Initially considered a cost-cutting measure, business process outsourcing is now recognized as a critical strategy to achieve success in the global marketplace. Businesses now recognize that the way to differentiate themselves in the market lies in achieving excellence in their core businesses while outsourcing non-core business to specialists. As a result, BPO has grown exponentially as executives seek the most efficient alternatives to perform these non-core functions.

BPO allows firms to boost productivity, improve customer services, and most importantly, devote their resources to pursuing the company's primary vision. These factors have elevated outsourcing to much more than a cost- cutting tactic. BPO is now a strategic initiative that is driving the direction of the enterprise and the global economy.

By bundling services and choosing a stable and financially secure partner, business risks are reduced and the substantial benefits of contracting a wider range of services through a preferred partner can be realized.¹

More than 80 percent of the world's top 2,000 corporations will have established significant outsourcing operations overseas by the end of 2005. Approximately $30 billion in new opportunities are generated every year globally.² Meanwhile, small and medium-sized businesses increasingly look to outsource services to India and other developing countries. The presence of a highly trained workforce, wages that are a fraction of those in the Western countries, and a sophisticated, reliable technology infrastructure combine to create an irresistible value proposition to most firms today.

BENEFITS OF BPO

The most obvious benefit of offshoring is cost savings. In the United States, outsourcing reduces costs because outsourcing companies develop economies of scale, and a high level of expertise and efficiency in the process in which they specialize. When these services are offshored, the additional advantage of cost savings due to lower costs of labor are achieved. Companies capture savings from 30-50% by offshoring back-office functions, IT and even knowledge-based transactions.³

However, the main reason companies cite for pursuing BPO is the freedom to focus on their core businesses. To be successful in a global marketplace, companies need to reallocate resources based on strategic needs. BPO allows firms to do this.

Benefits of BPO include:

• Resource availability to work on core strategy
• Process improvement and cost savings
• Increase in delivery of new products and services to customers
• Scalability and scope⁴

GROWTH INDUSTRIES FOR BPO

Verticals that are anticipated to benefit the most from BPO include:

Insurance
Insurance carriers and self-insured firms are pushing to outsource non-core functions like claims, to reduce losses and to focus more on their core competencies. Due to the current malpractice crisis, workers' compensation costs, the insurance needs of emerging markets, and the increased liabilities and risks around the world, a strong focus on core business functions, such as underwriting, is essential.

Financial Services
Financial services firms continue to seek economies of scale and higher customer satisfaction through outsourcing of transaction-based tasks. HEALTHCARE Healthcare companies are seeing improved quality and lower costs by outsourcing such functions as billing and coding. Pioneering firms like Cambridge are gearing up to handle more complex administrative functions.

Finance and Accounting
F & A is an expense for many companies that drains needed resources. These functions require extraordinary diligence and attention to detail, all the more so with increased regulatory and compliance requirements.

Geographic Expansion of Outsourcing
The geographic areas of growth for offshoring continue to expand, yet India maintains its position as the center of the offshoring explosion. The Confederation for Indian Industry (CII) recently projected that knowledge process outsourcing to India will grow to be a $17 billion dollar industry by 2010.⁵ China and the Philippines are strengthening their position and are expected to mature while Central and Eastern Europe also offer credible markets.⁶ Meanwhile, governments of other developing countries are moving to position themselves as offshore locations. Regulations and standardizations will increase particularly with the expansion of accounting and financial outsourcing which demand data security and privacy laws.⁷

THE NEXT GENERATION OF BPO, KNOWLEDGE PROCESS OUTSOURCING

Originally, offshore outsourcing encompassed manufacturing, IT, and back-office services. Business process outsourcers then expanded this range of services to include call centers, finance and accounting, human resources, and transaction processing.

The next generation of BPO includes high end knowledge-based processes that require a level of specialized knowledge and expertise to execute within traditional service industries as well as new business areas. This level of BPO requires an understanding of how the client works. Examples of knowledge process outsourcing include claims administrations, financial and legal analysis.

India is expected to lead the charge in knowledge-based BPO due to its workforce knowledge base and lower costs.⁸ Firms like Cambridge are leading this new generation of BPO by cross-training workers in India and the U.S., importing U.S management of overseas offices, and inculcating "best practices" in their software to ensure that the same high standards are practiced consistently around the globe.

BPO AND THE U.S. ECONOMY

During the 2004 election, outsourcing became a highly politicized subject, due to fears that American jobs would be lost and American workers displaced. A more in-depth analysis reveals that outsourcing is actually a boon to the U.S. economy and that without the availability of international labor forces, the U.S. would experience the negative effects of a shortage of available workers.⁹

The facts about the impact of BPO on the U.S. economy and U.S. workers include:

• Many more jobs are being created in the U.S. with a healthy economy fueled by BPO, than are being offshored. When the number of jobs offshored are compared to the number of jobs created in the U.S., the numbers are encouraging: 10 times more jobs will be created than will be offshored. The Bureau of Labor Statistics predicts the creation of 22 million new jobs in the economy from 2002 to 2010 mostly in business sectors such as health care, social services, transportation and communications.¹⁰
• Offshoring of work is essential due to the increasing shortage of skilled labor in the U.S. Due to the aging of the American workforce; the U.S. will experience a shortage of available workers very soon. At current productivity levels, the country will need 5 percent or 15.6 million more workers by 2015 to maintain both its current ratio of workers to the total population and its living standards.¹¹
• Offshoring creates new markets for U.S. goods and services that benefit everyone. In August 2003 McKinsey estimated that every dollar of U.S. labor costs assigned overseas will generate $1.12 - $1.14 in additional value for the American economy by making goods and services cheaper and companies more competitive.¹² "Third World" countries that become centers for BPO generate economic opportunities for workers that translate into a higher standard of living and the ability to purchase more consumer goods and services, benefiting the U.S. economy by creating new markets for American goods.
• "Insourcing" provides economic benefits to the United States as well. Outsourcing presents half the picture when we examine the current trends in global trade. Insourcing, or the U.S. subsidiaries of foreign companies, considerably increased the amount of U.S. earnings for the 2003-2004 year. These companies reinvested into their American operations $62.6 billion in 2004, compared to $12.0 billion in 2003. Essentially money that insourcing companies earned stayed in the U.S. and this increase in Foreign Direct Investment offsets the low U.S. savings rates, encourages competition and creates more jobs for U.S. workers.¹³

Once the benefits of outsourcing are considered and economic value through several different channels realized in the way of reduced costs, increased revenues, repatriated earnings and the redeployment of additional labor, the outsourcing boom clearly benefits the U.S. as much as it does other countries.¹⁴

A VISION OF STRATEGIC GLOBAL RESOURCING

The global economy will be driven by successful strategic global resourcing: bringing the best and brightest minds to bear on a business' needs, in the right market at the right time. The concept of "best shoring" finds the most appropriate people in the best location to deliver a superior level of productivity and customer services.

Thanks to the Internet and technological innovation, 24/7 servicing is a reality as is global real time communication. Firms must adopt a process-oriented approach that makes no distinction between work done by a human and work done by a computer. The new generation of knowledge based outsourcing that brings processes, people and information together must evolve, and as BPO matures it will bring even more benefits to both the developed and emerging economies of the world.

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