For Business Process Professionals

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1 Lessons Learned From A Professional Business Process Outsourcer by Alexander Peters, Ph.D. with Craig Le Clair and Andrew Magarie Executive Summary Many organizations embark on business process management (BPM) programs that focus on the efficiency of technologies like enterprise resource planning (ERP) and BPM suites (BPMSes). Mature process organizations set BPM goals in the context of clearly defined process portfolios, subordinate the use of technology to the attainment of specific change goals, and support those goals using approaches like Lean and Six Sigma that fuel performance management. In this report, we examine Genpact, a mature business process and technology management provider, to understand how to position BPM to get more value out of the organization. Based on Genpact s experience, Forrester recommends four practices for turning BPM into a strategic capability: 1) articulate your BPM strategy in terms of business outcomes, not IT efficiency; 2) execute BPM through consistent end-toend governance and management practices; 3) support BPM s execution through a simple, effective structure; and 4) develop a culture of performance supported by HR best practices. Business Process Pros Struggle to position BPM Among IMPROVEMENT PROGRAMS Interest in BPM programs has increased rapidly in recent years. 1 This new breed of performance improvement initiatives promises to deliver innovation, enterprise-level productivity gains, significant cost reductions, and less complex and more agile operational models. But inquiries and consulting engagements with Forrester clients have shown us that many organizations still struggle to: Position BPM relative to other performance improvement initiatives. During recent years, many organizations have implemented various quality management (QM) initiatives based on process methodologies like total quality management (TQM), Six Sigma, and Lean to improve business performance. In parallel, IT has implemented a broad spectrum of applications, mainly ERP and BPMS, for similar reasons. With these QM and IT investments often driven by different functions for example, business operations and corporate services business process pros need to determine how BPM can align and leverage their approaches for improved business results. Align BPM with the capabilities that govern and deliver business value. BPM lives at the intersection of critical enterprise functions, such as steering committees, architecture boards, project management offices, front- and back-office operations, and corporate functions like HR, procurement, and finance. Therefore, when considering BPM for deployment, business process pros need to clarify how to align BPM with governance functions and processes; this decides how processes will be funded, sourced, and measured, and which delivery and support capabilities will execute them. Headquarters Forrester Research, Inc., 400 Technology Square, Cambridge, MA USA Tel: Fax:

2 2 Genpact Shows How to Position And Align BPM in the Enterprise Each organization will take a different approach to positioning and aligning a new BPM program with existing QM and IT initiatives. But successful BPM implementations do share common practices in terms of how business process pros position, organize, execute, and sustain process change. 2 Genpact, a BPO provider, uses BPM as a strategic differentiator in a way consistent with these common practices. 3 Genpact was established in 1997 under the name of GECIS, an independent business unit of General Electric (GE) Capital that was chartered to provide shared BPM capabilities across GE. Genpact became an independent company in Genpact Builds BPM On A Foundation Of Six Sigma And People Management Building upon GE s Six Sigma heritage, Genpact strives to develop BPM into a scientific approach to process improvement that relies heavily on people management and a culture of measurement. The company: Makes Lean and Six Sigma part of the organization s DNA. Genpact views adherence to the disciplines of Lean and Six Sigma as the key to ensuring high levels of service and solving problems in areas such as process selection for outsourcing, expectation management, and management visibility. To build a broad Lean Six Sigma footprint, Genpact has given basic training to about 25,000 employees out of a workforce of 43,000, and certified 2,500 green belts and 400 black belts. At the top of the company, half of the senior executives are Six Sigmacertified. As Forrester learned on the shop floor, delivery teams are encouraged and motivated to use their Six Sigma knowledge to improve customers processes. Focuses on people management as the most critical factor in service delivery. Genpact uses Six Sigma to measure and improve its own HR processes. Operations and functional teams use HR metrics to track hiring success and failure, attrition levels, and lateral moves and promotions. The data is aggregated monthly and used to predict employee loyalty and attrition and assess managers on how they perform against their people targets. For example, operations leaders are measured by how they reach predefined Six Sigma training goals for their teams; Six Sigma certification is a prerequisite for staff to be promoted to management. Develops BPM into a rigorous methodology for process improvement. Genpact has dedicated significant resources to developing its proprietary Smart Enterprise Processes (SEP) methodology. SEP employs granular data analysis, diagnostic tools, cross-functional benchmarks, and technology solutions to maximize process effectiveness, resulting in better cost, cash, and revenue outcomes for Genpact s clients. This Six Sigma-based approach uses process modeling, decomposition, measurements, and benchmarking to assess process effectiveness and identify improvement actions. The order-to-cash (OTC) process is an example (see Figure 1). SEP provides a model for OTC and defines key performance indicators for benchmarking at the activity level against Genpact s reference database, which it developed by

