BPO - A PERSPECTIVE ON
OUTSOURCING
An Internationally
Acclaimed Business Report
(Scroll
down to read excerpts from the Report)
TABLE OF CONTENTS
WHY
THIS REPORT
1.0
INTRODUCTION
2.0
BACKGROUND
3.0
THE BASIC COMPONENTS
4.0
TYPES OF OUTSOURCING
5.0
TYPICAL SCENARIOS IN WHICH ORGANISATIONS OUTSOURCE
6.0
INKING AN OUTSOURCING CONTRACT
7.0
CHECKLIST FOR SETTING UP AN OUTSOURCING ORGANISATON
8.0
BPO SUCCESS COMES IN DIFFERENT PACKAGES
9.0
MAKING YOUR PARTNERSHIP WORK FOR YOU
10.0
STEPS TO BE FOLLOWED WHILE OUTSOURCING
11.0
COSTS
12.0
PRICING FOR OUTSOURCING SERVICES
13.0
MEASUREMENT OF PERFORMANCE AND SERVICE LEVEL
14.0
CAPTURING VALUE
15.0
WHO ARE THE MAJOR BPO PLAYERS?
16.0
EFFICIENCY AND EFFECTIVENESS
17.0
OUTSOURCING PROJECT : AN APPROACH &
METHODOLOGY
18.0
CUSTOMER RELATIONS MANAGEMENT AND OUTSOURCING
19.0
OUTSOURCING IN INFORMATION TECHNOLOGY (IT)
20.0
FACILITIES MANAGEMENT IN REAL ESTATE
21.0
TYPES OF ORGANISATIONS THAT CAN BE SET UP IN INDIA
22.0
LOCATION AND FACILITY FOR STARTING AN OFFICE
23.0
GOVERNMENT APPROVALS AND REGULATORY BODIES
24.0
RESOURCE ARRANGEMENT
25.0
OUTSOURCING: ADVANTAGE INDIA
26.0
INDIA THE HOT SPOT FOR BPO
27.0
INDIA - AN INSIGHT
28.0
OUTSOURCING DEALS: LOOK BEFORE YOU LEAP
LIST OF BPO UNITS IN INDIA
EXCERPTS
Why
this report
Business
people have always wondered and more so in the last few months what it takes to
bring a company from the red to the black, from a low profit organization to a
healthy high profit one. BPO has appeared as the probable answer to most
organizations’ problems. While it has provided a means to profitability to
large organizations in the western world, it has afforded huge business
opportunities to developing countries like India. Today India has become capable
of offering cheaper and innovative ways of doing the same business, by virtue of
its highly educated work force, convenient rupee-dollar rates and efficient
infrastructure. BPO thrives on these factors and many more leading to win-win
situations at both ends.
While
some people tried to wish away the continuing downturn, the smarter ones tried
to rediscover the outsourcing – with all its inherent joys and troubles. Thus
outsourcing earned itself a new lease of life as the Business Process
Outsourcing (BPO) buzzword. As with
all corporate chewing gums, there is a lot of aura and expectation that is
attached to it.
In
this report we have tried to understand and explain what outsourcing is - with
all its strengths and frailties. What it takes to outsource and what it takes be
an outsourcing services provider. Which business processes can be outsourced and
how. How to ink and how not to ink an outsourcing contract. Thus the purpose of
this report is to stress how, when and why an outsourcing decision can be
arrived at.
We
have also attempted to study what it takes to transform a transaction-based
relationship to value-added strategic partnerships.
And
finally to sum it up we have analysed Business Process Outsourcing from the
perspective of both the outsourcing organization as well as the outsourcing
services provider.
Outsourcing
is an appropriately structured arrangement between an Organization and an
Outsourcing supplier to perform services, which were otherwise conducted
in-house. Outsourcing is becoming an accepted way of
functioning for organizations the world over, however companies remain pensive
when it comes to entrusting external agencies with critical application and
company information. Outsourcing can be a viable option when executed with
adequate safeguards. Prior to taking an outsourcing decision, one has to examine
the different perspectives with its pros and cons on whether to outsource or
not. Outsourcing can encompass a wide range of services, from a particular
project to a technical domain to all activities. Each situation requires a
different understanding of the priorities, measures, costs, and the benefits
involved.
A
successful outsourcing project is only possible if the outsourcing decision has
taken into consideration all known costs and benefits associated with the
project. It is also important that the contract be effectively negotiated and
managed.
Historically,
enterprises outsourced many ‘non-core, non-critical processes’ –
activities such as landscaping, cafeteria and janitorial services.
