A telecom equipment provider improved inventory accuracy by 25 percent with approximately $7.9 million worth of inventory rejects cleared. An Australian Bank improved its resolution time by 90 percent from 28 days to only two, freeing capacity by 50 percent and improving customer satisfaction. A leading auto manufacturer streamlined organization structure across affiliates, delivering $600,000 annual savings. A leading oil and refinery company improved transport lead times and supply chain performance freeing up $1.5 million working capital. All of these examples merit the tag of transformational outsourcing.

Even though the word ‘transformation’ is being used to weave different things in different contexts and different scales, it is overused by outsourcing services providers of every ilk.

“The word ‘transformation’ sounds like too much of a big bang approach. So our philosophy is that often such big bang approach starts with risks and failures. And, there are many of them in the history of corporation,” said Tiger Tyagarajan, Executive President, Business Development and the Americas, Genpact, a global Business Process Outsourcing (BPO) and IT-solutions provider. But “you are prepared for any transformation, if you have embarked on a globalization journey.”

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“In our approach, R = G where you have to look at global resources, and the approach to leverage the global resources, we need to re-think how you outsource and what outsourcing even mean to you. We call it ‘global resource leverage’. We say that don’t just go toward outsourcing just due to the point of resource availability and lower costs — those are primary reasons behind outsourcing. So start from your customer no matter which business, or which industry, you are in. The approach of innovation is changing and that is The New Age of Innovation. So we say, N = 1 and R = G. We say N = 1 because the business fundamentals that create value are changing. Combine the four key trends — connectivity, increasing digitization of business, convergence of technology, social networking — of the new age of innovation, and see a new approach (that is applicable to all the industries), which is about 'co-creation' with customers. And, focus on key questions — how do I co-create with customer? What are the skills and process required for this? Then start the leveraging resources that are available globally. And orchestrate these processes through digitized IT infrastructure. Thus, start with your customer and your process and then leverage the global resources. That’s what we call transformation outsourcing.” — Dr. M. S. Krishnan, Michael R. and Mary Kay Hallman Fellow & Professor of Business Information Technology, and Chair of Business Information Technology, University of Michigan Business School discusses and the co-author of The New Age of Innovation: Driving Co-created Value Through Global Networks

To achieve the maximum transformation, companies often offshore IT and BPO functions together. With Business Transformation Outsourcing (BTO) becoming as popular as ‘business-process re-engineering’ used to be, corporations are now inking such deals frequently. The most recent one being the transformation deal between Briston-Myers Squibb (BMS) and IBM. Under the terms of $345 million BMS-IBM BTO agreement, BMS expects strategic transformation of its global HR functions.

Is global outsourcing the way to transformation? How does transformation happen? What are the conditions that allow transformation to happen? We examine some case studies to find out the answers.

The Transformation Edge
Traditionally, a re-engineered balance sheet was the ultimate goal behind outsourcing engagements. Gradually, customers’ expectations have risen. They are now focusing on business transformation that creates sustainable value.

Even though BTO engagements are expected to increase the bottom line and the top line for customers, they are actually set on a broader scale in order to achieve the overall business value with improved positioning in the marketplace.

For instance, Ingenix selected Genpact to improve quality, costs savings, businesses transformation, BPO, IT Outsourcing (ITO) and Knowledge Process Outsourcing (KPO) integration, building a significant workforce globally by the end of 2008 while retaining U.S. employees, create new business models and revenue opportunities, combine service with technology, drive 24-hour process cycles. Quite a list of objectives!
“Our engagement has had several goals, with transformation being only one of them. We had to be
very focused on driving the transformation agenda, especially as other near-term initiatives can easily take precedence,” Melissa Tzourakis, VP, Global Operations, Ingenix Business Solutions.

Ingenix’s transformation initiatives focus on three key areas: First, ‘right-sourcing’ for skills. In India, and through Genpact, the company aims to hire bio-statisticians and other specialized skills, which are unaffordable in the U.S. Second, transformation of processes in the U.S. and India. As an organization, Ingenix lacked the skilled resources to make desired progress on its process improvement and re-engineering initiatives. Here, Genpact is expected to provide end-to-end reviews of core processes, re-engineer them and eliminate the non-value-added steps. It has begun to change how Ingenix as an organization looked at its processes and metrics, and to have a more ‘grass roots’ effect on its culture. Third, driving innovation across the organization. In bringing together teams with deep healthcare domain expertise from the U.S. and with strong process, quality and analytical discipline from Genpact, the company also aspires to drive innovation within the organization through the combination of these skills. The company has several projects underway specifically in the analytics area that will contribute to its innovation initiatives.

“For processes we use strictly financial metrics: How has the change contributed to our bottom line? For right sourcing, it is productivity; and for innovation it would be successful launches of new products or initiatives which will also have a financial impact,” said Tzourakis.

“In order to reach the transformative stage, one needs to go through the transition stage and build a team and capabilities. Some of the work we took on was very complex, and some of these pieces took over a year to transition. So we did have to be careful to ensure we were successful at the transition first, providing value to the operational teams. Otherwise it is a challenge to get the attention or develop credibility to start another initiative that would require time and resources,” said
Ingenix’s Tzourakis.

Most importantly, through this partnership, the company has implemented common metrics across many of its sourced processes. This allows Ingenix to better manage its sourced and onshore processes.