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Successful offshore outsourcing

243 Comments · Business outsourcing

The exploration of how companies are using business process outsourcing (BPO) will begin with a story about a successful offshore initiative.

The popular media is currently alive with discussion about offshore outsourcing and its impact on U.S. jobs.

Although no opinion is offered in this article regarding the macroeconomic advantages or disadvantages of offshore BPO, we examine the practice from a business perspective.

In this case, the offshore strategy employed by Metropolitan Life through a domestic outsourcing consultant has achieved its cost-reduction and quality objectives.

Metropolitan Life Insurance (MetLife) is the largest life insurer in the United States with approximately $2.1 trillion in life insurance policies, nearly 50,000 employees worldwide, and serving 10 million households as well as 88 of the Fortune 100 companies.

Despite its size and financial wealth, MetLife had not invested in IT upgrades to its back-office processes as of the late 1990s. As late as 1999, most of its claims processing was paper-based and accomplished manually.

Its workflow was redundant, and its call center operated at less than optimal levels. According to Carolos Creamer, vice president of strategic operations, an average claim took 10 days to process. MetLife decided to look into outsourcing to improve its product offerings and overall claims-processing performance.

In 1999, when Creamer interviewed outsourcing candidates, he learned that Affiliated Computer Services, Inc. (ACS) of Dallas, Texas, processes the claims of eight of the top ten health-care providers in the world – a total of 500 million claims per year.

ACS processes claims anywhere from three to nine times faster, from 25 to 75 percent cheaper, and from 35 to 40 percent more accurately than MetLife’s in-house operations.

After interviewing other candidates, MetLife chose ACS because it stood apart from the competition in mail imaging and data capture and was among the leading bids in terms of pricing.

ACS now processes a MetLife claim online in a matter of seconds, not days. MetLife claims arrive at ACS’s mailroom in Lexington, Kentucky, where they are opened and prepared for scanning.

As an example of how having claims processing as a core competence leads to process innovation, consider that ACS sands the edges off the envelopes it receives instead of slicing them open.

Slicing envelopes tends to cut up internal documents, which then have to be taped together again before scanning, adding another step to the workflow.

Once the staff scans the document, the image is almost simultaneously sent offshore for data capture via ACS’s proprietary satellite network.

ACS has disaster prevention practices in place, including never sending more than 50 percent of a client’s work to one offshore location.

MetLife preferred this system to other BPO providers who were limited to a single location or who had no backup or recovery mechanism.

ACS has offshore operations in Ghana, Mexico, Guatemala, and Chaina. When claims arrive at these centers, a single operator keys in the data from the digitized image of the claim and another operator independently keys it in again.

The system automatically compares the two versions to verify that there is no difference in the information.

The ACS method has saved MetLife time and money. MetLife did not have imaging technology in-house, so it could not process the claims online.

With ACS’s imaging system, scanning and image routing happens in seconds. Also, ACS’s automated workflow is so precise that it drives significant time and cost out of the processing cycle.

ACS also pays less for offshore labor and passes on the savings to MetLife. The ACS solution includes a productivity-based compensation model that pays workers on a piece-rate schedule.

To gauge the improvement in processing, MetLife benchmarked its dental claims processing. Before outsourcing, the company was processing less than 80 percent of dental claims in 10 days. Now it is well over 95 percent during the same period.

As a result, Creamer said MetLife experienced “a significant improvement in customer satisfaction.” What is more, he concluded, “our ROI [return on investment] is huge and we are very pleased.

In this case, MetLife is working with an onshore firm to leverage low-cost offshore labor, reducing overall processing costs. MetLife does not have direct interaction with the offshore team.

This distance between the BPO buyer and the offshore vendor can be useful because it relies on the onshore vendor to develop the cultural sensitivities and management techniques appropriate to the offshore labor pool.

At the same time, additional costs are associated with engaging an onshore intermediary. The BPO buyer must assess whether these additional upfront costs are offset by the costs that would be associated with developing the necessary international management expertise.
 

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