W H I T E P A P E R B u s i n e s s P r o c e s s I m a g i n g : T h e P a t h t o T r u e P r o c e s s O p t i m i z a t i o n

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1 Global Headquarters: 5 Speen Street Framingham, MA USA P F W H I T E P A P E R B u s i n e s s P r o c e s s I m a g i n g : T h e P a t h t o T r u e P r o c e s s O p t i m i z a t i o n Sponsored by: Océ Business Services, Inc. A Canon Group Company Holly Muscolino Alex Sumarta February 2012 Ron Glaz I D C O P I N I O N IDC believes that enterprises can improve productivity, achieve better customer satisfaction, and drive larger savings in their document-intensive business processes with an optimized document intake or imaging operation. Optimization in a business process imaging (BPI) operation should go beyond the deployment of technology and must also include ongoing expert management of the process and the people doing the work and using the technology. Specifically, IDC research finds that: Document intake or front-end imaging plays a critical role in enabling a wide range of mission-critical or operationally necessary business processes in a broad range of horizontal functions and industries (e.g., processing loan applications in banking, claims processing in insurance, accounts payable in accounting, or processing documents associated with regulatory compliance). Many organizations face a number of challenges when it comes to managing BPI operations. Substandard productivity and cycle time, high labor cost and staff turnover, and unacceptably high error rates are the most common challenges cited. Leading optimization initiatives that promote better document intake process control, such as detailed measurement and reporting, audit, and continuous improvement, among others, are gaining traction as a way to improve productivity, consistency, and quality and, ultimately, achieve the lowest cost structure. While the benefits of process optimization are clear, organizations face a number of implementation challenges, including legacy technology infrastructure, cultural barriers, and other competing business priorities. Outsourcing is a well-established and proven route to reducing cost and gaining expertise and technology to optimize BPI operations and enable organizations to focus on the core business mission. Based on this research, IDC recommends that organizations explore a process optimization approach within their BPI operation to address challenges and improve business results. Partnership with an outsourcing provider can provide a fast track to the latest innovations in technology and process management expertise.

2 M E T H O D O L O G Y This research was sponsored by Océ Business Services and conducted by IDC. Primary research included formal phone surveys with midlevel to senior-level managers from over 100 firms across financial services, government, healthcare, insurance, transportation, manufacturing, and other industries in the United States. Only firms with more than 500 employees were included in the study. Each respondent was from an organization that has invested in high-volume document imaging facilities to process its business-critical documents (e.g., credit card or loan applications, claims processing). Results of the study are presented in aggregate in the figures throughout this paper. Extensive secondary research was also performed by IDC in the course of preparing this study. I N T H I S W H I T E P A P E R In this white paper, IDC presents research that looks at how business process imaging best practices can help organizations improve productivity, achieve higher customer satisfaction, and drive larger savings in document-intensive business processes. IDC defines "business process imaging" as value-added document imaging and related tasks that are integral to a critical business process. This paper also explores outsourcing as a way to optimize BPI operations. Outsourcing to a trusted service provider enables an organization to quickly gain process expertise and discipline, such as performance management, continuous improvement methodologies, and production to service-level agreement (SLA) benchmarks, as well as greater accountability in the event that SLAs are not met. In short, outsourcing of BPI may offer the fast track to innovation, assurance of production goals, and additional bottom-line results. S I T U A T I O N O V E R V I E W B u s i n e s s P r o c e s s I m a g i n g D e f i n e d As noted earlier, business process imaging involves value-added front-end document intake and transaction setup activities that initiate a mission-critical or operationally necessary business process (see Figure 1). BPI activities include pre-scan (e.g., incoming mail reception, sorting, and prepping), scan (e.g., capture, OCR, quality control, and image storage), and post-scan (e.g., indexing/classifying, validation, data entry, data extraction, exception handling), as well as other ancillary activities necessary to move the documents into the processing stage. These activities may also include data lookup, setting up physical files for records or documents, and copying and forwarding special original records. 2 # IDC

