Business Transformation Outsourcing

  • May 2020
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Business Transformation Outsourcing Business Transformation Outsourcing (BTO) is an extension of BPO, a strategic partnership between the customer and the outsourcer with the advantage of sophisticated financing mechanisms. BTO involves sharing risks and gains with an outsource business partner. It is all about governing the priorities, people and processes of organizations. It merges IT and business strategy of a company while optimizing quality, performance and business availability. In today's dynamic global business environment, most of the companies are finding it increasingly difficult to create a competitive differentiation, achieve economic growth and still have their overall business objectives aligned with their people, processes and functions. The focus from Business Process Outsourcing is slowly shifting to Business Transformation Outsourcing which serves as a more comprehensive model in terms of improving a company's economic objective, market position and return on investment.

™ A Strategic partnership, aims to maximize the benefits of outsourcing, transforming the business and improving performance ™ Provides comprehensive set of services across the entire organization resulting in a pre-decided output ™ Involves the transfer of responsibility for all backoffice functions, as well as a comprehensive business change management process

Enabling Business Transformation with Service Control, Creation and Integration capabilities

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Achieving Business Goals Through Outsourcing In an uncertain economy, companies are seeking innovative, cost-effective ways to enhance shareholder value and satisfy strategic and management needs. One way of reaching those objectives is to streamline Business processes through a global resource strategy. A BTO vendor offers a unique value proposition for companies looking to transform their business processes. A transformational outsourcing solution focuses on helping enterprises address and resolve key issues that affect all aspects of the organization. These solutions consider those businesses and IT infrastructure design, consulting services, and IT integration challenges that are unique to each industry. Merits Of Business Transformation Outsourcing Services Business transformation outsourcing might be a recent addition to outsourcing services; it's likely that it will become hugely successful in the near future, especially after 2008 recession. In just few years of inception, it has proved so useful that most experts in the industry believe that it is the future of outsourcing which transforms business and improve performance. Transformational outsourcing is different and certainly a lot more beneficial because it does not limit itself to the achievement of pre-defined goals and objectives. Using concepts prescribed by time-tested quality improvement techniques like six sigma, BTO aims at making the necessary changes in the process itself rather than just implement upon a pre-determined routine. By identifying bugs and issues in the outsourced process and by devising appropriate solutions for the same in consultations with the client, transformational outsourcing unlocks the full potential of an outsourced business process. The key advantage of BTO is it enables to transform Client Company’s business with industry best practices so it can compete efficiently in the Industry. BTO also helps companies to quickly adopt changes in market conditions and this will be the key for companies to survive and thrive in an era of volatile market and shifting customer demands and priorities.

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Business transformation outsourcing offers immediate cost savings through traditional outsourcing while creating longer-term business advantage through high-end strategic consulting and integration services

Benefits of Transformational Outsourcing • • • • • • •

IT cost reduction Annual operating cost reduction Product development cycle reduced On time shipments improved Moved to common processes globally Significantly reduced complexity in major processes Consolidation and standardization

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Risks And Challenges Besides Business Transformation Outsourcing There are significant risks associated in any BTO engagements between the client and the BTO vendor. The BTO vendor needs to get full control of the business process so they can adjust and change it as needed. For client it may not be easy to give full ownership of the business process to the BTO vendor because of internal structure of the company. The IT systems and technologies of a company have to be properly aligned with their business processes. The client has to give control to their IT systems and the corresponding business processes to the BTO vendor to succeed in their efforts. As the part of their business transformation strategy BTO vendors may change the client’s IT systems and this will be a significant risk to the client employees in managing their regular day today operations. There are other challenges in BTO adoption, the policies and pricing models are complex and in most part it is untested. Managing BTO deals are complex and client companies must have proper tools and systems to adequately manage and measure the relationship. For the client companies one of the greatest risks of BTO is the intellectual capital of their business processes that distinguishes it with their competitors. Strategic Partnering And Leverage As in any supply relationship, opportunity always exists for the purchaser and provider to lift the quality and level of engagement. By adopting a business partnership model for technology procurement and integration, a technology provider and service provider can leverage the areas where the technology provider offers comparative advantages and expertise, compared to the service provider's in-house capabilities

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BPO Vs. BTO Business Process Outsourcing

