Business Process Outsourcing


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In this presentation you will get to know about “Business Process Outsourcing”, which moves from inside of an organizations to external service providers; and how this practice influences business effectively at several levels.
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Business Process Outsourcing

  1. 1. Business Process Outsourcing Chapter 1 Introduction to BPO Chapter1 1
  2. 2. Introduction TO Business Process Outsourcing Most important & innovative one is thecreation of a Global, communication &Information infrastructure that has now dugdeep everywhere. The worldwide telecommunicationsinfrastructure has produced a business innovationcalled Business process outsourcing BPO is movement of business process fromInside the organizations to external serviceproviders Chapter1 2
  3. 3. Introduction To Business Process Outsourcing BPO refers to Processes Many Large Companies have been outsourcing non-core activities like , for years 1) Housekeeping 2) Security 3) Maintenance of IT The business process outsourcing is a general used todescribe the outsourcing of Non critical core businessfunctions of an organization to external vendors for longperiod of time Chapter1 3
  4. 4. Introduction To Business Process Outsourcing The concept of business process orientation (BPO) isbased upon the work of Deming (Walton, 1996), Porter(1985), Davenport and Short (1990), Hammer (1993, 1996and 1999), Grover et al (1995), and Coombs and Hull(1996). This body of work suggests that firms could enhance theiroverall performance by adopting a “process view” of theorganization. Although many firms have adopted the BPO concept,little to no empirical data existed substantiating itseffectiveness in facilitating improved business performance. Chapter1 4
  5. 5. Introduction To Business Process Outsourcing McCormack (2000) conducted an empirical study toexplore the relationship between BPO and enhancedbusiness performance. The research results showed thatBPO is critical in reducing conflict and encouraging greaterconnectedness within an organization, while improvingbusiness performance. Moreover, companies with strongmeasures of BPO showed better overall businessperformance. The research also showed that high BPOlevels within organizations led to a more positive corporateclimate, illustrated through better organizationalconnectedness and less internal conflict. Chapter1 5
  6. 6. Introduction To Business Process Outsourcing For a central concept, one that has become something ofa Holy Grail for 1990s managers, BPO has remainedremarkably hard to pin down. Its champions argue that it isa new approach to management that replaces the rigidhierarchies of the past ("I report to my boss") withstructures that are much flatter, more cooperative, moreprocess-oriented ("I report to my customer."). Many of ushave had experience with both types of organization and weknow intuitively what BPO feels like. Yet, if youre like me,you want a more solid foundation on which to makedecisions and recommendations. Chapter1 6
  7. 7. Introduction To Business Process Outsourcing Most of the literature on business process orientation hasbeen in the popular press and lacks a research or empiricalfocus. Although empirical evidence is lacking, severalmodels have emerged during the last few years that havebeen presented as the high performance, process orientedorganization needed in today and tomorrow’s world.Deming, Porter, Davenport, Short, Hammer, Byrne, Imai,Drucker, Rummler-Brache and Melan have all defined whatthey view as the new model of the organization. Accordingto each model’s proponent, the “building” of this modelrequires a new approach and a new way of thinking aboutthe organization which will result in dramatic businessperformance improvements. Chapter1 7
  8. 8. Introduction To Business Process Outsourcing This “new way of thinking” or “viewing” yourorganization has been generally described as businessprocess orientation. Process centering or building an organization with abusiness process orientation has led to many reportedsuccesses. Texas Instruments, Progressive Insurance andAmerican Standard have all been reported, albeitanecdotally, as receiving improved business performancefrom building a process orientation within an organization(Hammer 1996). Chapter1 8