3 F I G U R E 1 B u s i n e s s P r o c e s s I m a g i n g W o r k f l o w Business Process Imaging / Document Intake Document Receipt Imaging Transaction Setup Processing Mail reception Mail sorting Document preparation Scanning OCR/data extraction Quality control Indexing Archive Data entry in systems Info lookup, verification Document control Coordination Doc/info distribution Accounts payable Accounts receivable New account processing Claims processing Etc. Source: Océ Business Services, 2012 It is important to make a distinction between back-file project scanning and BPI. In addition to document receipt and scanning, BPI involves integrated process-specific activities that must be performed in conjunction with the scanning activity to complete the transaction setup and enable efficiency downstream in the processing phase. For example, in a credit card processing center, incoming mail may contain applications for new cards, remittance payments, change of account, returned direct mail card offers, and so forth. Or, an envelope may contain a combination of these. A BPI center will have workflows for all these instances. For example, the returned live credit card may be copied/scanned, manifested, and shredded. Payment checks may be scanned, batched, and forwarded for deposit. Charge disputes may be scanned and forwarded to a dispute resolution department. A second distinguishing factor is that the BPI operation is very tightly connected to the process(es) it supports. While its primary function is document intake and transaction setup, it can also support the process on the back end with services such as print and mail and records management. A third distinguishing factor is that BPI operations are usually located inside client facilities. If the BPI operation is outsourced, the service provider is brought on premises to run it. (The more highly developed service providers also offer flexible service delivery capabilities that can complement the primary distributed onsite presence with offsite or offshore operations.) Because the BPI phase is the front third of the process, it is the most physical, document, labor, and logistics intensive part of a business process. This is where cycle time and downstream efficiencies are created or lost even if technology is up to date. This paper examines how process optimization in a BPI operation can help drive productivity, throughput, quality, and cost savings downstream. While many organizations have recognized the advantages of converting paper documents to digital, few are fully leveraging the opportunity afforded by more robust process and labor optimization IDC #

4 C u r r e n t S t a t e o f B P I O p e r a t i o n s C e n t e r s BPI is a critical component of a wide range of business processes in an enterprise. In fact, two-thirds of respondents indicated that finance and accounting, account management, customer service, and regulatory compliance processes are highly dependent on BPI operations (see Figure 2). F I G U R E 2 B u s i n e s s P r o c e s s es D e p e n d e n t o n B P I Q. Which of the following business processes are dependent on your company's document scanning operation? Finance and accounting Account/customer servicing Compliance/regulatory/legal New account/customer start-up Human resources Healthcare/medical claims Sales or marketing Logistics/transportation International trade f inance Lab processing Other G&A or operational f unctions (% of respondents) n = # IDC

5 Many organizations have sought to deploy process automation through technology infrastructure investments and labor arbitrage in order to reduce costs throughout document-intensive business processes. Nevertheless, our research indicates that many organizations still face considerable challenges related to document intake and transaction setup. These challenges include high labor turnover with its attendant loss of process knowledge and expertise, as well as substandard processing time and productivity resulting in extended cycle times. Other issues include unacceptable error rates and a lack of process control and reporting (see Figure 3). F I G U R E 3 D o c u m e n t I m a g i n g O p e r a t i o n C h a l l e n g e s Q. Please let us know whether the following is a challenge for your document scanning operation. Staff turnover at process or management level Process efficiency, productivity, and cycle time below standard Errors in classification or data entry Lack of process control or reporting Higher labor cost Delays, not able to meet specified service-level requirements Meeting quality standards Security of information (% of respondents) n = 105 When queried about the source of these challenges, respondents cited all aspects of the BPI activity, including people, process, and technology. Rather than perceiving technology as a problem solver, 44% of respondents indicated that technology is a 2012 IDC #

6 causative factor (see Figure 4). Legacy technology infrastructure, including both scanning equipment and software, is cited as a factor in preventing many BPI operations from optimizing productivity and efficiency. Even if a BPI operation has perfect technology, it is still not optimized if it doesn't address the people and process aspects. According to the survey participants, 56% of process optimization challenges remain in the people and process domains. As noted earlier, if staff turnover is a problem, then company and process knowledge can be lost. Lack of training is another potential problem that can reduce cycle time, quality, and customer satisfaction. Inadequate training, particularly when related to changing technology and processes, can lead to poor adoption and abandonment of the new technology because in these cases people often revert to previous work practices. When it comes to mission-critical business processes, these turnover and training challenges represent unacceptable process and investment risks for many organizations. Process is, of course, still a significant part of the optimization challenge in many BPI centers because the ancillary activities cannot be automated and require human intervention, manual processing, or even steps that take documents from paper to electronic and back to paper. F I G U R E 4 C o n t r i b u t o r s t o B P I C h a l l e n g e s Q. Thinking about the technology, people, and process aspects of your scanning operation, what do you believe is the major contributor to the challenges discussed earlier? Please distribute 100% among these three factors. Give the highest percentage to the factor you believe is the main contributor to the challenges. Process (24.0%) Technology (44.2%) People (31.8%) n = 104 Furthermore, most BPI operations do not have adequate controls in place and do not measure the performance of the document intake and processing operation against productivity, timeliness, and performance benchmarks. Seventy-nine percent of respondents indicated that process control and reporting is a challenge for their 6 # IDC