Business Transformation Outsourcing

™ Often a discrete function within an overall ™ BTO vendor will own the entire business business process is outsourced, the BPO process of their client’s company and adds vendor maintains the discrete business strategic value by bringing process and function for their client company, there is business efficiency to the entire company little or no value added by the BPO vendor o E.g. BTO vendors will manage and o E.g. An accounting business process transform the entire accounting and BPO vendors will mange accounting financial processes of their client’s functions like bookkeeping, Accounts company Payable, and Accounts Receivable ™ BPO vendors have generic skills in managing ™ BTO vendors will have deep vertical business the entire business processes or some expertise in particular businesses like functions within the overall business process Accounting, Legal, and HR o Even within Accounting they will have strong expertise in particular industry like retail, manufacturing, and hospitality ™ BPO contract between the client and vendor ™ BTO contracts are fundamentally different is simple, have a specific contract written for and it is complex in nature. Both BTO vendor the BPO tasks and BPO vendor gets a flat fee and the client must have a mutual trust for their work between each other and often they need to o In some cases BPO vendors will be engage in partnerships to share the risks and paid based on their performance rewards o BPO contracts are simple and easy to mange and monitor ™ Cost saving is the main reason companies opt ™ BTO relationships are long-term and often for BPO relationships and most of the time formed to increase shareholder values by senior managers or Vice presidents can creating new business ventures and directly engage with the BPO vendors to form partnerships the relationship o The BTO relationship is established o If the BPO vendor doesn’t provide the with strong commitment with the Cnecessary cost savings, clients can cancel level executives from the client the contract company with the BTO vendor

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Business Transformation In Small And Medium Businesses (SMB’s) In today’s economic world, the written “Big companies stayed big, small companies struggled to succeed” is getting turned tremendously. Today's business success story is old news by tomorrow's papers. Today's small player is just one good idea away from next season's big score. Greater change means greater opportunity. But to take advantage of it, the firm needs to change its business model. In fact, the company needs to build change into its business model, to create an organization flexible and resilient enough to reinvent itself continuously as it works to seize opportunities and dodge obstacles. Because in the on demand era, companies succeed only as long as they can transform themselves quickly, consistently and with the bare minimum of layoffs, write-offs and uncertainty. Flexible business models are at the heart of this new, resilient organization. They allow companies to seize new opportunities and dodge incoming threats with minimal trauma to employees, stockholders and business partners. Why Business Transformation In SMB’s? Since, everything around the business is changing and because the list of things that are changing. The constant that take for granted today like the supplier, the foreign government, the pricing structure might be gone tomorrow. That means that the company has to build flexibility into its business processes by moving quickly towards cheaper supplier, when found and can cut the prices; Get into a new market when Government upheaval; Cover costs when prices jump. Challenges that business transformation can help solve • Consumers are growing more demanding • Profits matter more than ever • Productivity is growing • Threats are unpredictable Tholons, the research and advisory company, in a recent research showed that small and medium businesses (SMB’s) in the Western countries, mainly the US are opting for BTO services and Business Process Services (BPS) to streamline their businesses and cut costs. Future Of BTO Unlike BPO, Business Transformation Outsourcing does not have a standard structure yet; each deal is unique in nature and there are significant risks associated with the BTO. But this does not stop the SMB’s in signing BTO contracts with consulting firms which could eventually result radical change in business aspects, especially during this Late 2000’s recession.

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Business Transformation Outsourcing - Case Studies TLX Technologies LLC, a Waukesha-based designer and manufacturer of electrical actuators, solenoids and control valves for the automotive, industrial, commercial goods and off-road equipment markets, has retained the Wisconsin Manufacturing Extension Partnership (WMEP) to perform an enterprise business transformation project.

TLX Technologies Retains WMEP For Its Transformation Project

TLX had about 30-percent growth in 2008 and anticipates 20- to 30-percent growth in 2009. The company employs 25 people now and anticipates adding 10 to 15 more workers by the end of 2010. The goal is long-term sustainable growth and WMEP is giving TLX the tools to grow effectively. The project will analyze the company's operations, identify priorities to make it more competitive and create a list of action items that it needs to execute within the next 18 months. WMEP has already helped TLX halve its production line downtime by mapping its manufacturing processes related to scrap.

UK’s 2nd largest grocery retailer, J. Sainsbury found its premier position slipped over the years as costs were rising faster than revenues, and profits had moved substantially. It resulted J. Sainsbury’s profits fall by 40% and significant decline in share price and market capitalization. Hastening the slide also introduced new competitive threats from other grocery retailers like Asda and Safeway.

