Transcript of "Assessment of business process outsourcing"
Lawgical PracticeConsulting GlobalAssessment of BusinessProcess OutsourcingDate: 15/08/2011
Business Process OutsourcingBPO is the process of hiring another company to handle business activities for yourcompany as it focuses on its core business.BPO is distinct from information technology(ITO) outsourcing, which focuses on hiring a third-party company or service provider to doIT-related activities for instance, such as application management and applicationdevelopment, data centre operations, or testing and quality assurance. Many of these BPOefforts involve off shoring i.e. hiring a company based in another country to do the work.India is a popular location for BPO activities.Frequently, BPO is also referred to as ITES (information technology enabled services). Sincemost business processes include some form of automation, IT "enables" these services to beperformed. An offshoot of BPO is KPO (knowledge process outsourcing). Considered bysome to be a subset of BPO, KPO includes those activities that require greater skill,knowledge, education and expertise to handle. For example, whereas an insurance companymight outsource data entry of its claims forms as part of a BPO initiative, it may also chooseto use a KPO service provider to evaluate new insurance applications based on a set ofcriteria or business rules; this work would require the efforts of a more knowledgeable set ofworkers than the data entry would. The current definition of KPO encompasses R&D,product development and legal e-discovery, as well as a number of other business functions.Discipline where KPO has been incorporated includes; equity, finance, insurance research market research and competitive intelligent and general business research data analytics integration and management intellectual property , paralegal content and services research and information services in HR engineering and design services animation and simulation services medical content services Also coming into use is the term BTO (business transformation outsourcing). This refers tothe idea of having service providers contribute to the effort of transforming a business into aleaner, more dynamic, agile and flexible operation.History BPOSince the Industrial Revolution, companies have grappled with how they can exploit theircompetitive advantage to increase their markets and their profits. The model for most of the20th century was a large integrated company that can “own, manage, and directly control”its assets. In the 1950s and 1960s, the rallying cry was diversification to broaden corporatebases and take advantage of economies of scale. By diversifying, companies expected toprotect profits, even though expansion required multiple layers of management.Subsequently, organizations attempting to compete globally in the 1970s and 1980s werehandicapped by a lack of agility that resulted from bloated management structures. Toincrease their flexibility and creativity, many large companies developed a new strategy offocusing on their core business, which required identifying critical processes and decidingwhich could be outsourced.
Outsourcing was not formally identified as a business strategy until 1989. However, mostorganizations were not totally self-sufficient; they outsourced those functions for which theyhad no competency internally. The use of external suppliers for these essential but ancillaryservices might be termed the baseline stage in the evolution of outsourcing. In the 1990s, asorganizations began to focus more on cost-saving measures, they started to outsource thosefunctions necessary to run a company but not related specifically to the core business.Managers contracted with emerging service companies to deliver accounting, humanresources, data processing, internal mail distribution, security, plant maintenance, and thelike as a matter of “good housekeeping”. Outsourcing components to affect cost savings inkey functions is yet another stage as managers seek to improve their finances. Outsourcing ithas basically resulted into strategic partnershipsWhat is outsourcingOutsourcing can be defined as “the strategic use of outside resources to perform activitiestraditionally handled by internal staff and resources”. Sometimes known also as “facilitiesmanagement”, outsourcing is a strategy by which an organization contracts out majorfunctions to specialized and efficient service providers, who become valued businesspartners. Companies have always hired contractors for particular types of work, or to level-off peaks and troughs in their workload, and have formed long-term relationships withfirms whose capabilities complement or supplement their own. However, the differencebetween simply supplementing resources by “subcontracting” and actual outsourcing is thatthe latter involves substantial restructuring of particular business activities including, often,the transfer of staff from a host company to a specialist, usually smaller, company with therequired core competencies.Why do companies outsourceHere are some common reasons: Reduce and control operating costs Improve host company focus Gain access to world-class capabilities Free internal resources for other purposes A function is time-consuming to manage or is out of control Insufficient resources are available internally Share risks with a partner companyIn earlier periods, cost or headcount reduction was the most common reasons to outsource.In today’s world the drivers are often more strategic, and focus on carrying out core value-adding activities in-house where an organization can best utilize its own core competencies.Main factors influencing successful outsourcingThe critical areas for a successful outsourcing program as identified are: Understanding company goals and objectives A strategic vision and plan Selecting the right vendor Ongoing management of the relationships
