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BY THERESA AVAGLIANO
The easiest way to describe BPO is to focus on what it is not, suggests Marcia Robinson, president of research firm e-Business Strategies. “BPO is not information technology (IT) outsourcing.” In other words, it’s everything else…sort of.
Indeed, as the market expands, and users graduate from buying basic payroll and human resources (HR) services to the purchase of more complex and customized services, BPO will touch an ever-widening array of business processes.
In general, BPO comprises such functions as finance and administration, HR and training, customer care, manufacturing, logistics, and regulatory compliance. In more industry specific instances, BPO includes insurance subrogation and college sports marketing.
BPO involves an entire end-to-end process, not just a task, as is often the case with IT outsourcing. Furthermore, the processes are usually repeat non-core activities that require long-term (3- to 5-year) contracts.
As a result, successful BPO has been known to increase shareholder value. Asserts Robinson: “The main difference between BPO and traditional IT outsourcing is that BPO can help companies achieve transformational outcomes more quickly.” Indeed, that usually happens when a BPO provider goes beyond just managing a process, and instead re-engineers the process, and introduces new technology, to make it better.
Alchemy
It wasn’t easy for the American Institute of Chemical Engineers (AIChE) to send the management and production of three highly-acclaimed print journals to John Wiley & Sons Inc. But the non-profit organization needed a way to build a robust Web platform while reining in publications spending. The Wiley deal, which included print and online publishing, had the right chemistry.
AIChE members, who were clamoring for online access to the organization’s index of information, got their hyperlinked Web publication and AIChE didn’t spend an extra dime, explains Ken Gruber, director of Finance and IT, and a principal with financial consultancy Tatum Partners. Access to Wiley’s technology was the key, adds Gruber, who confirms that building the online journals in-house would have been out of AIChE’s reach financially.
The BPO technology play also gave benefits administrator HPS Paradigm Inc. an edge, says company president Mary Kate Drake, who points out that the Tifton, GA–based company outsources all of its claims-related BPO to Eldorado Computing Inc. While Eldorado focuses on process improvements, such as scanning claims, processing checks and mailing refunds, HPS focuses on customer care, boasts Drake.
With only 74 employees, “why not outsource to get the best EDI (electronic data interchange) and check processing we can,” notes Drake.
Another claims example–insurance subrogation–illustrates how BPO can help boost shareholder value. Subrogation allows an insurance company to recover, from a wrongdoer, the money it paid out to an injured policyholder.
Better subrogation recovery means an increase to cash flow for insurers. As a result, says Chapel Hill, NC attorney and insurance expert David Zoffer, insurance companies have the option to charge lower premiums, increase policy holder satisfaction–and market share–and bolster the company’s loss ratio (an insurance industry metric that compares underwriting revenue to administrative costs).
As specialists, BPO subrogation service providers usually have a higher recovery rate than insurance companies, collection agencies or law firms, says Zoffer. Why?
Subrogation activities are not a priority for insurers as they emerge from a soft insurance market; collection agencies tend to settle for lower recovery rates–say fifty cents on the dollar–and law firms, which are compensated on total funds recovered, usually only target a few big accounts.
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