The NetViz Solution

Business Process Re-engineering

By Heather B. Hayes

While business process re-engineering has led to a surge in outsourcing in highly competitive industries like insurance and banking, the federal government and other markets are taking a more cautious approach.

Paul Benevich, an analyst with G2R Inc. of Mountain View, Calif., said he expects outsourcing of information technology to fully catch on with the federal government within three to five years.

Federal agencies "are already considering outsourcing those things that aren't core competencies so they can focus on the things that they are good at," he said.

Indeed, the market research firm Input of Vienna, Va., projects that the federal outsourcing market will rise from the fiscal 1997 level of $1.8 billion to $2.6 billion in fiscal 2002.

The federal government is jumping on the outsourcing bandwagon with several key initiatives planned in 1998. At the state and local level, authorities are turning to outsourcing to cope with problems such as the year 2000 computer software glitch.

Two big-ticket federal outsourcing efforts now under way include contracts planned by NASA and the General Services Administration. NASA's Outsourcing Desktop Initiative and the GSA's Seat Management contract will cover the maintenance, upgrading and servicing of agencywide desktop computers and networks. The two contracts, scheduled for award by June, are expected to total more than $12 billion.

In addition, the Internal Revenue Service's Prime Integration Services procurement in 1998 may be the biggest test for outsourcing's viability on an enterprise level. IRS Prime, estimated to be worth $2 billion to $8 billion, is designed to modernize the tax system and improve tax-processing efficiency.

Cross-agency outsourcing is another issue facing industry officials. The Federal Aviation Administration last year shocked industry by giving an IT outsourcing contract to the Department of Agriculture. The award raised considerable controversy within industry and on Capitol Hill about whether the government should spend time and money competing with private sector suppliers.

The boom in outsourcing today can be traced to the business process re-engineering craze a few years ago, analysts and industry officials said. The outsourcing trend has seen a sizable number of companies and organizations passing off not just the occasional network or data center, but entire departments and functions to third-party vendors.

Robbins-Gioia photo Susan Case, executive vice president of commercial operations for Robbins-Gioia

"Companies were able to determine what they do well and what they don't do well, what's strategic and what's nonstrategic, what's a core competency and what's not."

G2R estimates that business process outsourcing or BPO - defined as the delegation of one or more IT-intensive business processes to an external provider to improve overall business performance in a particular area - will grow at a rate of 18.3 percent annually through 2001. The research firm tabbed the 1997 market at $168 billion; by 2001, the firm predicts it will hit $330 billion in revenues.

More impressive is the number of companies taking a chance in this market. Companies like Andersen Consulting, Computer Sciences Corp., Electronic Data Systems Corp., Ernst & Young, and Price Waterhouse that first pushed the BPR envelope are now well-ensconced in providing this latest service.

And high-tech companies that once specialized in IT outsourcing services are slowly taking over the management of such alien fields as accounting, asset management, human resources, emergency dispatch services, procurement, regulatory compliance and benefits administration.

Companies that are well-versed in process management but hardly traditional to the IT market are also jumping into the fray. Ryder Trucks, for example, is now leveraging its own resources to provide logistics management support to other companies. Shell Oil has established a spin-off company that offers oil and gas accounting services. Moore Business Forms and Xerox are starting to offer document management help.

"Everywhere you look, organizations are focusing on their core businesses and, consequently, divesting themselves of nonstrategic business functions," said Peter Bendor-Samuel, president of Everest Software Corp., a Dallas-based consulting firm that helps clients manage outsourcing and measure performance.

Much of this movement "is spawned by some major activity of BPR where management starts asking hard questions about how they're delivering services and creating value, and thinking they can reorganize to do it more effectively."

Making the Most of BPR

The decision to outsource used to be more tactical, where a company turned monotonous or extremely technical but less visible tasks over to a third-party vendor or supplier for a fee and an expected level of service.

A BPO decision, on the other hand, is more strategic and much more complicated, according to Steve Rohleder, managing partner for America's Federal Practice for Andersen Consulting, based in Chicago.

