Question: IT at Work
eBay Challenging Transition to BPO
Since its 1998 IPO, eBay has gone from online experiment in consumer-to-consumer, e-commerce to a Fortune 500 enterprise that sells $60 billion in goods annually. It supports 88 million individual buyers and sellers, plus an expanding list of small businesses. This metamorphosis was not without growing pains. Exploding demand for eBay's services created enviable, but staggering challenges. By 2004, eBay's annual revenues had exceeded $3 billion. Up to then, its accounts payable (AP) function had been able to keep up with the exponentially growing workload. The AP function was a critical system because sellers expected to get paid instantaneously. It was foreseeable that a much larger transaction accounting capacity would be needed than the current IT structure could deliver quickly. eBay's acquisition of several companies with disparate AP processes created additional integration challenges. Outsourcing Challenges and Lessons Learned eBay turned to outsourcing for a solution for transaction processing of accounts. In early 2005, eBay migrated all of its AP operations to Genpact. Genpact (genpact.com/) is a global leader in business process and technology management. The migration of AP and other business processes to BPO provider Genpact was not without challenges, but was ultimately a success. Six lessons that eBay and Genpact learned from the BPO implementation are the following.
1. Manage change by securing the commitment of senior leaders in an overt fashion, and by recognizing subtle cultural differences that can undermine initial transition efforts.
2. Assess organizational readiness for a BPO transition from a mental and technical standpoint, and set realistic expectations and manage them actively
3. Anticipate risks and formulate a plan for mitigating them, beginning with a strategy for dealing with "loss of control" threats, both real and imagined.
4. Build project-management infrastructure that recognizes the "process of transition" needs to be managed as carefully as processes being transitioned. Mapping how the AP process should look post-transition, and how it will be managed end-to-end, and by whom, are important.
5. Create a governance mechanism that can discreetly collect feedback from the Transition Project Manager and provide formal executive oversight and guidance. Form an Executive Steering Committee that includes two senior managers from each organization and representation from all business units impacted by BPO.
6. Properly define how success will be measured, both qualitatively and quantitatively. Identifying the right benchmarks for success and vigilantly measuring efforts against them over time are critical. Performance Improvements The transition was far from perfect at first and hard lessons learned early helped achieve impressive results in time. Year-end 2009 revenues were triple 2004 revenues, and AP transaction volume and headcount doubled, but at a much low cost per volume. On-time payments grew to 30 percent. In other words, more volume is now being handled, and more effectively per AP person. This success paved the way for migration of other eBay transaction accounting processes. From 2006 to early 2008, eBay outsourced its global Vendor/Supplier Maintenance and General Ledger (GL) activities.
Questions: 1. Why is the ability to process AP a critical success factor for eBay?
2. Why did eBay choose outsourcing as its IT strategy instead of in-house development?
3. Why did eBay rely on Genpact for its BPO transition?
4. Given that Genpact is a global leader in business process and technology management, why did eBay encounter challenges?