BPO's Next Level

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BPO is one of the greatest global forces for improvement today. CRM outsourcing providers alone have a $30 billion market opportunity, and businesses that capitalize on the potential can not only reduce cost, but also increase productivity and raise revenue significantly.

BPO began as a way to significantly reduce labor costs for low-value or transaction activities (e.g., help desk calls, bill payments), but now, it's emerging as a way to deal with higher complexity, value-added activities. However, few companies have realized the full range of benefits that BPO offers. To capture these benefits organizations need to do two things: outsource to improve productivity (not just costs) and cost-effectively identify emerging revenue opportunities.

Improving productivity
Cost savings can be significant, but for real success improved productivity is needed; also, cost savings can be extensive, but they are becoming more difficult to achieve. Vendors often guarantee savings of 10 to 20 percent onshore and 30 to 70 percent offshore. Moving to India and the Philippines enabled a leading high-tech company to cut costs by 60 to 80 percent. However, as more companies adopt BPO, the labor market in these developing countries becomes more competitive, leading to higher salaries and therefore decreased labor savings. Companies typically need to add internal resources to manage the contract with the outsource provider, which also dilutes cost savings. To fully leverage BPO's potential in this tightening environment, then, companies need to set broader productivity goals for the outsourced function, which affects the following:

Skills: Offshore employees with at least a college degree are often more highly educated than onshore ones. Because they see long-term potential in their jobs, these employees are frequently more motivated. As a result, one U.S. company reduced critical code-line errors on data entry from 1,600 defects per million to 4 by moving the entry offshore.
Management quality: Because management quality can be higher offshore, companies can be more aggressive with their SLAs and performance targets for the vendor. One company reduced the errors in its insurance underwriting by 50 percent. Another organization found that total customer satisfaction with calls was 15 percent higher with offshore facilities than with those in the United States.
Efficiency: BPO can also provide the impetus to improve business processes. One global high-tech company uses an offshore facility to manage the data quality and completeness of its marketing, sales, and customer service data; as a result, it has best-in-class CRM data quality and high levels of CRM user satisfaction and efficiency. A large U.S. bank achieved a 10 percent improvement in banking transaction processing by automating manual tasks and introducing improved workflow management. Many offshore vendors support companies in this effort through their cultures of process excellence and continuous improvement (e.g., Capability Maturity Model, Six Sigma, deep IT-based process experience).

Enhancing revenue
Even more intriguing is that companies are leveraging BPO to identify emerging revenue opportunities. A leading airline used BPO to recover approximately $75 million per year by conducting a revenue audit (not previously cost justified) of inter-airline ticket exchanges, agent interactions, and tickets used. Similarly, by outsourcing customer support a top software provider can offer live assistance for a $40 application, which it had never previously considered, making the company preferred by many customers. Some BPO providers offer secondary research services (e.g., preparing company profiles, generating insights on target customers) to improve sales effectiveness and efficiency; multiple U.S. companies use these sources to improve account planning and sales calls.

CRM BPO offers great potential to companies that identify the right CRM outsourcing opportunities and execute well. Exploring the possibilities of high-value-added BPO, as well as its more traditional productivity improvements, will help businesses create differentiated, compelling value propositions.

Simon MacGibbon is an engagement manager and Jeff Schumacher is an associate principal at McKinsey & Company.

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