3 3 collecting data from the process instances it manages. As observed by Sasha Sanyal, Genpact s global SEP practice leader: Most of the processes we manage have a 60% to 70% degree of commonality across all implementations; 20% to 30% are industry-specific; and only about 10% are company-specific. Leverages IT to enable the delivery of business outcomes. Genpact provides a variety of managed IT services to customers, including applications management for technologies like SAP and Oracle. But as the company focuses on business process outcomes, not IT, it subordinates the delivery of IT services to the provisioning of optimal business process outcomes to its customers. The source-to-pay (S2P) process is an example (see Figure 2). Genpact offers several IT solutions for S2P that address the customer s degree of process and technology sophistication. Genpact delivers some of these IT solutions through its internal IT capabilities, and sources others as an external service through, for example, Ariba. Figure 1 SEP Provides Activity-Level KPIs For Cross-Functional Processes Like OTC Process Business outcomes 1. Days sales outstanding 2. Percentage past due 3. Revenue dilution Order-to-cash 4. Order-to-bill cycle time 5. Cost of processing sales and collections 6. Perfect order as a measure of client satisfaction Subprocess Master setup Credit risk Contract admin Order mgmt Billing Cash Collection application Exception mgmt Key performance measures On-time delivery (percent) Delivery accuracy (percent) EDI orders (percent) Processing cost Activities Receive order Resolve blocks Check availability Expedite order Get notification Deliver order Resolve discrepancies Key performance measures Expedited orders that met the delivery date (percent) Cancelled orders (percent) Source: Genpact Source: Forrester Research, Inc.

4 4 Figure 2 Genpact Offers Several IT Solutions Like S2P That Support Cross-Functional Processes Sourcing Procurement Payment S2P process Spend analysis Category strategy Negotiation and contracts Master data mgmt Planning and PO issue Material receipt Invoice receipt and capture Invoice processing Release payments Filings and compliance Customer IT strategy well aligned with mainstream ERP... upgrade/implement functionality Oracle SAP Procurement business intelligence, isourcing, contracts, iprocurement, isupplier, A/P modules Analytics, esourcing, eclm, SRM, MM, FICO modules Need to integrate multiple ERPs or don t want to upgrade older versions Ariba Ariba suite of applications integrated with financial and HR modules Need for best-of-breed point solutions Iasta Emptoris Basware Ariba Kofax Savvion Spend analytics esourcing Contract management eprocurement Supplier network Dynamic discounting BPM solutions: Genpact ProFlow Software-as-a-service and cloud applications are gaining momentum Source: Genpact Source: Forrester Research, Inc. BPM Adds Value To Genpact s Service Portfolio And Customer Relationships Like many other business process outsourcing (BPO) providers, Genpact broadly exploits labor arbitrage. The company has delivery centers in Romania serving companies located in countries with higher salary levels, such as the UK, France, and Switzerland. To differentiate itself from its competitors, Genpact emphasizes the deep BPM knowledge and HR processes it has built upon GE s Six Sigma heritage. In addition, the company has developed a few management practices that align its delivery capabilities with the customers needs and wants, as it: Operates with a balanced portfolio of BPO, IT, and knowledge services. Currently, Genpact manages about 3,000 processes and IT services for more than 400 customers using a mixed portfolio of BPO, IT, and knowledge services. The BPO and IT portfolios have naturally grown from capabilities initially shared among GE s business units. The knowledge portfolio aims to add high-value services to the BPO and IT services by leveraging the company s BPM know-how and insights into areas of specialization like research, analytics, risk management, and legal processing.

