Magazine article Mortgage Banking

Business Process Outsourcing: Is It Right for You?

Magazine article Mortgage Banking

Business Process Outsourcing: Is It Right for You?

Article excerpt

Business process outsourcing (BPO) holds great promise for the mortgage servicing sector. Whether working with onshore or offshore companies, a wide variety of third-party service providers are leveraging economies of scale and narrowly scoped domain expertise to bring more value at a lower cost than most companies can achieve internally.

Is BPO right for your organization? It's a question executives across the industry have been thinking about and trying to answer for their companies. In a survey of senior executives from 50 mortgage and servicing companies conducted by Martopia in August 2006, 46 percent of respondents said their company was considering outsourcing, while 54 percent reported they were not. Of those considering outsourcing, more than one-third said they were looking at both onshore and offshore alternatives.

Looking inward

The first step in determining whether BPO is a good option for any firm is a thorough analysis of the company's corporate goals and objectives, especially as they are expected to evolve on a go-forward basis. This is the key to determining the organization's core competencies and to identifying non-core functions that might be outsourced to a third party. Processes and competencies that do not have significant strategic value to a firm are prime candidates for outsourcing.

However, today's highly networked business environment has enabled powerful outsourcing options that were not viable even a few years ago. For example, the ability to seamlessly transfer large amounts of data and services has changed our view of what constitutes a core competency versus those functions now better defined as commodities. Running data centers or collecting payments, for instance--once considered core competencies--are now considered by many organizations as secondary to the primary (and strategic) competencies of customer service, retention and cross-selling.

Servicers must identify the internal capabilities that truly represent core competencies, but beyond that they must decide which competencies equate to strategic advantage. A functional operation such as default management can be performing at a very high level and be very efficient--but unless the company's primary focus is default management, that capability is not necessarily a strategic advantage. When faced with competitive pressures or aggressive financial performance expectations, some companies are choosing to partner with reputable BPO providers that can deliver high-quality services for a lower total cost of operations.

This is a significant shift for companies that have traditionally preferred to keep everything under one roof for purposes of centralized management and control. Still, the dynamics of the marketplace and the availability of enabling technology have made it necessary for most companies to at least reconsider that position.

Cost reduction

Telecommunication costs have dropped significantly, while bandwidth has grown exponentially. At the same time, technology has become much more flexible and accessible, enabling a wider range of opportunities to improve processes and conduct business globally 24 hours a day.

Businesses can now seamlessly connect their functional operations--whether they are performed in-house, offsite or by third-party BPO providers across the globe--via high-speed Internet. Companies no longer have to operate from a central location or even from a single country to accomplish the effective and efficient delivery of many of their products and services. …

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