Business Transformation Outsourcing

Business Transformation Outsourcing

(BTO) is an extension of BPO, a strategic
partnership between the customer and the ™ A Strategic partnership, aims
outsourcer with the advantage of sophisticated to maximize the benefits of
financing mechanisms. BTO involves sharing
outsourcing, transforming the
risks and gains with an outsource business
partner. It is all about governing the priorities, business and improving
people and processes of organizations. It merges performance
IT and business strategy of a company while
optimizing quality, performance and business ™ Provides comprehensive set
availability. of services across the entire
organization resulting in a
In today's dynamic global business
environment, most of the companies are finding it pre-decided output
increasingly difficult to create a competitive
differentiation, achieve economic growth and still ™ Involves the transfer of
have their overall business objectives aligned with responsibility for all back-
their people, processes and functions. The focus office functions, as well as a
from Business Process Outsourcing is slowly
comprehensive business
shifting to Business Transformation Outsourcing
which serves as a more comprehensive model in change management process
terms of improving a company's economic
objective, market position and return on
investment.

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 Business transformation outsourcing offers

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.
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 C-
necessary 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 TLX Technologies
for the automotive, industrial, commercial goods and off-road Retains WMEP For Its
equipment markets, has retained the Wisconsin Manufacturing Transformation
Extension Partnership (WMEP) to perform an enterprise business Project
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 J. Sainsbury’s
faster than revenues, and profits had moved substantially. It Groundbreaking
resulted J. Sainsbury’s profits fall by 40% and significant
Partnership, Transforming
decline in share price and market capitalization. Hastening
the slide also introduced new competitive threats from other Finance And Its
grocery retailers like Asda and Safeway. 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 IBM’s (BTO) Agreement
resource (HR) functions. This agreement will allow BMS to With Bristol-Myers
provide flexible and available HR services to ensure that its Squibb (BMS) To
employees across the globe have access to information and Transform And Support
services. 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) Penske’s Truck-Leasing
which essentially acts as a virtual subsidiary of Penske to Outfit Works With
improve efficiency and customer service. The relationship Leading Offshore Partner
between them, which spans more than 30 different business To Improve Efficiency
processes, illustrates the length to which some companies are And Customer Service
now leveraging offshore skilled labor.

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-in-
time 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

Conventional Collaborative Business

Outsourcing Outsourcing Transformational
Outsourcing
Hand off support Upgrade non-core Transform the way a
function to specialist processes to cut expenses business works to achieve
Objective provider to cut costs and and provide flexibility to dramatic sustainable
focus managers on core respond To changing enterprise-level
issues. business needs. performance improvement
Partner Run support function Re-engineer and run non- Collaborate to transform
Role core processes business
ƒ Standardized services ƒ Flexible, tailored ƒ Integrated services to
ƒ Transaction-based, fee services change business
for service pricing ƒ Output-based, radically
Approach ƒ Narrow scale and gainshare pricing ƒ Outcome-based, shared-
scope of service ƒ Services scaled to risk financial structure
meet changing ƒ Accelerated delivery
business needs

Typical Benefits

ƒ Access to best ƒ Access to competitive ƒ Access to critical skills

practices skills ƒ 50% cost saving
ƒ 20-50% cost saving ƒ 50% cost saving ƒ Improved management
Inputs ƒ Improved management ƒ Improved management focus
focus focus ƒ Improved career
ƒ Improved career ƒ Improved career opportunities
opportunities opportunities
ƒ Same, consistent ƒ Higher, consistent ƒ Higher, consistent
service level service level service level
Outputs ƒ Shared financial risk ƒ Improved flexibility, ƒ Improved flexibility,
speed speed
ƒ Shared operating risk ƒ Shared strategic risk
ƒ Revenue doubled
ƒ 50% market share
Outcomes increase
ƒ Basis of competition
changed

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