The Future of Business

Process Outsourcing
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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.

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Long-Term Business Pressures Drive
More Outsourcing

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Moving Up the Value Chain

Future

Business
Functions
Complex
Simple Processes
Processes

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

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The Evolution of BPO Models

Offshore Commodity
Offshore BPO
Transformational
Offshore BPO
Example: GE Capital
(Payroll Services)

Commodity Transformational
Onshore BPO Onshore BPO

Example: CSC, EDS Example: Sabre

(IT Services) (Travel Services)
Onshore

Commodity BPO Transformational BPO

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 Approaches to BPO

Bottom-Up Approach Top-Down Approach

Growth Opportunity: Niche Leverage:
• Identify complex processes vertical apps • Deep process expertise in
that require industry / domain vertical industries
expertise • Trusted partner relationships
• Build differentiated High-volume and reputations
competencies that boost vertical To Create:
market position processes • Highly customized, industry-
To Create: specific services
• Best-of-breed commodity • Long-term differentiation /
Broad competitive advantage
services shared
• Immediate cost savings services Growth Opportunity:
• Flawless process execution • Leverage outsourcing
competency to reduce costs
Leverage: Simple bulk and boost performance
• Economies of scale transactions throughout value chain
• Labor arbitrage opportunities processing • Consider “retailing” services
• Industry best practices to competitors

Source: Cognizant Analysis of Forrester Research Report: “BPO’s Fragmented Future”, August, 2003.
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Emerging Offshore BPO Opportunities
Banking /
Financial Services Healthcare Insurance Other Verticals
• Transaction • R&D
• Medical billing • Insurance
processing • Equity Research
• Claims application
• Credit Card / processing & processing • Clinical Trials
Check adjudication • Claims • Revenue
processing
• Member processing & Accounting
• Loan processing management adjudication (Airlines)
• Mortgage services • Member • Engineering
processing • Medical management Design
transcription services
• Collections • 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 Cons

Outsourced Service • Can get going quickly • Higher ongoing P&L

• Lower client cost vs. alternatives
management overhead • Limited value creation
potential for client
• Less control
Service
Arrangement Build Operate Transfer • Eases entry into • Limited value creation
offshore operation with (captive)
experienced partner • No ownership Day 1
• Lower long-term cost • Retention
• Complete control • Only 2nd tier partners

Service Management • Leverage partner’s • Limited value creation

offshore infrastructure (captive)
and experience
Joint • Ownership Day 1
• Lower costs (initial and
Venture long-term)

People & Investment • Leverage partner’s • Value creation

offshore infrastructure opportunity (if non-
and experience captive)
• Exit issues

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Offshoring and Reengineering Can Lead
to Dramatic Performance Improvements

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 Opportunity for Value Creation - FDC
(FORMERLY AMEX INFORMATION SERVICES)
LOB Highlights
• Provides bank card processing,
Bank card
payment products for Mastercard, Visa,
processing/
American Express, and numerous
receivables
private-label cards
• Recent expansion in receivables
management (American Creditors
Bureau, Ingram)
Telemarketing • Provides inbound and outbound
services telemarketing services and, through
joint venture with AT&T, interactive
services for 800/900 telephone industry
• Manages the processing for 20 million
Mutual fund
mutual fund shareholder accounts
services
Source: 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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 Cognizant’s Initial Approach

Transformational Outsourcing

Clients Joint Analysis Cognizant

• Industry Value Chain • Excellence in Offshore
• Deep Process • Industry Competitive Recruiting/People,
Experience Forces Processes/Infrastructure
• Company Core • Excellence in Delivering
• Deep Industry Competencies High-quality Services
Expertise • Business Strategy Remotely
• Company Outsourcing • Established Market
Readiness 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

Feasibility
Scope Discovery Analysis
Assessment

• Inventory key business • Identify root drivers of • Determine cost savings • Determine BPO structure
processes and current process costs and per business process model
SLA parameters inefficiencies based on task • Identify pilot
• Catalog support • Gather transaction migration and • Determine resource
technology platform volume data and improvement requirements
requirements and skill model across • Identify costs of • Identify changes to support
sets of support staff processes process migrations process in
• Map underlying • Identify any key onshore/offshore model
support systems sequencing needs

Undertake a BPO strategy assessment to determine which

processes to outsource, financial impact and
implementation plan

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Cognizant Service Offering
Cognizant’s Business Technology Consulting Group in concert with its
vertical practices, works with clients in BPO strategy engagements

These engagements last from 8-12 weeks, depending upon scope typically
deliver:
• An assessment of suitability of select business process outsourcing
based on economics, integration with other processes, systems and
skill requirements

• A step-by-step plan for creating a BPO operation that mitigates risk

and provides senior management focused measures and controls for
BPO management

For for information, contact:

Kaushik Bhaumik
VP, Business Technology Consulting
(925) 790-2012
Kaushik.bhaumik@cognizant.com
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