Outsourcing trend stymied by lack of standards

Business process outsourcing carries risks due to the absence of accepted best practice, attendees at a recent conference say. Patrick Thibodeau reports

Business process outsourcing (BPO) is still so new that when Sharon Taylor, vice president of corporate human resources at Prudential Financial, describes her experience, she has the authority of a veteran — even though Prudential is just four years into a seven-year contract.

But four years of experience is “about as mature as it gets in this space” says Taylor, who helped build a business case for Prudential, which has some 40,000 employees, to outsource its human resources functions.

“There really wasn’t much of a roadmap, but we knew the outcome that we needed to have,” she told attendees at a recent IDC outsourcing forum. Prudential outsourced its HR to Exult, which merged with Hewitt Associates in 2004.

Taylor, recently elected chairwoman of the Human Resources Outsourcing Association in Washington DC, is now helping to write a roadmap that may help other users. The group is developing a set of best practices and “next practices” — things users are likely to need from service providers as the industry develops, she says.

BPO covers a galaxy of services, especially in finance, such as claims processing, reconciliation, collection, transaction services and tax preparation — anything that can be delivered via the internet — and it’s growing rapidly, according to IDC. Worldwide spending on BPO last year was about US$425 billion (NZ$703 billion) and it’s expected to grow 11% annually through to 2009.

“It’s definitely becoming a more accepted way of managing a business,” says Katrina Menzigian, vice president of business solutions for BPO services research at IDC. “It’s not quite mainstream, but it’s on the path.”

One thing that many BPO services don’t yet have are standards similar to those commonly used in IT, such as ITIL and CMM.

While there are some standards for business processes, they’re far from universal and, more important, there’s no push to adopt them, as the US Department of Defence has done with Carnegie Mellon’s software maturity standards.

If a vendor claims to be good at providing human resources BPO, “you have to take their word for it, because there is no standard for them to adhere [to],” says Tom Davenport, a professor of IT and management at Babson College.

This lack of BPO standards increases IT costs, Davenport says, because if business services use various methods and procedures for processing similar work, that means applications must be customised to meet the unique needs of those internal processes. Business process commoditisation would mean “less customisation of software” and would also accelerate the use of BPO, he says.

Similarly, Michael Monaghan, senior vice president of the outsourcing strategy group of financial services provicer Wachovia, says some of the processes at his bank adhere to standards, while others don’t. “It’s on a case-by-case basis. It’s not universal or ubiquitous,” he says. Standards would help reduce cost in areas such as application support, he says.

Prudential’s Taylor says she believes the work of the association she now heads may ultimately help users develop better performance measures for checking the work of a service provider and use that collective experience to create “a convergence of what excellence looks like”.

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Tags outsourcingmanagementstandards

More about Department of DefenceExultHewitt AssociatesIDC AustraliaMellonPrudentialWachovia

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