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iq finds bpo sweet spot
Date : 3/31/2004 This is according to Chris Sinclair, CEO of The IQ Business Group, which has implemented a BPO model for both the South African and Australian healthcare sectors. BPO promises to bring significant and enhanced efficiencies to high volume processing environments in the healthcare administration space. “BPO can be used differently for strategic results, depending on certain market and internal conditions. Models range from a highly commoditised “utility” model, to industry transforming “frontier” models, which are a true source of competitive advantage for the seller and their users,” says Patrick Crooks, who has been instrumental in establishing the “BPO in Australia”. Depending on a company’s relative position to the market (and other circumstances), BPO can secure its industry or competitive positioning by selling optimal processes into the market. “Under the right conditions you can transform both your business and your industry. This has been demonstrated with Healthsource Australia, a JV between The IQ Business Group and Grand United (GU), where in an industry first a frontier BPO strategy has been implemented. This has the potential to transform the structure and operations of the Australian healthcare sector,” says Crooks. According to Crooks, there are five industry conditions which can greatly affect the way in which BPO is practiced, namely market sophistication, process complexity, barriers to entry, client sophistication, and client ability and strategic intent to create BPO. “Less market sophistication, greater process complexity, and higher barriers to market entry are all conditions which lend themselves to a frontier BPO strategy. Utility-based BPO is suited to a more sophisticated market with less process complexity,” says Crooks. “The question of whether a potential client should buy or sell BPO rests on their ability to process transactions. If the client is worse than the market in terms of the five industry conditions, then they should become buyers of BPO services. However, if the client beats the market, providing BPO services becomes an option.” The Australian healthcare market was a viable environment in which to implement frontier BPO. The market sophistication was low as there is a large gap between optimal processes in this industry and the existing processes. The lack of other BPO suppliers also means that this market is not yet commoditised. In addition, process complexity was high, and there were high barriers to entry. IQ Australia’s client, Grand United (GU), an Australian company which owns and operates two health benefits funds, should have been a buyer of BPO transactions as the company’s efficiency ratios were worse than the market standard. However, by creating HealthSource, a JV between The IQ Business Group and GU, GU beat the market levels. Due to its sophistication, ability and intent to manufacture transactions, the company has become one of the few process providers in the Australian healthcare environment. Besides meeting the industry requirements for frontier BPO, companies and their suppliers need to meet six critical success factors, according to Gartner Dataquest. These are deep sub-industry knowledge, ability to innovate, a killer software platform, competitive differentiation, IT processing capability and market perception/reputation.
HealthSource is unique in that no other Australian company has yet been able to match the five industry conditions and six critical success factors required to implement a frontier BPO strategy. HealthSource can provide clients with sustainable improvement in operating costs of around 20%, and technology enhancements of 30%.
“An entire industry has the potential to be transformed through frontier BPO and a company is fighting above its weight and winning. However, to truly succeed excellent execution and risk management is needed, followed by continual innovation. Without innovation, frontier BPO is impossible to achieve, and even harder to sustain,” concludes Crooks.
Goldman Sachs (January 2002) has estimated the potential size of the BPO market at $100 to $120bn in annual revenue. The market is projected to grow 15% - 20% annually to $250bn by 2005, making this one of the fastest growing areas of IT services. The IQ Business Group plans to leverage that potential by utilising South Africa as a BPO hub, especially for European countries.
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