In Stanley Kubrick’s classic 1964 film, Dr. Strangelove (or How I Learned to Stop Worrying and Love the Bomb), a lunatic U.S. Brigadier General, Jack D. Ripper, sends his bomber wing to destroy the U.S.S.R. As a War Room full of politicians and generals – believing the attack will trigger a “Doomsday Machine” that will destroy life on Earth – frantically tries to stop the attack, it becomes evident that most of the film’s characters are animated by superstition, hysteria, and disinformation:
General Ripper: Mandrake, do you recall what Clemenceau once said about war?
Group Captain Lionel Mandrake: No, I don’t think I do, sir, no.
Ripper: He said war was too important to be left to the generals. When he said that, 50 years ago, he might have been right. But today, war is too important to be left to politicians. They have neither the time, the training, nor the inclination for strategic thought. I can no longer sit back and allow Communist infiltration, Communist indoctrination, Communist subversion and the international Communist conspiracy to sap and impurify all of our precious bodily fluids.
The perception of BPO in the insurance industry isn’t quite so hysterical. We’re all pretty comfortable with the idea that BPO is almost certainly not a Communist plot. And most of us seem relatively certain our bodily fluids will be neither sapped nor impurified by the idea of someone else touching our, uh, processes. But the disinformation in the marketplace does prompt reactions that fall somewhere on the scale between superstition and paranoia. Like the generals and politicians in Kubrick’s War Room, everyone seems to have a different opinion about the nature and implications of BPO. Opportunity? Threat? Menace? From the insurance industry’s own literature, it’s hard to know.
A Definite Maybe
On November 7, 2003, Datamonitor published a report entitled BPO in U.S. Insurance. Some excerpts:
As US insurers continue to grapple with management’s mandate to become more efficient, a renewed focus is on BPO. While many insurers remain skeptical to yielding control to a third party, there are mounting business cases due to increasing vendor expertise and models. BPO vendor camps, armed with strengthening drivers for BPO, are striking right at insurers most sensitive spot, operations…[including] claims management/policy administration sub-processes of BPO…Insurers’ are becoming increasingly aware that their ability to focus on their core competencies will be the key to success in an increasingly tight and competitive field. By outsourcing non-core operations, insurers can focus on what they might consider most strategic – i.e., the external marketplace and its customers.
Slightly more than nine months later, on August 31, 2004, insurance and financial services research firm Celent published a report entitled, Insurance BPO Market Survey: Will the Watched Pot Ever Boil? Some excerpts:
Carriers are not in a hurry to broaden their [BPO] efforts… Insurance carriers know that outsourcing can help them achieve strategic objectives, but lingering questions about business process outsourcing have prevented dramatic increases in its use…there are still unanswered questions preventing the explosion of BPO that seemed like a done deal several years ago…many carriers remain unconvinced that outside parties can develop sufficient insurance vertical expertise…And even if vendors can prove they have the expertise, there are other considerations, like the additional costs of managing outside resources…Negative fallout from a skeptical public is also affecting carrier decisions to move forward with BPO.
Well, that certainly clarifies things, doesn’t it? If we were to suggest that such contradictory results from such similar studies might be attributable to sampling sizes of dubious statistical significance, one of two eventualities likely would ensue. Those inclined to disagree with us would perhaps intimate that we were a tad paranoid. After all, the studies merely reflect the inexplicable vagaries of the market. Those inclined to agree would perhaps pronounce that, when everyone is out to get you (or to at least slant your disposition in particular ways), paranoia is just good thinking.
In any case, we can be forgiven if such ambiguousness makes us feel a bit like the officials in Kubrick’s War Room after hearing that General Ripper’s order to launch the airstrike against the Soviet Union had ended with Ripper’s saying, “God willing, we will prevail, in peace and freedom from fear, and in true health, through the purity and essence of our natural fluids. God bless you all”:
General “Buck” Turgidson: Uh, we’re, still trying to figure out the meaning of that last phrase, sir.
President Merkin Muffley: There’s nothing to figure out, General Turgidson. This man is obviously a psychotic.
Turgidson: We-he-ell, uh, I’d like to hold off judgment on a thing like that, sir, until all the facts are in.
Muffley: General Turgidson! When you instituted the human reliability tests, you assured me there was no possibility of such a thing ever occurring!
Turgidson: Well, I, uh, don’t think it’s quite fair to condemn a whole program because of a single slip-up, sir.