7 organization. Process control often eludes BPI operation as many organizations treat front-end document intake as sequential mail and scanning activities and manage this intake separately from the back-end processing. They often do not apply the rigor or the technology to make the front-end phase as efficient as the back-end phase. The front-end document intake activities are frequently not tightly integrated or coordinated with the processing activities downstream in order to allocate labor appropriately and adjust as daily volumes change, for example. Separating mail receipt and sorting from the scanning phase introduces additional inefficiencies and time. Furthermore, the organization cannot leverage multitasking and shared resources. Siloed organizational structure and disparate systems exacerbate the BPI challenges, leading to more inefficiency. For example, an organization that operates a larger centralized BPI center for multiple products to reduce costs may have separate systems and workflows for each product line. The BPI operation may therefore be forced to use multiple systems to induct the incoming documents into each product's workflow. O p t i m i z i n g B P I Organizations have embarked on a wide range of initiatives to address their document intake challenges and pain points. As Figure 5 shows, half or more of the organizations surveyed have invested in retraining, new scanning equipment or software tools, and process improvement initiatives (e.g., process audits or applying Lean Six Sigma or Kaizen principles to their BPI operations). F I G U R E 5 I n i t i a t i v e s t o O v e r c o m e C h a l l e n g e s Q. What initiatives has your scanning operation undertaken in the past months to overcome the challenges discussed previously? Staf f retraining Invest in new scanning equipment Perf orm process audit Improve process measurement and reporting Invest in new sof tware tools Apply Six Sigma or Kaizen principle n = 80 respondents who initiated process improvement in past months (% of respondents) 2012 IDC #

8 It is clear that an increasing number of organizations are going beyond technology investment and are exploring process optimization initiatives to take out cost and maximize their BPI operation's performance. These techniques include the following: Activity-based performance management involves measuring the time and the cost of each activity in a BPI workflow and analyzing how activities are performed to squeeze out delays, repetitive work, and inefficient practices. Queue load optimization refers to analyzing activity time and productivity. Processes are reorganized to use sequential or parallel queues to balance throughput and relieve bottlenecks. In BPI, high variability in daily incoming volume is a problem if labor and duties are fixed. Therefore, it is necessary to build maximum flexibility through cross-training and labor reconfiguration during the day and throughout the week to balance the workload with changing incoming volume. Critical path modeling refers to identifying activities within the BPI operation that affect the overall duration (time) of transaction processing. For example, depending on volume, variability, and time sensitivity, the BPI operation may be organized to scan the paper in the morning, complete other ancillary activities in the afternoon, and complete the image QA, OCR, and extraction offshore at night so that 100% of the daily incoming volume is ready for digital workflow within 24 hours. Statistical modeling such as Six Sigma involves measuring and analyzing the error rates (defects) in each activity within the document intake phase (BPI) and implementing corrective action to reduce the defects so that they fall within an acceptable tolerance range. For example, an SLA may stipulate four hours from mailpiece receipt to image ready in the digital workflow. Any document exceeding four hours is a defect. Through statistical analysis, the service provider estimates the labor requirements to ensure error free performance as may be acceptable. 8 # IDC

9 Respondents have benefited from these process optimization initiatives. Increased employee productivity, better customer satisfaction, shorter cycle times, and fewer errors were top benefits realized by more than half of respondents who implemented BPI process improvement activities within the past 24 months (see Figure 6). F I G U R E 6 B e n e f i t s o f P r o c e s s I m p r o v e m e n t s Q. Which of the following benefits has your company realized from your process improvement initiative(s)? Ability to forecast and adjust labor requirements daily based on incoming document volume Error reduction Lower cost of transaction processing Better security/compliance Consistently scan and process documents per SLA Shorter cycle time Better customer satisf action Increased employee productivity (% of respondents) 1 = benef its not realized = benefits fully realized n = 80 respondents who initiated process improvement in the past months 2012 IDC #