  9. 9. Introduction To Business Process Outsourcing Process orientation, and its relationship to improvedcross-functional interaction, was introduced almost fifteenyears ago by Michael Porter. He introduced the concept ofinteroperability across the value chain as a major issuewithin firms (Porter 1985). W. Edwards Deming alsocontributed with the “Deming Flow Diagram” depicting theconnections across the firm from the customer to thesupplier as a process that could be measured and improvedlike any other process (Walton 1986). Thomas Davenportand James Short (1990) described a process orientationwithin an organization as a key component in the “NewIndustrial Engineering: Information Technology andBusiness Process Redesign.” Chapter1 9
  10. 10. Introduction To Business Process Outsourcing Michael Hammer also presented the business processorientation concept as an essential ingredient of a successful“reengineering” effort. Hammer coined this term to describe thedevelopment of a customer focused, strategic business processbased organization enabled by rethinking the assumptions in aprocess oriented way and utilizing information technology as akey enabler (Hammer, 1993). Hammer offers reengineering as a strategy to overcome theproblematic cross-functional activities that are presenting majorperformance issues to firms and cites many examples of successesand failures in his series of books and articles. Hallmark and Wal-Mart are often put forward as success stories and IBM and GM asthe failures. Chapter1 10
  11. 11. Introduction To Business Process Outsourcing Culture is a major theme in the examples cited. A“business process culture” is a culture that is cross-functional, customer oriented along with process andsystem thinking. This can be expanded by Davenport’s definition ofprocess orientation as consisting of elements of structure,focus, measurement, ownership and customers (Davenport1993). Davenport also stressed commitment to processimprovement that directly benefits the customer andbusiness process information oriented systems as a majorcomponent of this culture Chapter1 11
  12. 12. Introduction To Business Process Outsourcing Finally, Hammer (Hammer 1993, 1995, 1996, 1999)described “process thinking” as cross-functional andoutcome oriented. He also used four categories to describethe components of an organization. These are:1.Business Processes2.Jobs and Structures3.Management and Measurement Systems4.Values and Beliefs Chapter1 12
  13. 13. Introduction To Business Process Outsourcing China is considered as BPO hot spot around the worldin the Manufacturing & technical India is considered as BPO hot spot around the world inthe Engineering & Technical Mexico is considered as BPO hot spot around the worldin the Manufacturing United States is considered as BPO hot spot around theworld in the Analysis & creative Philippines is considered as BPO hot spot around theworld in the Administrative Chapter1 13
  14. 14. Introduction To Business Process Outsourcing Many back office functions such as Payroll Customer services Technical supportAre few processes that organizations of all size have beenable to successfully outsourced BPO requires :1) Skillful Management 2) Security Technology Chapter1 14
  15. 15. Introduction To Business Process Outsourcing BPO is a socio-technical revolution that provides a richnew source of competitive advantages Many managers prefer to stay away from this concept ofBPO as they believe it quite wrongly to be technologicalinnovation and better left to the Chief Information Officer. The human skill set includes: 1) Developing various teams 2) Reassuring staff of their role in organization 3) Training people Chapter1 15
  16. 16. Introduction To Business Process Outsourcing The human skill set includes 1) Dealing with loss of job & or assignment 2) keeping moral high throughout change process 3) Encourage people in decision making The implementation of a BPO project also requiresattention to technology issues like the followings1) Compatibility of system between BPO buyer & vendor2) Data & system security Chapter1 16
  17. 17. Introduction To Business Process Outsourcing The implementation of a BPO project also requiresData & system security The implementation of a BPO project also requiresattention to technology issues like the followings1) Software & database compatibility2) Data & knowledge Management Payment of BPO vendor depends upon Qualitydelivered The driving factors of the BPO revolution areEducational Attainment Chapter1 17
  18. 18. How BPO Works BPO involves the complete transfer of a business process toan external service provider Quality is prime deciding factor in outsourcing to BPO Payment of BPO vendor depends upon Quality delivered The implementation of a BPO project also requires attentionto technology issues like the 1)Software & database compatibility 2) Data & knowledge Management 3)Back up & recovery procedures 4) Data Interface challenges Chapter1 18
