March 10, 2004

The debate about offshore outsourcing has emerged as a hot-button issue in the political arena. It's also a priority item on bank executives' agendas-at least for U.S-based institutions ready and willing to make deals.

"The U.S. is able to move much more rapidly on a good idea than Europe, which tends to be much more insular," says R. Ravisankar, CEO of i-flex solutions ltd. (Mumbai). Indeed, one European bank executive even confided to Ravisankar that "India is the United States' secret weapon for superiority over Europe," he says.

Competitor or Partner?

But the existence of India may be harder to keep under wraps than your average secret weapon. Indeed, the offshore outsourcing trend has begun to accelerate, encompassing higher-level tasks and responsibilities than ever before. While most offshore outsourcing currently involves call centers, the next stage includes back-office transaction processing and problem resolution, or in general, business process outsourcing (BPO). "The value proposition is very compelling," says Ravisankar. "Not just [for] telemarketing, but actually solving back-office problems."

That's to America's benefit, he says. "America has always been at the forefront of promoting free trade. Globalization means that you do stuff where it's most effective and you sell stuff wherever it's the most profitable," contends Ravisankar.

In light of a recent partnership formed between IBM and i-flex solutions, Ravisankar practices what he preaches. Although i-flex's roots are in software development outsourcing, software products now drive about two-thirds of the company's revenues. "We are porting our flagship 'FLEXCUBE' product onto the IBM DB2 platform," he says. "And we'll work with IBM to launch FLEXCUBE in Unix." The two companies will also jointly promote Reveleus, i-flex's analytics and business intelligence platform.

Another USA-India partnership going beyond call centers is Carretek, a joint venture between Carreker (Dallas) and Majesco Software (Dallas). "We're building transaction processing capabilities in India for banks in the U.S. and eventually globally," says Atul Vohra, president of Majesco and a former Citigroup executive.

The transactions Vohra has in mind are those made possible by Check 21 and related developments in image-based check processing, which will have a "significant impact on the fortunes of companies here and in India," he says. "There's going to be a huge amount of processing efficiency as a result."

Vohra anticipates that the Carretek venture will move up the value chain to higher-level processes such as real-time decisioning. "Most banks, if there's a disputed item under $100, they'll waive the charge," Vohra says. "The bank will credit you the $100 because the cost of the investigation is greater than the cost of proving you wrong." But with lower operating expenses through offshore outsourcing, banks can reduce the threshold at which they decide to investigate claims, he adds.

By shedding operating costs at home, U.S. banks can prepare for competition abroad. That's especially relevant when entering growth markets in which banks have already established a foothold through outsourcing. "Banks here [in the U.S.] will gain as much on the revenue line as they save on the expense line," says Vohra. "Once you get into a market, from a sourcing perspective or a revenue perspective, you're more open to looking to revenue opportunities."

Even if jobs move offshore as a result, there's still hope for onshore talent. "Competitive differentiation demands new skills and a new breed of resources," says Guillermo Kopp, an analyst at TowerGroup (Needham, Mass.). "Because of the educational system in the U.S. and Europe, and the business dynamics in the U.S. and Europe, there's more fertile ground for innovation."

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Top 10 Mistakes In Outsourcing

Even if the economics are compelling, there's still plenty of room to stumble on the details when it comes to outsourcing critical business functions. Akiba Stern from Shaw Pittman LLC offers this list of traps to avoid:

1 Failing to follow a disciplined acquisition process.

2 Failing to assemble and empower the right deal team.

3 Ending competition too soon.

4 Failing to understand pricing.

5 Granting exclusive rights to the service provider.

6 Measuring inputs instead of outputs.

7 Measuring too many service levels.

8 Substituting price benchmarking for well-defined pricing algorithms.

9 Failing to assemble and empower the right implementation team.

10 Failing to change internal processes to facilitate the outsourcing relationship.

Source: Shaw Pittman LLP

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