10 We asked respondents about the barriers to improvement. Responses included legacy scanning infrastructure, resistance to change, and other competing priorities, retraining, and lack of process management (see Figure 7). F I G U R E 7 B a r r i e r s t o C h a n g e Q. In your opinion, what were the top 3 challenges in implementing changes within the document scanning operation? Legacy technology inf rastructure Other competing priorities Existing culture or ways of doing business High implementation cost Limited staff and skill sets Lack of process management Lack of buy-in from senior management Reliance on paper document (for compliance) Workflow is too complex to change Siloed organization structure Disparate internal systems (% of respondents) n = # IDC

11 T h e O u t s o u r c i n g O p t i o n Outsourcing of BPI to a third-party service provider is fairly common, with 31% of respondents noting that external providers are involved in some aspects of their organization's internal BPI operation management (see Figure 8). These vendors may perform the capture process and/or be involved in pre- or post-scanning activities. More and more organizations are contemplating the outsourcing option; 14% of respondents said they are planning to outsource their BPI operation. F I G U R E 8 O u t s o u r c i n g P l a n s Q. For the following document scanning to business process activities, tell us whether your company currently outsources, has a plan to outsource, or has no plan to outsource. Currently outsource (31.4%) No plan to outsource (54.3%) Has plan to outsource (14.3%) n = 105 Outsourced services can be performed onsite, with a third-party service provider managing the BPI operations at an organization's facility. The onsite approach is often preferred because BPI is so interconnected with one or many processes that it sometimes appears difficult to separate imaging and related activities from the downstream processing operation. Nevertheless, all or part of the BPI process may also be performed offsite at the service provider's facility. True BPI optimization may also be found in a flexible, location-neutral or blended delivery model, which combines onsite and offsite (or even offshore) capabilities. Some services, such as mail receipt and scanning, may be provided offsite, while others, such as data perfection (lookup, verification), physical file management, or printing, may remain onsite, offering the benefits of proximity and enhanced security and confidentiality. Organizations can also leverage offshore capabilities, such as OCR, QA, or data entry, that provide economy of scale and cycle time benefits. This hybrid model may be particularly beneficial for today's 24 x 7 business IDC #

12 Survey respondents from companies that outsource BPI operations noted a number of benefits. In addition to reducing cost and headcount, outsourcing provides access to new expertise and infrastructure and results in improved quality, fewer errors, increased productivity, and higher customer satisfaction (see Figure 9). F I G U R E 9 B e n e f i t s o f O u t s o u r c i n g B P I Q. Based on your experience, what do you consider the top 3 benefits of outsourcing your company's document scanning operation? Reduce and control cost Access to provider's expertise and inf rastructure Reduce head count Improve quality reduce errors Improve customer satisf action Improve productivity Ensure production consistently meets SLA we need Improve cycle time Improve security/compliance Improve process control No internal competency (% of respondents) n = 50 respondents who outsource at least some components of document scanning operation 12 # IDC

13 TALX Corporation TALX, title a division of Equifax, provides services for human resources (HR), payroll, and tax departments in organizations of all sizes and in all industries, including the public sector. As one of the leaders in HR outsourcing, TALX has over 9,000 clients, including 75% of the Fortune 500. Rapid growth has presented challenges for TALX's high-volume document processing operation (BPI). Unemployment claims processing, one of TALX's largest services, has seen dramatic increases in volume due to the current higher unemployment rate. The spikes in volume, which reached 6 million images per month, have put considerable strain on the document intake process that feeds TALX's unemployment insurance claims process. TALX regularly wrestled with balancing the peaks and troughs in weekly volume, staffing, productivity, and quality of work and maintaining a steady workflow pipeline and timeliness. Delays in processing unemployment claims not only impact customer satisfaction but also can be costly due to penalties imposed if SLAs are not met. To overcome these challenges, TALX partnered with Océ Business Services (OBS) to run its centralized massive BPI operation. One goal for TALX was to decrease the cycle time for unemployment claims processing while increasing quality and decreasing costs. OBS assessed TALX's existing business process approach and proposed a new solution that focused on higher throughput, reduced cycle time, and more efficient staff deployment. OBS reengineered the inbound mail flow and decentralized the operation from one BPI center to five regional BPI centers. The strategy met all of TALX's requirements. Proximity of these centers to TALX clients, along with OBS technology and process management expertise, has helped improve customer satisfaction and significantly reduce processing cost. Over the past four years, the new approach has saved TALX more than several million dollars in BPI operation cost and enabled its downstream processing to meet SLAs and avoid penalties. By focusing on BPI process, people, and technology and using techniques such as Lean Six Sigma, TALX and OBS continue to explore new initiatives to reduce cost, improve the document intake process, and achieve operational excellence. E S S E N T I A L G U I D A N C E : F I V E S T E P S T O P R O C E S S O P T I M I Z A T I O N Based on our research, IDC offers the following recommendations to organizations seeking to optimize their BPI operation: 1. Map the goals of your organization's BPI operations to (or align them with) your organization's overall goals and objectives. 2. Make sure the BPI center is run well. In addition to deploying new technology to automate tasks and reduce labor, consider whether overall output and productivity are competitive given the cost of the tools being used. Is workflow as efficient as it can be? Are key tasks measured according to agreed-upon key performance indicators (KPIs)? Is there tight collaboration between the imaging center and downstream processing? Is labor optimized across mail, scanning, and image processing? Is there enough elasticity to meet production quotas and quality standards consistently over peaks and troughs? 3. Consider reengineering the document process across its life cycle (origination to disposal) and across global regions. Optimize each activity, from document origination to process completion. Significant benefits come from rethinking nontraditional aspects of the process such as mail routing and location of the imaging and processing centers IDC #