  19. 19. Driving Factors of BPO Revolution BPO has emerged from a set of driving factors that haveintentionally converged in this particular time to enable theshifting work to its lowest cost /highest quality providerregardless of where the provider is physically located .Thedriving factors of the BPO revolution are: Educational Attainment Broadband Connection Inexpensive data storage ,Abundant data storage Business specialization Internet Security Online analytical processing Chapter1 19
  20. 20. Driving Factors of BPO Revolution Educational Attainment :United state still dominates theworld with the quality of higher education that is offered but restof world is not behind.There are more number of Asianspursuing technical degree than Americans.This is a reason whyUS firms are looking for looking abroad for outsourcing Asia Broadband Connection :The age of broadband internetconnection is in full swing now. When internet speeds are in therange of 2 megabyte per sec the term is used as broadband Inexpensive data storage ,Abundant data storage :Storageof data is most critical issue for business One danger of movingthe work to the third party is the loss of 1) Job & or assignment 2) Organizational Learning Chapter1 20
  21. 21. Driving Factors of BPO Revolution Data storage has always been a critical resource forbusiness. In the days of paper-based record keeping, data storage was primarilyaccomplished via file cabinets, closets, and dingy overstuffed basements. Thecomputerization of the workplace gradually replacedpaper-based filing systems at first with punch cards and later with magnetic tapes and then disk-basedstorage. As the integration of the Internet and its relatedtechnologies into business processes Chapter1 21
  22. 22. Driving Factors of BPO Revolution and functions has progressed, data storage has gonefrom being a problem to one of oversupply. Firms that hadenvisioned growing rich by supplying on- line data storage on an as-needed basis havediscovered that storage has become a commodity—it isnearly as limitless as the Internet. Advances in data storage, including sophisticated data retrieval, havedriven down storage costs dramatically. Rare is the individual today who walksabout with a floppy Chapter1 22
  23. 23. Driving Factors of BPO Revolution disk in his or her shirt pocket. Rather, most have learnedto transfer files into a virtually limitless cyberspace storage room, where theycan be retrieved whenever and wherever needed. The elimination of the barriers to data storage hasenabled new ways of thinking about what is possible in thestructure and procedures of the work-place. In times whenstorage was scarce, difficult decisions had to be made about what data to collect, keep, and eliminate. Evenmore limiting, in times Chapter1 23
  24. 24. Driving Factors of BPO Revolution Analytical Software: Software is major source of business inBPO industry;It is tool to to work. 1) Expert Systems 2) Decision support systems 3) Artificial intelligence are software tools that perform analytical tasks.Online Analytical Processing (OLAP) has created a wide rangeof new possibilities including Hiring process Online Analytical Processing (OLAP) has created a wide rangeof new possibilities including Effects on organizationaldesign Chapter1 24
  25. 25. Driving Factors of BPO Revolution Internet Security Internet security talks about the ability to send information & data over internet without having to fear 1) espionage 2) leakage 3) loss There are many security Protocols available today & many executives understand them. The Indian IT Act of 2000 addresses1) privacy related issues 2) Define hacking3) Computer evidence Chapter1 25
  26. 26. Driving Factors of BPO Revolution Internet SecurityInternet security refers to the ability to send information and data (including voice) over the Internet without fear of leakage, espionage, or outright loss. It is critical for companies to be certain that their data integrity will be maintained despite its movement around the globe in the servers, routers, and computers that make up the World Wide Web.In the past, many executives were reluctant to conduct any back-office business transactions over the Internet or beyond their own four walls because they felt the security risks outweighed the value proposition. 26 Chapter1
  27. 27. Driving Factors of BPO Revolution BS 7799 is comprehensive set of controls of bestpractices in information security.This was publishedin February 1995 ISP 17799 is internationally recognized informationsecurity management standard It first published inyear 2000 Health Insurance Portability and AccountabilityAct (HIPAA) establishes standards for the secureelectronic transfer of health data Chapter1 27