5 5 Dedicates effort to portfolio innovation. To increase the value of its portfolio of services, Genpact s 17 SEPs support the company s most critical services in several horizontal and vertical market segments (see Figure 3). An SEP suite is a BPM knowledge framework that Genpact actively maintains with the help of a dedicated team of experts. The SEP teams operate worldwide and are responsible for defining, modeling, optimizing, innovating, and benchmarking processes. In addition to innovating from the inside, the company has recently invested in several acquisitions and partnerships that aim to enhance the company s knowledge of processes like OTC and verticals like capital markets and healthcare. 5 Encourages customers to actively govern BPM. Genpact has developed the so-called Virtual Captive model, which enables customers to actively govern outsourced process capabilities. The model gives process owners on the customer side the opportunity to decide how to use Genpact s capabilities, such as its BPM process labs and HR practices, to boost process performance (see Figure 4). For example, talent management customers can significantly influence Genpact s hiring process for key delivery resources. Genpact currently runs Virtual Captive for customers including GE, Nissan, GlaxoSmithKline, Penske, and Wachovia. Encourages customers to ship and fix end-to-end processes to maximize BPM s value. Genpact encourages customers to ship that is, outsource their processes as is and let Genpact transform them using the most appropriate BPM methodology, analytics, HR practices, and IT solution. This approach differs from the traditional transition approach, which recommends first consolidating fragmented processes and IT solutions and then outsourcing them into a shared service model. Patrick Cogny, CEO of Genpact Europe, compares the shipand-fix approach with an organ transplant, pointing out that the end-to-end replacement of a broken process can substantially accelerate the time-to-benefits and achieve up to 80% of the potential process effectiveness improvements more than piecemeal outsourcing can.

6 6 Figure 3 Current SEP Suites Across Verticals And Horizontals Consumer finance Unsecured lending origination Loan origination Commercial finance Disbursal and servicing Credit risk Insurance Application to issuance Claim processing Heavy mfg. Aftermarket services Light mfg. Aftermarket services Pharma Trade promotions CPG Trade promotions Healthcare Patient flow Material flow Retail CFO suite Source-to-pay Order-to-cash Record-to-report IT suite Enterprise suite Source: Genpact IT help desk Collections Customer service Hire-to-retire Source: Forrester Research, Inc. Figure 4 Genpact s Virtual Captive Governance Model Gives Customers Decision Rights Customer Provider Contract manager Process leads Operational leader Operational managers HR IT Infrastructure Quality management process re-engineering Compliance/internal audit Subject matter experts Source: Forrester Research, Inc.

7 7 Recommendations View BPM as A Method For Squeezing New Value out of the Organization Business process pros aiming to launch BPM programs should look at business process outsourcers like Genpact for inspiration on how to progress. We can summarize the lessons learned from Genpact in four recommendations: Articulate your BPM strategy in terms of business outcomes, not IT efficiency. Many immature process organizations embarking on BPM programs focus on the efficiency of technologies such as ERP or BPM. 6 On the contrary, mature process organizations like Genpact articulate BPM goals in terms of improving clearly defined portfolios of processes, including cross-functional processes like OTC and S2P. Moreover, they subordinate the use of technology to the attainment of these change goals. Last but not least, these mature organizations define BPM as organizational change initiatives and support them methodologically using approaches like Lean and Six Sigma, which fuel their performance management and governance processes. Execute BPM through consistent end-to-end governance and management practices. Once you have defined the goals and strategy of your BPM program, you need consistent governance and management processes for sustainable results. Genpact, for example, uses the Virtual Captive model to involve process owners in process change decisions and suggests the ship-and-fix model as a means to provide end-to-end effectiveness improvements instead of piecemeal efficiency. Support BPM execution through a simple, effective structure. The BPM organization needs to effectively support the collaboration between decision-makers and the process improvement and delivery functions. Genpact, for example, delivers most process changes in a bottom-up manner, from the shop floor up through delivery teams allocated to customers. These teams are continuously trained and motivated to apply the company s SEP process excellence methodology. At the same time, the top of the Genpact organization has implemented process labs to assist the delivery teams and ensure that the SEP methodology is continuously upgraded and synchronized to serve the most critical processes and customers for Genpact s long-term success. Develop a culture of performance supported by HR best practices. State-of-the-art BPM is about changing processes interactively with process owners and customers. This demands high levels of domain knowledge and process discipline from the delivery staff and requires HR practices that cultivate education, professional development, and training, and a management system that breeds collaboration, innovation, and performance excellence. Genpact, for example, believes that people are the critical factor for quality and flawless service delivery and purposely ingrains Lean and Six Sigma into the company s culture through its HR processes. That being said, learning from Genpact means viewing BPM as a science, linking employee performance measurement to process improvement goals, and leveraging HR for coaching and training to help push new values out to the organization.

