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Excerpt of paper published in 2007 by Hewlett-Packard.

Executive Summary

While cost pressures continue to drive business process outsourcing (BPO) decisions, companies increasingly seek improvement in business outcomes and "transformative" advantages when outsourcing finance and accounting, human resources, procurement, and other business processes.

The advantages to be gained by leveraging the "operational excellence" of partners - including better business outcomes and results, process innovation, efficiency, standardization, improved quality, data privacy, security, continuity, and compliance - can be as important as the traditional outsourcing benefits of lower labor costs and asset transfer.

Introduction

Accelerating business performance improvement by leveraging a BPO partner's operational expertise, capabilities, and assets is a strategy that is gaining attention among organizations that outsource business processes. Business functions such as finance and accounting, human resources, and procurement, traditionally viewed as support functions, are now seen as areas of opportunity - where a strategic partner's ability to improve process quality, speed, security, continuity, and compliance can deliver significant additional cost savings, reduce risk, and enhance competitive advantage. As such, "operational excellence" is fast becoming a critical factor when selecting a BPO provider.

Streamlining and automating Accounts Receivable (AR) processes, for example, can significantly reduce a company's Days Sales Outstanding, removing debt from the corporate balance sheet, decreasing working capital levels, and freeing up cash for investment or debt reduction.

Defining Operational Excellence

Operational excellence is something every business says they want to achieve and every service provider claims to provide. But what is it - and what should one look for in evaluating a BPO partner?

Since different organizations use different terms and approaches, defining operational excellence can be almost as difficult as achieving it. At its simplest and most universal, however, operational excellence can be defined as the ongoing optimization of processes - and the superior execution of those processes - in order to improve quality and efficiency while reducing risk and cost.

Regardless of terminology, it is becoming clear that making an impact on business performance requires excellence that spans the entire process - including inputs and outputs from the client as well as the service provider.

To gauge the operational excellence of a potential BPO partner, therefore, outsourcing organizations need to look beyond point improvements and the ability to administer specific business functions at a transactional level. A realistic evaluation requires looking "behind the scenes" at the maturity of the service provider's people, process, and technology - and their commitment to end-to-end excellence as backed by investment in an ongoing and formal program.

The Need for a Holistic, Lifecycle Approach

Achieving measurable, predictable, and sustainable business performance improvements requires a holistic, multi-disciplinary, and end-to-end approach to operational excellence across people, process, and technology - with the ability to respond quickly and effectively to changes over time.

When outsourcing critical business processes such as finance and accounting, it is especially important to go beyond the words and evaluate the methodologies, approach, tools, and practices used to provide the highest quality, predictability, and control. Outsourcing organizations should look for standardized procedures and a formal operational excellence program that spans the entire BPO lifecycle - from initial benchmarking, assessment, and analysis through process design, transition, and ongoing improvement - and that includes:

1. Knowledge management and transfer
2. Business continuity planning
3. Data privacy and security
4. Organizational development and training
5. Quality
6. Industrial engineering/Continuous process improvement
7. Business controls
8. Process engineering
9. Audits (internal and external)
10. Compliance

Conclusion

For companies outsourcing finance and accounting as well as other critical business functions, operational excellence in their BPO partner is a "must have" - for the predictable, consistent delivery of a high-quality operation. This requirement, combined with the opportunity to leverage the investments of a partner to accelerate business transformation, makes careful scrutiny of the operational sophistication, practices, investments, and quality of resources of that partner more important than ever.

Optimized, compliant, and resilient business processes that maintain secure and well-protected information assets significantly reduce legal exposure and the possibility of negative impact to reputation and brand. They also lead to improvements in cost, customer satisfaction, and productivity.

© 2007 Hewlett-Packard Development Company, L.P.