance industry.

"We immediately dedicated a team to this client in our BPO service centers in Kansas City and Greenville, South Carolina, and spent a week with the client in training," said Cathy Heili Sittenauer, manager of CSC’s Kansas City service center. "When you factor in the client’s employees, we had a true virtual environment."

About 20 percent of the insurer’s customers were expected to exchange their older annuities for the new product, which featured more investment options. Both CSC and the insurer assumed a little risk-since neither knew for sure how much manpower would be needed. So, the contract was built on flexible terms: the insurance company would pay a minimum monthly fee, which would convert to a per-policy fee after certain milestones were reached.

CSC was immediately presented with a backlog of 2,500 applications that had to be processed as soon as possible. Each variable contract had to be backdated, leaving the insurance company susceptible to each customer’s gain or loss in the interim. And, at the time, the stock market was fluctuating wildly.

How did CSC respond? CSC met the insurance company’s aggressive timetable and processed the backlog in a month using a combination of advanced work management technology and old-fashioned teamwork. A year later, CSC’s staff had processed nearly $2 billion in annuity exchanges.

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