Business Process Outsourcing (BPO)
BPO (Business process outsourcing) or simply Outsourcing is defined as the shift of day to day business processes from inside the organization to a third party service provider. With the help of consistently reliable and well established telecommunications infrastructure worldwide , BPO endeavor usually includes shifting work to international providers and includes “non-core” functions to the primary business strategy. BPO is the work done for a company by people other than the company’s full time employees. These people can be anywhere and they might have their offices in any part of the world, speaking a different language and working in a different time frame. It’s one of the reasons why selecting outsourcing destination is so important. Many BPO operations involve off shoring (hiring a company based in another country) to do the work. India is a popular location for BPO activities. Dominant outsourcing service providers in the BPO industry include US companies like IBM, Accenture, and Hewitt Associates, as well as European and Asian companies Capgemini, Genpact, TCS (Tata Consultancy Services), Wipro and Infosys.
Business Process Outsourcing can be categorized basing on their function and business: In the context of function, BPO consists of Internal Business Function (Back office outsourcing) and Customer Related Services (Front office outsourcing). While in light of business, BPO is of two types: Offshore BPO (out side company’s own country) and Near shore BPO (company’s neighbor country).
Essential factors for Outsourcing Location:
Preferable outsourcing location depends on numbers of factors and it can’t be confined into any mere list of points. Still there’re some factors that are considered essential for a location to be popular for BPO outsourcing destination. These are:
- Skilled BPO workforce
- Cost efficiency of outsourcing
- Better Infrastructure
- State of the art Communication Facilities
- Technologically advanced Outsourcing Firms
- Fast pacing Economy
- Stable Government
Outsourcing industry is expected to jump-off in the coming years and more and more companies planning to outsource both low end & high end jobs to offshore destinations. The colossal advantages linked with offshore outsourcing makes companies in developed countries outsource in such huge proportions. By Outsourcing to third world nations such as India, China, Philippines, Mexico etc companies can exploit the cheap labor and infrastructure facilities available in those lands and in turn cut down on man power costs, reduce operational costs and capital expenditure.
Core Business Concentration: Back office operations are highly tedious and need specialized attention. By outsourcing back office operations, businesses can concentrate on their core competencies while their back office operations are being managed smoothly by a specialized third party company (BPO vendor).
Low Cost for Skilled Manpower: BPO gives an organization the chance to get access to skilled and trained manpower at extremely lower cost that leads to an increase in productivity and save costs in a major way.
Productivity: Employing skilled manpower in more numbers at lower costs, companies can highly boost up their productivity and ultimately achieving better customer satisfaction and increased profitability.
Outsourcing Jobs: Jobs created through BPO offshore outsourcing are mainly back office and R&D jobs such as inbound call center services, outbound call center services, ERP & customized software design and development, financial & market research, IT consultation, product design, preparing tax return and more. According to Boston consulting group’s study, “The number of jobs in India through BPO is about to reach 30 million by 2020”. With more and more entrepreneurs and reputed companies setting up BPO operations in India, that estimate seems to be quite a reality.
Outsourcing Benefits & Losses
People in the developed countries tend to blame outsourcing for their job losses, low paying jobs and a lot more. But the reality is that BPO is to an evolution that is revolutionizing our societies and laying the foundation for a better world economy.
BPO Helps VS Job losses due to BPO: Job outsourcing overseas has come into much scrutiny in the recent times particularly among the US and UK technical workers. The evolution in technology has given rise to a situation when companies can actually think of shifting white collar jobs offshore. BPO helps in creating new international markets, promotes global citizenship, helps recognize global talent and in a holistic view, outsourcing helps in the development of economics of all the countries taking part in it. Many experts are of the opinion that software development outsourcing and other ITES outsourcing will only help improve the US and UK economies.
Risks in Outsourcing:
Outsourcing has lots of drawbacks that are still not clear and will emerge eventually as time passes. The drawbacks can be in the form of a firm actually increasing its spending structure without its knowledge, emergence of new competitors and loss in the product/service competitiveness. BPO is laden with risks, whether onshore or offshore. When a decision is made to outsource business activities involving lay offs, it is an expensive option to bring the operation back in-house in the event of the project failure . Let alone the impact of public relations, careers of the decision makers, competitiveness etc. Success of the outsourcing decision largely depends on reducing these risks efficiently and effectively .
Two inherent risks in outsourcing: Operational risks: Possible decline from a standard level of performance or achievement on quality &/or cost, lead time. Strategic risks: Issues like data security & privacy and indigenous intellectual property infringement. Strategic risks can be lessen or tried to lessen the seriousness or the extent by the terms of contract and operational controls to some extent. Most importantly, operational risk management is an on-going process that needs attention and effort continuously.
The BPO boom seems to be increasing everyday with more and more companies deciding to follow the race, making conditions really viable for a positive growth in the BPO industry.
|The BPO opportunity|
|Process||Market (US $bn)|
|Inbound call centers||70-75|
|Engineering & Design||65-70|
|Credit/Debit card services||45-50|
|Web sales and marketing||30-35|
|Database marketing/Customer analysis||15-20|
|BPO Operating costs|
|BPO workers: Age group|
|Source: Nasscom McKinsey report|
BPO industry growth requirements:
v Capacity building & expansion: English language proficiency as an international language, Telecommunication infrastructure, Mass transportation facilities, Dedicated BPO zone with enhanced transport and telecommunications infrastructure.
v Facilitation of operations as well as reducing entry & exit barriers : No specific regulatory changes, facilitation mechanisms – investment entry & operations
v Marketing and promotions of BPO.
Turnover Rate in BPO Industry:
High turnover rate in the BPO industry is one of the biggest issues. Though BPO is publicized in an exaggerated and often misleading manner, doggedness of high turnover rate in BPO industry is still significant. The reason behind such high turnover rate in BPO industry is the fact that it operates in the same way a production line do. Employees work in a stern time compliance and are expected to do top-drawer service ” each and every time” &/or achieve quota irrespective of pragmatic situations. Employees work in stiff adherence to productivity standards through continuous performance assessment and bombarded instantly in the event of deterioration. Its like the machines that are to continually produce and every defective unit found by constant examination is subject to be replaced in the first place. Irony is, it seems that BPO employees are more dispensable than the machines are! It’s frustrating as well as alarming that most of the BPO industry lacks an HRM system that addresses intrinsic human behavior that factors motivation, demoralization and morale of the employees. Besides, having a management team that has the ability to convey and enforce corporate philosophy and organizational policy and procedure throughout the organization is a must have practice though frequently ignored.
People working in the BPO industry is well aware about the pressure to keep up to the competition of securing job and who knows better than them -how stressful it is. Survival of the fittest as it works, yet those who survived still move to other opportunities to thrive and they can comprehend how valuable they are in the BPO industry. This is also a major reason why BPO firms belonging to SMEs usually face difficulty in keeping up with the fixed cost of operations just to retain efficient and productive employees. Unfortunately many SME BPO firms have the myopia to relate among Productivity, Effectiveness & Efficiency. The bottom line is, “The best people stay with the company that can provide them the best in terms of remuneration, organizational culture & environment, growth opportunity, job security and long term benefits.”