"It's more than just a technical relationship at this point," he said. "It's a combination of consulting and managing a process, where they say, 'We're going to set some service levels, but we want you guys to look at how we're doing business, determine whether we're doing it correctly or incorrectly and then effect some of those changes as you operate it.' So it's a combination of taking the traditional consulting role and blending it with the outsourcing organization."

Andersen Consulting refers to this BPR-as-you-go approach as "business integration," he said.

Young noted that all major consulting companies are adding this element to their offerings. "BPR has become quite embedded in how they all approach clients, but it's also a part of how the outsourcing vendor is trying to add business value to what they do," she said.

But when it comes to improving a company's effectiveness through revamping its processes, BPR's scorecard is mixed. Plenty of executives are perfectly pleased with the outcome of their BPR engagements, while others report horror stories.

Bendor-Samuel notes, though, that even companies that had bad experiences find value in having an outside source come in and ask tough questions. Their presence alone can make it easier to decide on a BPO route.

"The decision to outsource is a very emotional one to make because you're dealing with a great deal of change that involves taking services from one company to another and even laying people off," he explained.

"You don't come to such decisions easily, and what we've found is that it takes something like a BPR perspective to shatter the old paradigms and make people realize that maybe there's a better way."

The challenge of fixing the year 2000 software flaw in computer systems has prompted a growing number of commercial and government entities to undergo limited BPR engagements and, at the same time, take another look at outsourcing.

"Identifying which systems require modification and which need to be rebuilt is a major undertaking. Implementation and tests dwarf these considerations," said Carl Iglesias, senior vice president for the Solutions Group at IMI Systems, a New York-based information technology professional consulting firm.

"The sheer scope of the task, professional staffing, and training requirements, as well as the liability associated with inaccuracies are driving organizations to recognize that IT is not a core competency and serving as a catalyst for outsourcing."

A New Breed of Outsourcer

P2 photo Steve Rohleder, managing partner for America's Federal Practice for Andersen Consulting

Vendors must be willing to take on more risks and provide greater accountability to the client than in the past. Before even getting in the game, though, an outsourcer must bring a lot of credibility to the table.

"Organizations are still edgy about the loss of control they feel when making the outsourcing decision, so quite simply, the better your reputation, the more success you'll have in this field," Bendor-Samuel added.

"That's why Andersen, EDS and others have been able to parlay their fantastic trade names into very quick success in this field. They already have these relationships of trust in place and clients are more willing to turn to them first."

Companies don't turn to outsourcing necessarily as a result of BPR but by looking at whether it's more cost-effective for them to turn to an outside resource than to staff internally, said Susan Case, executive vice president of commercial operations for Robbins-Gioia, a consulting firm based in Alexandria, Va.

Regardless, comprehensive and structured program management as well as reporting methodologies are critical to achieve true efficiencies, she said.

The NetViz Solution NetViz photo Vo Tran, president and CEO of NetViz Looking for a simple, low-cost way to determine what's going on with your business processes? Rockville, Md.-based NetViz Corp. has just the tool. The product, NetViz 3.0, has a feature called Intelligent Drawings that is designed specifically for creating formal documentation of an organization's business procedures. The standard version of NetViz 3.0 costs $379, while the professional version of the product costs $589. "What the product allows you to do is to diagram each element of your processes and then embed detailed data under each graphic," explained Vo Tran, president and CEO of NetViz. "By the time you've mapped out all of your processes and answered all your questions, you end up with a fairly intensive, large repository of information and graphics that is nicely integrated." From there, the information can be passed on to a consultant for a full-scale BPR effort or used internally. When a company documents its own processes, it can save money because it reduces the time a consultant spends in the pre-BPR phase of interviewing employees, collecting data and documenting procedure, he said. What's more, companies that take this step on their own learn more about their organization, Tran said, and may even discover solutions that improve overall efficiency and effectiveness. - Heather B. Hayes