The Big Board
Actually, most of the confusion around BPO is akin to the confusion around marketing. People tend to think of both topics in one of two ways: (1) Whatever it is that needs to be done, they think they can do it themselves. Some are so convinced – and confused – that they hire vendors to take over the discipline, only to argue, obstruct, drive up costs, and drive down effectiveness. (2) They perceive the discipline (outsourcing or marketing) as some kind of arcane science – discernible only to a chosen few, so mysterious as to be dangerous, and something that can be avoided without repercussion because everyone else thinks BPO and marketing are inscrutable and dangerous, too. Neither could be farther from the truth. But since this is an article about BPO, not marketing, we’ll debunk the latter misconception on another occasion. Besides, BPO is the easier of the two.
In keeping with our theme of air strikes, here’s the aerial view, in two sentences: Company executives and shareholders are demanding peak efficiency and steady profits. BPO allows companies to concentrate on core, revenue-producing competencies rather than the implementation of complicated software technology needed for repetitive administrative functions. Now, the elaboration:
BPO can benefit small, medium, and large companies by helping them maximize processing accuracy and data integrity. BPO providers sweat the details of data backup, disaster recovery, and compliance so their customers don’t have to. The customers reduce operating costs, thanks to the economies of scale that BPO providers pass along. Sounds simple, right? Well, no, because – the pragmatic value and obvious benefits of BPO notwithstanding – the strategic arguments in favor of BPO almost inevitably collide with the p word.
Indelicate as it may sound, insurers have a tendency to be, well, proprietary. That means, importantly, that they’re reluctant to relinquish the IT reins. In fact, they put a premium on IT based on two assumptions: first is the assumption that new applications, new systems and new hardware necessarily equate to better, faster, more efficient and less expensive; and second is the assumption they have to build or buy all that new stuff. Next thing you know, they’re in a vicious circle, at the expense of their business – and their business objectives. Here’s why:
As soon as the insurer jumps into the IT game (see project plans and scope creep), technology changes. Development speeds up. As keeping up requires more time, attention, and resources, the game becomes a cost/benefit equation for insurers, prompting two questions: Are the time, attention, and resources justifiable? More pointedly, can insurers afford to be in a competitive IT business?
The bitter pill to the proprietary is that it’s more important for insurers to use IT well than it is to be in the IT business – to focus on outcomes, rather than on infrastructure. The only ROI is results. Without them, IT has no strategic (let alone actual) value. And that’s the real value of BPO.
BPO can transform a business by taking over entire business processes. By outsourcing crucial competencies – but retaining core competencies – insurers can influence outcomes, reduce and control operating costs (and non-compliance penalties), improve company focus, take advantage of continually current capabilities, ensure flexible responsiveness (i.e., be agile), and keep internal resources focused on the business. BPO providers devote their attention to the administrative details involved in servicing policies and claims – the operational, production, and financial results. That enables insurers to put their attention where it belongs – on the enterprise-level outcomes like market share and return on equity that are most important to their stakeholders.
In short, BPO takes insurers out of the IT game, allowing them to stay current with IT while they focus on product development, pricing, market share, distribution, and selling policies. Outsourcing allows insurers to focus on service, rather then on servers – on profit, rather than on process.
The second hindrance to the adoption of BPO by the insurance industry is the one that comes closest to superstition; that is, insurers are traditionally, perennially, nervously loath to “give up their data.” The truth is they don’t have to give it up, but [whispering] somebody might see it. The fact is that the BPO provider doesn’t have a whole lot of interest in the insurer’s data. It’s like dough at the cookie factory – it just needs to be processed. The only one who really cares about what kind of nuts and chips are in the cookies is Famous Amos. And he was smart enough to outsource production. But insurers tend to be more like General Turgidson in the War Room.
General “Buck” Turgidson: Is that the Russian ambassador you’re talking about?
President Merkin Muffley: Yes it is, General.
Turgidson: A-A-Am I to understand that the Russian ambassador is to be admitted entrance to the War Room?
Muffley: That is correct. He is here on my orders.
Turgidson: I … I don’t know exactly how to put this, sir, but are you aware of what a serious breach of security that would be? I mean, he’ll see everything. He’ll … he’ll see the Big Board!
The Little Board
From the tactical perspective, BPO is a lot like common sense and experience. The only difference is that acquiring BPO is a lot less expensive. The needs-assessment required of the BPO decision arguably is reducible to one question, two at most: (1) Are your applications and processes streamlined and sustainable? If not, (2) can you afford the overhaul and the maintenance?
