© 2005 Cognizant

BPO: A Transformational Strategy

Chuck Clement, Andesa ServicesRob Mattioda, The Life & Annuity Group, Inc.

Page 2 © 2005 Cognizant

Definitions

• DEFINITION: Business Process Outsourcing occurs when an organization turns over the management and optimization of a business function, such as accounts payable or purchasing, to a third party that conducts the activity based on a set of predetermined performance metrics. – Computer World

• DEFINITION: - Transformation a : to change in composition or structure b : to change the outward form or appearance of c : to change in character or condition: - Webster’s

• Trend: BPO Market will grow to 146 billion dollar industry by

2008 - Forrester•

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Business Objectives Today Are

• Increase Share Holder Value

• Time To Market – New Products

• Cost Containment – Delivering Lower Unit Cost

• Processing Flexibility That Adapts to Business Direction & Strategy

• IT solutions That Support And Deliver The Business

• Adding Functionality Without Complexity

• Growth – Organic and Mergers & Acquisitions

* Have These Really Changed Over The Years?

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Business Transformation

• Transformation Is About Change, It’s About Business Improvement- Better Delivery – Products & Services

- Better Processes – Streamlined & Clean

- Lower Costs – Business & IT

- Greater Flexibility To Grow The Business

- Consolidation – Fewer Moving Parts

- Increased Share Holder Value

• Business First – Technology Second

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The Legacy Transformation Value Triangle

Legacy / Business

Transformation

Legacy / Business

Transformation

Labor Costs

Greater degree of automation

Lower effort per transaction

Less training / fewer resource management issues

Outsourcing (BPO)

Labor Costs

Greater degree of automation

Lower effort per transaction

Less training / fewer resource management issues

Outsourcing (BPO)

Business Processes

Time to market improvement

Increased productivity

Lower cost per policy

Business Processes

Time to market improvement

Increased productivity

Lower cost per policy

Application Software Platform

Time to market improvement

Consolidation = lower maintenance costs

Enables process improvement

Application Software Platform

Time to market improvement

Consolidation = lower maintenance costs

Enables process improvement

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BPO Is A Transformation Strategy

• Transformation Is About Change, It’s Not Repeating Or Replicating Today’s Limitations & Issues

• BPO Is Transformation- Delivers Better Processes – Facilitates Today's Business Objectives, Best Of

Breed

- Delivers Modern Applications – No More Piecing Together Disparate Packages

- Delivers End To End Well Configured Components – Common Look and Feel Across All Products

- Delivers Time To Market and Lower Cost

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Why BPO As A Transformation Strategy

• BPO Is a Bundled Approach To Transformation – Processes, Technology, Service & People

• Legacy Applications Are So Intertwined Within A Company’s Infrastructure That Change Becomes More Difficult And More Expensive

• BPO Strategy Focuses On Core & Non Core Functions By Bundling Technology, Business Process Improvement, Re-Engineering And Productivity Improvements Implemented As A Program In One Box

• BPO Transformation Is A fundamental Change From Legacy Business Problems And Legacy Applications To Best Of Breed Business Processes And Modern Technology Platforms

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Conventional BPO Vs. Transformational BPO

Conventional Outsourcing BPO Transformation

Operations and Technology Focus

Benefits Derived From Labor Arbitrage

Isolates – Delivers Some Degree Of Control

Executes Legacy Business Processes

Delivers Higher Performance – Specialized Company

Reduces Non Core Functions From The Business To Provide A Single

Release Of Capitol

Business Focus – Business Driven

Process Improvement – Creates Value – Labor Arbitrage

Deliver Confidence – Manages Risk

Modern Business Re-Alignment, Technology & Services

Delivers Higher Performance & Economies Of Scale

Business Transformed Enabling Sustained Savings & Sustained

Value

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BPO Transformation

BPO Transforms When:

• You Derive Value From Every Aspect Of The Business – Not Just An IT Solution

• Deliver The Business Consistently Across Products – Fewer Resources Required

• Business Processes Align With Business Objectives

• Legacy Maintenance No Longer Stifles Business Growth

• Business Results Are Improved

BPO Is Less Effective When:

• Outsource The Business, Focused Only On The Savings From Labor Arbitrage

• Haven’t Driven Savings From All Aspects Of The Business

• Replicate The Deficiencies Under The Management Of Others

• Viewed As A Technology Solution

• You Haven’t Positioned Your Business For Growth And Business Results Are Not Self Evident

Page 10 © 2005 Cognizant

BPO Transformation Components

• Business Processes• Strategic Outsourcing• Technology• Infrastructure• Methodology• Systems• People• Management• Value• Cost Containment

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Business Growth Through Budget Transformation

• The Current Budget Paradigm Does Not Support Growth

• Budget Dollars Are Consumed By Maintaining The Business

Application Maintenance

70%

Amortization Expense

10%

DiscretionarySpending

20%

Page 12 © 2005 Cognizant

Transformation Effects

ImplementBPO

Labor Arbitrage

Re-DirectResources

Improve Process

ConsolidateLegacy Apps

Maintenance Budget