J. Sainsbury’s Groundbreaking Partnership, Transforming Finance And Its Capabilities

Calling for aggressive action, J. Sainsbury’s board hired Sir Peter Davis as CEO and gave him a mandate for radical change. Within months, in order to regain the firm’s market leadership, he had entered into a BTO deal with a large consulting firm to serve as the company’s prime adviser to design and help implement a strategic repositioning and comprehensive transformation management program. This groundbreaking partnership includes innovative financial structuring that makes future cost saving available up front to finance strategic investments. It also includes transformation of critical IT capabilities: J. Sainsbury has transferred 800 employees to the partner firm which now runs all the company’s IT systems and networks.

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Business Transformation Outsourcing - Case Studies (Cont...)

Bristol-Myers Squibb has signed a BTO contract with IBM to transform and support many of the company's global human resource (HR) functions. This agreement will allow BMS to provide flexible and available HR services to ensure that its employees across the globe have access to information and services.

IBM’s (BTO) Agreement With Bristol-Myers Squibb (BMS) To Transform And Support HR Functions

Under the agreement, IBM will provide compensation, benefits, recruiting, learning, payroll administration, call center support and related IT systems services to BMS. Additionally, IBM will implement a SAP solution and integrate Bristol-Myers Squibb's global workforce data into one portal that can be accessed by employees, managers and HR professionals around the globe. Through the agreement BMS seeks to achieve a more integrated and improved employee experience, reduced costs, improved operational efficiency and access to innovative solutions in upcoming years.

Penske Truck Leasing, a Reading-PA based truck operator ties up with the leading offshore partner in India (Genpact) which essentially acts as a virtual subsidiary of Penske to improve efficiency and customer service. The relationship between them, which spans more than 30 different business processes, illustrates the length to which some companies are now leveraging offshore skilled labor.

Penske’s Truck-Leasing Outfit Works With Leading Offshore Partner To Improve Efficiency And Customer Service

When a truck is leased for an interstate trip, Genpact's Indian staff checks the customer's credit status and arrange for all of the necessary permits. If the truck gets stuck at a weigh station because it lacks a required fuel permit, the driver calls an 800 number, and Indian workers have the necessary document transmitted to the weigh station to get the vehicle back on the road within a half-hour. When a ride is finished, the entire driver's log is shipped to a Genpact facility in Juarez, Mexico, where mileage, tax, toll, and fuel data are punched into Penske computers and then processed in India. When Penske sells the truck, staff in Mexico records the transaction Genpact also is starting to help Penske manage its logistical services, such as arranging just-intime delivery of components to U.S. factories and shipping finished goods to retailers and home consumers. The top objective is not to cut costs, but the prime driver was to improve efficiency and customer service.

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Transformational Outsourcing - Objective And Approach

Objective Partner Role

Approach

Conventional Outsourcing

Collaborative Outsourcing

Business Transformational Outsourcing

Hand off support function to specialist provider to cut costs and focus managers on core issues. Run support function

Upgrade non-core processes to cut expenses and provide flexibility to respond To changing business needs. Re-engineer and run noncore processes

Transform the way a business works to achieve dramatic sustainable enterprise-level performance improvement Collaborate to transform business

ƒ Standardized services ƒ Transaction-based, fee for service pricing ƒ Narrow scale and scope of service

ƒ Flexible, tailored services ƒ Output-based, gainshare pricing ƒ Services scaled to meet changing business needs

ƒ Integrated services to change business radically ƒ Outcome-based, sharedrisk financial structure ƒ Accelerated delivery

Typical Benefits

Inputs

Outputs

ƒ Access to best practices ƒ 20-50% cost saving ƒ Improved management focus ƒ Improved career opportunities ƒ Same, consistent service level ƒ Shared financial risk

ƒ Access to competitive skills ƒ 50% cost saving ƒ Improved management focus ƒ Improved career opportunities ƒ Higher, consistent service level ƒ Improved flexibility, speed ƒ Shared operating risk

ƒ Access to critical skills ƒ 50% cost saving ƒ Improved management focus ƒ Improved career opportunities ƒ Higher, consistent service level ƒ Improved flexibility, speed ƒ Shared strategic risk

ƒ Revenue doubled ƒ 50% market share increase ƒ Basis of competition changed

Outcomes

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