Personnel, Contract Issues Complicate BPO Initiatives

Users cite hurdles in outsourcing of business units

NEW YORK -- Early adopters of business process outsourcing services last week said they have been able to save money and improve productivity by handing off control of departments such as human resources and finance and, in some cases, the systems that support them.

Nevertheless, several BPO users who spoke at a conference held here by market research firm IDC said they had to tackle tricky personnel and contractual issues and go through steep learning curves because there was little historical context to draw upon.

"Ten years ago, the solution was the hiring of arms and legs," said Donna Kinnaird, executive vice president at Swiss Re Life & Health America Inc. In 1994, the Stamford, Conn.-based insurer signed on with Computer Sciences Corp. to manage more than 2 million life insurance policies and supporting technology, such as an interactive voice response system.

"Now it's much more of a value and knowledge proposition," Kinnaird said. She added that more-specific performance metrics, such as how much it costs to manage the policies, were worked into a 10-year, $700 million contract renewal six months ago.

Still, establishing reasonable BPO performance metrics continues to be a problem for users and vendors alike, said John K. Halvey, a partner in the technology finance and outsourcing group at law firm Milbank, Tweed, Hadley & McCloy LLP in New York.

BPO users often must contend with thorny personnel issues as well. In late 2001, Hydro One Inc. signed a 10-year, $730 million pact to outsource its finance, supply chain management and CRM operations to Capgemini, along with IT support for those functions. But first, the Toronto-based utility had to negotiate with two labor unions on a staff-reduction plan that was needed to achieve its 30% cost savings target, said Jeffrey Smith, Hydro One's director of finance.

Although most companies outsource business processes to cut costs, that isn't always the case. Canadian Imperial Bank of Commerce in 2001 signed a seven-year contract to outsource management of its HR operations to Electronic Data Systems Corp. - a deal that it expects will be cost-neutral overall.

However, the outsourcing move was partly designed to help CIBC avoid the need to invest "tens of millions of dollars" in IT upgrades, said Danielle Kay, a senior HR director at the Toronto-based bank. She added that EDS last year consolidated 30 human resources systems previously used by CIBC onto a common PeopleSoft 8.3 applications platform.

Copyright © 2004 IDG Communications, Inc.

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