The Future of Business Process

Outsourcing

The BPO Hype Cycle

Rising investments
Explosion in # of
new entrants
Market confusion
Valuation spikes
Market CAGR
estimates range
from 50% - 80% for
the next five years

Source: Gartner Group, The Hype Cycle for IT Services, June 6, 2003.

Long-Term Business Pressures Drive

More Outsourcing

Moving Up the Value Chain

Future

Simple
Processes

Complex
Processes

Business
Functions

Source: Edelweiss Capital, Business Process Outsourcing: Coming of Age?, May 2003

The Evolution of BPO Models

Offshore

Commodity
Offshore BPO
Example: GE Capital
(Payroll Services)

Onshore

Transformational
Offshore BPO

Commodity
Onshore BPO

Transformational
Onshore BPO

Example: CSC, EDS

(IT Services)

Example: Sabre
(Travel Services)

Commodity BPO

Transformational BPO

Approaches to BPO
Bottom-Up Approach
Growth Opportunity:
Identify complex processes
that require industry / domain
expertise
Build differentiated
competencies that boost
market position

Top-Down Approach
Niche
vertical apps

High-volume
vertical
processes

To Create:
Best-of-breed commodity
services
Immediate cost savings
Flawless process execution

Broad
shared
services

Leverage:
Economies of scale
Labor arbitrage opportunities
Industry best practices

Simple bulk
transactions
processing

Leverage:
Deep process expertise in
vertical industries
Trusted partner relationships
and reputations
To Create:
Highly customized, industryspecific services
Long-term differentiation /
competitive advantage
Growth Opportunity:
Leverage outsourcing
competency to reduce costs
and boost performance
throughout value chain
Consider retailing services
to competitors

Source: Cognizant Analysis of Forrester Research Report: BPOs Fragmented Future, August, 2003.

Emerging Offshore BPO Opportunities

Banking /
Financial Services
Transaction
processing
Credit Card /
Check
processing
Loan processing
Mortgage
processing
Collections

Healthcare
Medical billing
Claims
processing &
adjudication
Member
management
services
Medical
transcription

Insurance
Insurance
application
processing

Other Verticals
R&D
Equity Research
Clinical Trials

Claims
processing &
adjudication

Revenue
Accounting
(Airlines)

Member
management
services

Engineering
Design
Architecture

Sales and Marketing

Contact centers, telesales/telemarketing, customer care, web sales and marketing, market analysis
Human Resources
Payroll processing, benefits administration, HR administration
Finance and Accounting
Accounts receivables / payables / general accounting, financial reporting, shareholder services
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Possible BPO Structures

Pros
Outsourced Service

Service
Arrangement

Cons

Can get going quickly

Higher ongoing P&L
cost vs. alternatives
Lower client
management overhead Limited value creation
potential for client
Less control
Eases entry into
offshore operation with
experienced partner
Lower long-term cost
Complete control

Limited value creation

(captive)
No ownership Day 1
Retention
Only 2nd tier partners

Service Management

Leverage partners
offshore infrastructure
and experience
Ownership Day 1
Lower costs (initial and
long-term)

Limited value creation

(captive)

People & Investment

Leverage partners
offshore infrastructure
and experience

Value creation
opportunity (if noncaptive)

Build Operate Transfer

Joint
Venture

Exit issues
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Offshoring and Reengineering Can Lead

to Dramatic Performance Improvements

Opportunity for Value Creation - FDC

(FORMERLY AMEX INFORMATION SERVICES)
Highlights

LOB
Bank card
processing/
receivables

Telemarketing
services

Mutual fund
services

Source:

Provides bank card processing,

payment products for Mastercard, Visa,
American Express, and numerous
private-label cards
Recent expansion in receivables
management (American Creditors
Bureau, Ingram)

Provides inbound and outbound

telemarketing services and, through
joint venture with AT&T, interactive
services for 800/900 telephone industry
Manages the processing for 20 million
mutual fund shareholder accounts

FDC annual reports; industry articles; Datamation

Results
2002 Revenues: $7.636 billion
2002 Earnings: $1.238 billion
AMEX sold 40 million shares
(40% ownership) in early 1992
for $22/share; recently traded at
$160/share (split-adjusted)
AMEX further reduced stake to
22% through second offering
worth approximately $1 billion in
1993
Acquired FFMC (August 1995)
for expanded operation and
greater economies of scale
Finalizing acquisition of Concord
EFS

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Cognizants Initial Approach

Transformational Outsourcing
Clients
Deep Process
Experience
Deep Industry
Expertise

Joint Analysis
Industry Value Chain
Industry Competitive
Forces
Company Core
Competencies
Business Strategy
Company Outsourcing
Readiness

Cognizant
Excellence in Offshore
Recruiting/People,
Processes/Infrastructure
Excellence in Delivering
High-quality Services
Remotely
Established Market
Leader in the India Space

Strategic Outsourcing
Decisions
Highly Customized Service
Offerings
Long-term Competitive
Advantage
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Strategy To Drive BPO Decisions

Scope

Inventory key business

processes and current
SLA parameters
Catalog support
technology platform
requirements and skill
sets of support staff

Discovery

Identify root drivers of

process costs and
inefficiencies
Gather transaction
volume data and
model across
processes
Map underlying
support systems

Analysis

Determine cost savings

per business process
based on task
migration and
improvement
Identify costs of
process migrations
Identify any key
sequencing needs

Feasibility
Assessment

Determine BPO structure

model
Identify pilot
Determine resource
requirements
Identify changes to support
process in
onshore/offshore model

Undertake a BPO strategy assessment to determine which

processes to outsource, financial impact and
implementation plan

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