Global Business Process Outsourcing

Outsourcing, which for years has been little more than a buzzword, is emerging as an authentic corporate strategy.

"Every day we get [requests for proposals] from our largest global corporate customers who are saying, here is a competency that is not core to my basic business, what can you do for me?" says the product management executive for the treasury solutions business at New York-based Chase Manhattan Bank [CMB].

While Chase takes a broad consultative approach to helping clients cut costs and improves efficiencies, a handful of cash management banks are coming to market with full-scale outsourcing services. "We're saying get rid of the accounts receivable department. The paradigm is no longer whether you do that well, the question is why are you doing that at all?" says Edward Valenzuela, who heads the Source2 Group, a joint venture of Pittsburgh-based Mellon Bank [MEL] and MCI System house [MCIC] of Washington, created to offer accounts payable (AP) and accounts receivable (AR) outsourcing. "I think it makes an awful lot of sense," says a cash management analyst for Ernst & Young in New York. "The logic is if the accounts receivable purchasing is doing this for 20 companies, it's more efficient than 20 companies doing it individually."

Mellon, which announced its joint venture in May, has signed two unnamed beta customers for AP outsourcing. The implementation won't begin until the bank completes an onsite analysis of the company's current processes later this year. Valenzuela budgets nine months for the full transition. The AR service is scheduled to begin beta testing next year.

Philadelphia-based CoreStates Bank [CFL] is quietly putting together its own competing suite of services. "We are developing a payables outsourcing application with one of our customers that will be operational in November and we are working on a receivables outsourcing application that will be running in production after the first of the year," says Project Manager. Sources indicate Harris Bank [BMO] of Chicago and PNC Bank [PNC] in Philadelphia has similar products under development. Neither bank returned phone calls seeking comment. Banks aren't alone in the AP and AR outsourcing niche. New York- based Price Waterhouse has created a distinct service line -- global business process outsourcing -- that includes accounting and transaction processing.

"We take the current department management, staff and clerical personnel. We do the re-engineering and provide the back-office systems," says one of the Price Waterhouse partner. The consulting group just announced the signing of a letter of intent with a division of Fairfax, Va.-based Mobil Corp. [MOB], which is outsourcing a wide range of finance and accounting functions.

"The demand today is staggering," says the manager of corporate payment solutions for Cleveland-based National City Bank [NCC], a pioneer in AP outsourcing. "We talked to customers five or six years ago about this and were told, 'it's not for me.' And we have them now as customers because when the next wave of re-engineering came through at their company they had exhausted the traditional tools that were available," she says.

Account Receivables