And here’s a key distinction for those who believe BPO means Big Problems Offshore: BPO is not IT outsourcing. Rather, BPO involves the franchising, if you will, of an entire process (e.g., claims management) or an entire series of related processes (e.g., policy-lifecycle processes from application to subrogation), not just a task, as is often the case with IT outsourcing. And unlike singular development or support activities (frequently undertaken offshore), BPO entails repeat, non-core activities that require long-term (3- to 5-year) contracts. As a result, BPO can increase shareholder value by helping insurers achieve transformational outcomes more quickly. Indeed, that usually happens when a BPO provider goes beyond just managing a process, and instead reengineers the process, often introducing new technology, to make it better.
Insurers that adopt BPO don’t assume the cost of infrastructure – or the cost and inconvenience of implementation. Because they access their processes and applications via the Internet, they don’t assume the cost and inconvenience of maintenance. The provider is responsible for deployment, management, and hosting in exchange for a monthly service and support fee. And BPO offers several other advantages:
- The insurer doesn’t need to expand or retrain IT staff to implement and maintain software. They stay focused on applications that generate revenue.
- The insurer no longer needs to worry about technological obsolescence because the provider is responsible for maintaining current technology.
- Centralized applications are convenient and cost-effective for insurers with multi-site locations.
- Besides technical support, BPO provides product support, allowing the insurer to focus on core business initiatives like market assessment and corresponding product development.
Because most of this sounds too good to be true to most insurers – and because we all are subject to degrees of superstition and disinformation – here’s the dirty little secrets: BPO helps insurers gain control of operations and expenses, rather than lose it. And disappointed BPO customers usually result from insufficient planning, inadequate communication of objectives, and mismatched expectations. Nevertheless, most insurers find BPO such a frightening alternative to traditional, in-house, business-as-usual control, they usually find it necessary to leave room for plausible deniability when confronted with the decision to adopt it – not unlike President Muffley’s denial that he’d adopted a Doomsday Machine when faced with the realization that his Russian competitor had one:
President Merkin Muffley: But this is absolute madness, Ambassador! Why should you build such a thing?
Ambassador de Sadesky: There were those of us who fought against it, but in the end we could not keep up with the expense involved in the arms race, the space race, and the peace race. At the same time our people grumbled for more nylons and washing machines. Our doomsday scheme cost us just a small fraction of what we had been spending on defense in a single year. The deciding factor was when we learned that your country was working along similar lines, and we were afraid of a doomsday gap.
Muffley: This is preposterous. I’ve never approved of anything like that.
de Sadesky: Our source was the New York Times.
The Bottom Line
Superstition and disinformation notwithstanding, the facts remain: BPO does not mean Big Problems Offshore. BPO is not the same as the outsourcing of development and general IT support. BPO is the outsourcing of discrete processes. And despite conflicting survey results and a confusing swirl of anecdotal evidence, BPO does allow insurers to concentrate on core, revenue-producing competencies – eliminating their need to compete in the IT business and enabling them to more effectively compete in the insurance business.
For their part, BPO providers help insurers maximize productivity, processing speed and accuracy, and data integrity. They manage hosting, deployment, implementation, maintenance, data backup, disaster recovery, and compliance so insurers don’t have to. They provide technical and product support. And they reduce operating costs through efficiency and economies of scale.
In the end – aside from its practical, operational, and financial benefits – and beyond common sense and experience – BPO’s most altruistic benefit might be that it has the potential to remove the hysteria, the paranoia, and the icy chill of relinquishing control that has put so many at such odds for so long.
Technology is making the world smaller. Technology is bringing us closer together.
Technology will triumph over politics in bringing standardization to the insurance industry.
Technology will centralize data, routinize processes, and change the realities of competition.
Technology will not sap and impurify all of our precious bodily fluids.
When it comes to BPO, insurers just need to stop worrying and learn to love the savings.
President Merkin Muffley: Gentlemen, you can’t fight in here! This is the War Room!
Mark O’Brien is the Principal of O’Brien Communications Group. Having spent some 25 years in marketing – including stints at The Hartford, Aetna, and The Travelers and numerous public relations and advertising agencies – he has written everything from press releases to award-winning video scripts, print ads to CD reviews, political-campaign collateral to POS materials for alcoholic beverages, as well as websites, speeches, bylined and feature articles, supermarket coupon/recipe booklets, direct-mail copy, and a winning Bad Faulkner entry.