14 4. Scale workflow implementations to all business-critical document workflows in your organization. Automate workflow implementations so they are end to end, leveraging data assets in all relevant departments and business units. 5. Consider outsourcing as a fast path to innovation, expertise, and improved operational performance. B P I O U T S O U R C I N G C H E C K L I S T S Organizations that are considering outsourcing as a path to further optimizing their BPI operation should consult the following checklists when evaluating outsourcing partners. Please note that the following checklists are provided as a means to help direct and pose questions that will enable an organization to begin an active internal dialogue related to the process and expected outcome of a BPI outsourcing engagement. Q u e s t i o n s C o m p a n i e s S h o u l d A s k T h e m s e l v e s 1. What are the specific BPI challenges that your company is facing? Is the root cause technology, managing the scanning process, or managing the people? 2. What are the critical factors the BPI operation must provide? Consider requirements such as high productivity, keeping up with fluctuating volume, stable workforce, consistent high quality of work, competitive cost, process control and reliability, flexibility, strong management, best-in-class value, centralizing multiple BPI centers, and serving many processes. 3. What are the expectations for addressing these challenges with outsourcing? What capabilities do you expect to add with outsourcing that you do not currently have internally? What are "make or break" factors? 4. Which outsourcing model makes sense bringing the provider onsite to take over the existing BPI center and improve it or sending the inbound mail/documents to an offsite provider and decoupling document intake from the back-end processing? 6. What security requirements must be met? Is a hybrid onsite/offshore BPI operation needed to reduce cycle time and cost while maintaining centralized management control? Consider volume, document complexity, cycle time, dependence on other systems, impact on cost, and ability to quickly change as business needs change. 7. Is the organization committed and ready in terms of personnel, dollars, and perspective to operate the BPI center and make the appropriate and needed changes and investments necessary to reach best-in-class efficiency? 14 # IDC

15 Q u e s t i o n s C o m p a n i e s S h o u l d A s k P o t e n t i a l P a r t n e r s 1. How will your BPI services improve our organization's existing processes? How do you measure success? 2. Will your service help my organization be more agile and reactive to the changing dynamics of the business environment? Please cite specific capabilities. 3. What is your history and track record in providing BPI services? 4. What success have you had turning around failing BPI operations, and how did you do it? 5. What are your plans for investing in personnel and technical improvement of your services in the near term and over the next three years? 6. How do you address security in terms of people, processes, and technology? 7. What is your methodology for working with customers to develop procedures, functionality, or processes to address issues that may arise during the implementation process that are beyond the original scope? S O U R C E S Worldwide and U.S. Business Process Outsourcing Services Forecast: Will BPO Providers Leverage the Opportunity and Cross the Chasm to Play a Significant Role in Transforming the Enterprise? (IDC #228081, May 2011) U.S. Business Process Outsourcing Trends Shifting Gears (IDC #226987, March 2011) Document Image Capture: Sustaining Market Growth during Evolving Times (IDC multiclient study, December 2010) Worldwide and U.S. Outsourced Print and Document Services Forecast and Analysis (IDC #224913, September 2010) C o p y r i g h t N o t i c e External Publication of IDC Information and Data Any IDC information that is to be used in advertising, press releases, or promotional materials requires prior written approval from the appropriate IDC Vice President or Country Manager. A draft of the proposed document should accompany any such request. IDC reserves the right to deny approval of external usage for any reason. Copyright 2012 IDC. Reproduction without written permission is completely forbidden IDC #

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