Explosive growth expected in business process outsourcing

THERE'S explosive growth in business process outsourcing. The estimate is that by 2005 it will be a US$500bil market worldwide. 

“What we are seeing today is 20% - 30% growth rate,” David E. Wirt, director, major sales pursuits (Asia and Japan) of Hong Kong-based Electronic Data Systems Corp, said in an interview.  

“The reason why business process outsourcing is taking off is because you can come back and you can guarantee the benefit or something,” he explained.  

“You can, say, guarantee that the credit card will be processed cheaper, for the whole spectrum – from the call centre portion of it down to the actual statement printing for the client, and everything in-between. 

“You can give a business matrix on how fast you will process an application for a credit card before they receive their credit card, you can give a business matrix on how fast you will process their claims.” 

While outsourcing as a trend has yet to take off in Asia, Wirt said, other parts of the world are now moving beyond IT outsourcing.  

“A lot of people are looking at business process outsourcing right now, looking at where is their core competency, and outsourcing what is not.” 

He finds this situation ironic, considering that Asia had pioneered and led the world in outsourcing: in this context, contract manufacture. Industrialists in the West had outsourced manufacturing to Asian producers to take advantage of the lower cost of production in Asia. 

Similarly, Wirt argued, outsourcing IT applications and business processes can result in cost savings. But it differs from company to company, and from market segment to market segment.  

As a ballpark figure, traditional savings from IT outsourcing are 10% - 20%; for a stand-alone business process management, somewhere around 20% - 30%; and for a utility type model, up to 40% - 50%. 

The cost savings is why some organisations look at the utility model. But there is a downside. If it is not a dedicated environment, there are some issues around which increase the fear factor that the organisation's information may be compromised.  

Wirt was quick to allay such fears.  

“We protect that information, make sure that there are proper walls in place to ensure none of that, from the security perspective, goes from one client to another,” he said.  

But cost savings is only one factor. Wirt explains: “The classic example I always use is credit cards. You probably have a bunch of credit cards in your wallet today, but if you think about why you selected those credit cards, it probably has more to do with the marketing programme, say, they gave you a free gift. 

“Handling the calls for credit cards is very commoditised, it's not high value add. It's about extracting information about the client, about his spending habit. CRM (customer relationship management) ... that's where the real value is.” 

Asked on fraud prevention, he said there was technology that could be deployed, and measures that could be put in place. 

To another question, he replied: “No, we don't indemnify the card issuer. They will have the same risks as before. But usually what we can show them is the business benefit. We tell them 'If you allow us to do the following things we can cut fraud risks'. You never take fraud to zero; unfortunately it's a fact.” 

But, at the end of the day, Wirt added, cost savings considerations make up only 20% of the decision to outsource or not to outsource. 

“Eighty percent of the time the decision is made on how we manage the transition.  

“It is the relationship, the cultural fit within the organisation, the governance model, things which you can't quantify and measure, like 'How do I know I will get attention? Do I fit in?'“  

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