8 8 Endnotes 1 As with any major organizational change program, gaining BPM traction in the business relies on engagement. This includes ensuring executive support for the BPM initiative. Selecting the right initial project and delivering its overall success will dictate the organization s acceptance of BPM. With both a successful project that delivers strong business benefits and careful attention to building a broad engagement program, the business itself will demand the adoption of BPM. See the January 10, 2011, How To Start A BPM Program And Engage The Business report. 2 Process initiatives fueled by substantial technology investments need business process change discipline to offset typical organizational ailments undermining them, such as unclear goals, undoable jobs, confusing measurements, and thick silo walls. Business process discipline ultimately determines the success or failure of process change. It begins when business process owners and business process professional executives articulate why they intend to change processes and how and extends to assessing the organization s readiness to absorb change. And importantly, process discipline requires a deliberate focus on first devising the change strategy and then assessing the organization s culture and structural constraints. See the February 11, 2011, Overcome Inertia By Adopting A Business Process Change Discipline report. 3 For this report, Forrester interviewed Patrick Cogny, CEO Europe, and Sasha Sanyal, global leader for Smart Enterprise Processes, Genpact s proprietary BPM methodology. Forrester also recently visited Genpact s delivery center in Bucharest, Romania and met on the shop floor with operations staff responsible for the delivery of finance and accounting (F&A), order-to-cash (OTC), and procurement services to several customers, including Novartis and Kimberly Clark. 4 Genpact increased its revenue from $613 million in 2006, the year after the company became independent, to $1.26 billion at the end of In the first quarter of 2011, global clients accounted for about two-thirds of Genpact s revenues, with the remaining one-third coming from GE. Approximately 87% of Genpact s revenue for the quarter came from business process services, while revenues from IT solutions accounted for the remainder. Source: Genpact ( Results_ pdf). 5 To enhance the company s business-process-as-a-service capabilities, Genpact acquired ebilling Solutions from Avolent in 2009 and Akritiv Technologies in April Source: VCCircle.com, Genpact invests in Cloud Computing developer Akritiv Technologies, Reuters, April 14, 2011 ( article/2011/04/14/idinindia ). The company has also established partnerships with companies like NetSuite to leverage the growing power and popularity of cloud computing in business process management (BPM). Also, Genpact has recently announced the acquisition of Headstrong, a global provider of comprehensive consulting and IT services with a specialized focus in capital markets and healthcare verticals. In May 2011, Genpact completed the $550 million cash acquisition of Headstrong Corporation, a global provider of comprehensive consulting and IT services with a specialized focus in capital markets and healthcare that maintains operations in seven countries, including offshore centers in India and Manila, with more than 3,700 employees globally. With the Headstrong acquisition, Genpact

9 9 currently has 50 delivery centers worldwide and 49,000 full-time employees Source: Supantha Mukherjee and Saqib Iqbal Ahmed, Genpact to buy Headstrong Corp for $550 million, Reuters, April 6, 2011 ( 6 From our recent survey of 153 business process professionals who drive business process change initiatives across a wide spectrum of industries, we found that 59% of the survey respondents operate with immature management practices. On average, only one in five responses fulfills Forrester s maturity criteria for advanced business process change practices. Business process pros working in medium-size organizations (1,000 to 4,999 employees), as well as organizations operating in industries with mature end-to-end business processes such as logistics or process manufacturing reach the highest average maturity scores. See the March 29, 2011, Trends 2011: The State Of Business Process Change Maturity report. Forrester Research, Inc. (Nasdaq: FORR) is an independent research company that provides pragmatic and forward-thinking advice to global leaders in business and technology. Forrester works with professionals in 19 key roles at major companies providing proprietary research, customer insight, consulting, events, and peer-to-peer executive programs. For more than 27 years, Forrester has been making IT, marketing, and technology industry leaders successful every day. For more information, visit Forrester Research, Inc. All rights reserved. Forrester, Forrester Wave, RoleView, Technographics, TechRankings, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective owners. Reproduction or sharing of this content in any form without prior written permission is strictly prohibited. To purchase reprints of this document, please clientsupport@forrester.com. For additional reproduction and usage information, see Forrester s Citation Policy located at Information is based on best available resources. Opinions reflect judgment at the time and are subject to change