  28. 28. Business specialization The concept of BPO emerged when the market becomemore price sensitive and competitive. By outsourcing businessoperation the organizations can get the price advantage and thesame can be passed to their customers. We have understood theimportance of business operations of our clients and give themquality service. We capitalize on our experience and technologyto provide unmatched service.The services would include Back office Processes – The entire business operation orcertain divisions of operations is outsourced. Typicallydepartments like Administration, HR Services, Marketing,Accounts & Finance, Data processing, Back OfficeOperations, Web Related Services and Customer Services canbe outsourced. Chapter1 28
  29. 29. Business specialization Even though the operation is setup miles away, the clienthas full accessibility to monitor their work. Reporting,prioritization, allocation of work can be done in real time thusenable to clients’ to co-ordinate without any problem. The flexibility of working as per client’s required timings anddays makes the operation successful. Communication is sharedonline using chat, email, voice and video conferencing. To provide operation specific outsourcing services such as : Chapter1 29
  30. 30. Business specialization Accounts & FinanceInvoicing, Billing, payables Mgmt., collections etc. HR ServicesRecruitment, PMS, Welfare, Payroll, employer services,Surveys etc. Data processingClaims processing, Third party verification, ContentManagement MarketingMarketing support, sales co-ordination, lead generation etc. Chapter1 30
  31. 31. Business specialization Customer ServicesVoice and Non-voice based customer support. Back Office ServicesFull fledged back office support for all core and non corebusiness functions. Web Related ServicesContent Writing, Web Page Designing, SEO and LinkExchange. Chapter1 31
  32. 32. BPO Types BPO types in reality are :1) Offshore: This is most challenging type of outsourcing & most demanding .It began with themovement of factory jobs in the US to variouslocations in Asia.By taking advantages of the lower cost of wagesoverseas ,US manager can cut there overseas cost byalmost 40% .More & more companies are moving &more & more companies functions are outsourcedtoday. There is no uniform approach to offshore BPO Chapter1 32
  33. 33. BPO Types The so-called sweatshops identified in Vietnam, India, China, and elsewhere have stirredcriticism for American companies, including Nike, Wal-Mart, and Walt DisneyCompany. Despite the criticism leveled at some companies that outsourceprocesses and functions to international labor markets, theadvantages of doing so continue to outweigh thedisadvantages. By taking advantage of lower wagesoverseas, U.S. managers can cut their overall costs by 25 to 40percent while building Chapter1 33 a more secure, more focused workforce in the United
  34. 34. BPO Types 2) Onshore : BPO does not involve outsourcing businessinternationally or offshore,they carry out business in thereown country 3) Near shore : Near shore term is relatively new term usedin US market refers to practices of outsourcing in the samecontinent. Near shore outsourcing involves lower level of riskFor example, Mortgage Electronic RegistrationSystems, an organizationcreated by the mortgage banking industry to developsystems for mortgage tracking, is moving its customerrelationship management (CRM) function Chapter1 34
  35. 35. BPO To Outsource or not? BPO has managers around the world asking what it cando for them and what it might do to them. They are excitedabout the potential for BPO to help them manage costsand improve their balance sheets. Under constantpressure from analysts to control headcount, outsourcingback-office activities to contract laborers in remote corners of the world canprovide welcome and quick relief. Whether the laborsource is in India, Pakistan, China, or some otherinternational port, the prevalence of high-speed Internetprovides opportunities for real-time back-office supportregardless of location. At the same time as these new possibilities are openingup as a result of the BPO revolution, new questions are Chapter1 35being asked and new challenges in organizational design
  36. 36. BPO To Outsource or not? Many organizational leaders remain skepticalabout BPO because of the lingering aftereffects ofthe tech bubble burst. Their memories are stillfresh with images of the “change the world” mentality of the tech bubble and itsdismayingly rapid crash. The very thought of investing in new businessmodels right now—especially those with a technology or Internet component—is verydifficult for many managers and executives. Chapter1 36
  37. 37. Business Process Outsourcing End Of Chapter 1 Chapter1 37
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