A properly structured contract Open communication with affected individual/groups Senior executive support and involvement Careful attention to personnel issues Short-term financial justificationIn a nut shell, outsourcing allows organizations to be more efficient, flexible, and effective,while often reducing costs.Some of the top advantages brought by outsourcing include the following: Staffing flexibility Acceleration of projects and quicker time to market High calibre professionals that hit the ground running Ability to tap into best practices Knowledge transfer to permanent staff Cost-effective and predictable expenditures Access to the flexibility and creativity of experienced problem solvers Resource and core competency focusSome examples of BPO services are telemarketing, technical support service, customersupport service, insurance processing, data entry and conversion services, bookkeeping andaccounting and online researching, and form processing.Hot spots for various BPOs globally are as summarised in the table; Countries Specialization BPOs China Manufacturing and technical India Engineering and technical Mexico Manufacturing USA Analysis and Creative Philippines Administrative dutiesRequirements for BPOs i. Skilful management i.e. Human skills, professional teams, specification of staff roles and training people ii. Security technology i.e. system compatibility between buyer and vendor, data systems securityDriving factors for BPO revolutions Education attainment Broadband connection Inexpensive data storage Business specialization
Internet security Online analytical processingBPO types Offshore-movement of jobs and manufacturing plants outside countries to take advantage of low wages overseas i.e. USA to Vietnam Onshore- services are taken to another place but within the same country Near shore- outsourcing services within the same continentChallenges Faced by the BPO Industry, Challenges for the BPO IndustryChallenges Faced by the BPO industry todayBPOs have proved a grand success. However, certain problems have cropped up in theprocess for which long-term solutions are necessary.Areas of concern in BPOs: Working in a BPO, many feel is a job that does not require much skill. Anybody possessing a basic education, good communication skills is employable after some training. Companies do not mind taking in people who are middle aged, and homemakers. There is no sense of accomplishment among the employees. Financial desperation on the part of some people leads them to take up jobs in BPOs- People out of college join BPOs to earn money to finance their higher education, some as a way of improving their life styles. Some others join because they could not find anything else. In short, very few people take up employment in BPOs for the love of it. The tasks that BPOs perform are diverse: telemarketing, technical support service, customer support service, insurance processing, data entry and conversion services, bookkeeping and accounting and online researching, and form processing. The problem that this creates is that there can be no standardized training program suitable to all the BPOs that can be given to the prospective employees before they are actually absorbed into the company. High expectations from the outsourcing companies tend to de-motivate the workers. In many cases, the outsourcers think only of achieving targets. They are obsessed with quality work, business continuity, time frame, security of information. However, satisfying them is not always possible. The expectations should be realistic taking into account the work ethics of the region of the service provider, as well as, its culture and polity. Attrition in BPOs: The single largest worry of the BPO industry is attrition. In the outsourcing context, attrition means a gradual reduction in the number of people working in a company due to retirement, resignation, or death. The rate of attrition in the BPO industry in India for instance is currently nearly 50%. Attrition in individual firms varies from 15% in the larger firms to up to 40% in the smaller ones. Analysts believed that if this left unchecked, there would be a shortage of professionals.
Analysis of KPO, BPO and LPO KPO VS BPO VS LPOParameter KPO BPO LPOPrimary value Knowledge arbitrage Cost arbitrage Cost arbitrage in process legal process, improvement and quality and efficiency efficiencyStaff skill sets MBAs, Engineers, CFAs, Undergraduates in Legal studies, IT, Actuarial studies etc commerce and attorneys and finance and IT. engineers etcBilling rates USD 10-45 per hour USD 1-15 per hour USD20-1000 per hourProcess Highly complex Basic process Highly complexcomplexity involving standard proceduresProcess quality Standard project Robust six sigma Driven bymanagement management application drive quality managementtechniques supplemented by in house techniques with on practise and modelling and accuracy and output experience documentation controlStaff retention Equity and equity Focus on monetary Focus onpolicies linked incentives incentives professionalisms Technical excellence and international Professional growth career growth Job rotationRegulatory strict regulations Focus on data Ethical issues,issues focuses on intellectual protection issues confidentiality and property and and privacy law discipline management issuesTypical USD 15,000-40,000 in India USD 4,000-10,000 USD50,000-200,000resource costsCommon India India , china, India, USA, Korea,designations Philippines, Pakistan Vietnam and Easten EuropeScalability Staff capabilities and Staff numbers, Managementdrivers expertise volumes, and expertise and output knowledge expertiseControl of IP Key control required over IP IP not an issue IP key issue generally
ConclusionBPOs like ITO and LPO are outsourcing centres established to arbitrage the cost andefficiency of business to supplement the core business.While BPOs are more quantities and products oriented focussing on volumes and outputITO, KPO and LPOs are more focussed to quality, High performance, Capital expenditureminimization, flexibility and more service oriented.BPO has a global market share of USD 100 Billion, with over 60% of Fortune 500 companiesoutsource to India, Compared with LPO estimated at USD 1.5 Billion.Generally it has been consistent that services that have been outsourced are services thatoffer greatest outsourcing rewards, even though the risk perception is high too. To concludeBPO s can be viewed as business tools used to bring improvement within a businessfunctions.Resource Prepared By:SCASS Governance Resources Team