The
number one driver behind the growth in the BPO market today is an increase in
the number of enterprises that are reviewing their internal operations in an
attempt to more fully understand their true core competencies, and focus on only
those competencies. All other internally provided services then become
candidates for examination in terms of how efficiently and effectively those
services are being delivered compared to what is available from an external
service provider. This decisioning process often includes an evaluation of the
cost of owning technology – with it’s associated support costs, that are not
core to the enterprise (HR applications as an example). This is leading to an
increased willingness to outsource processes considered non-core, yet critical
– activities such as claims administration, HR services and payment services.
A
secondary driver of growth in this market is a desire by enterprises to improve
their current service levels. BPO offers enterprises an opportunity to do so in
many cases, and at the same time removes the requirement for the capital
expenditure that would be necessary if the enterprise sought to improve those
service levels internally. Service providers who can best communicate their
ability to deliver significant process improvement (as opposed to simply taking
on an existing process in a status quo manner) are likely to emerge as the
market leaders who will change the way in which business has traditionally been
done.
The
third most prominent driver of growth in this market – not surprising given
the current economic environment – is a desire by enterprises to extract all
possible costs from within their internal operations. Any chance of decreasing
transaction-processing costs frees up precious capital that can then be applied
to more strategic initiatives.
Over
a period of time, enterprises will increasingly narrow those activities they
deem to be ‘core, and critical’. An example of an early adopter of this view
is a company such as Nike, whose core competency is brand management, with all
other activities carried out by external service providers. As this view of what
is a ‘core’ process narrows, and is increasingly adopted by enterprises at
large, more and more processes will become candidates for BPO.
Outsourcing
as a concept is probably one of the oldest and most commonly practiced. Yet,
people have refused to recognize it and give it its due place. As a concept and
practise it pervades all aspects of our lives – domestic as well as
professional. But, somehow when it comes to giving it its due it doesn’t quite
happen.
To
take an example out of our domestic lives, often, certain amount of our
household chores are done by “domestic aids”. The domestic aid can be a full
time resident person or a part time help.
This
is outsourcing in its basic form.
Again,
taking up yet another example relating to a typical household is the laundry.
Sometimes, people would give their clothes to a laundry for washing and ironing
and at other times they would wash it themselves but, get it ironed from a
laundry. This is again a typical example of outsourcing.
An
essential but non-core activity of a household id executed in parts or in whole
for a fee by a person or an institution, who is not a member of the household.
In
the corporate context, outsourcing is all pervasive. Myriad examples are
noticeable at the first glance itself. Perhaps, among the most visible examples
are the “Security Services”, “Housekeeping” and “Pantry”.
More
often than not the gatekeeper or the security personnel would be from a
“Security Services Agency”. This is so even when the Security Personnel
happens to be the most visible face of the organization. And perhaps the first
impression.
Similar
is the case with Housekeeping. Housekeeping or maintainence of facilities is a
very important but non core activity. Dirty unkempt premises may not only make a
wrong impression on potential customers, but, can also prove to be unhyeginic to
the company’s employees. Even then cleaning and maintaining of the premises is
outsourced to an outside agency, specialized in this activity for a
consideration.
Another
noteworthy example, is the canteen services or the pantry. Lunch, tea and coffee
being served in a company’s premises is seldom cooked and served by an
employee in today’s context. It is likely that the pantry management has been
outsourced totally to a catering company. The infrastructure to run the canteen,
i.e., chairs, tables, cutlery, utensils is generally provided by the company,
whereas the personnel, the food and the cooking and services would be in the
scope of work of the caterer.
These
are some of the basic but visible examples of outsourcing in the corporate
world. Some of the not so visible but equally pertinent “outsourcing” that
happens in the corporate world are those that involve the execution of certain
semi-core and core activities by an outside entity.
Organisations
no longer outsource only non-core labour intensive processes. Labour intensive
but essential business processess like sales, “customer care” or “help
desk”, or “manufacturing” are critical activities where “goof ups” can
prove to be expensive.
So
is the case with “intellect” and “creativity” such as Advertising,
Public Relations, Research & Development and Software Development. These are
extremely creative processes, which call for tremendous reserves of knowledge
and intellectual capabilities. Yet these activities are also outsourced. At
times these activities or business processes can be very, very critical to the
survival of an organization. But today, they are outsourced and outsourcing has
proved to be beneficial as well. So if we are to look at outsourcing we would
observe that Outsourcing not only happens in individual homes but also in
Corporate houses. It is all pervasive and have existed as long as these entities
have been in existence.
Over
the years business process outsourcing has become wrapped in conventional
wisdom. Traditionally, organizations applied simple rules about when to use BPO:
-
Outsource
non-core activities,
-
To
niche providers who offer best practice processes,
-
In
order to achieve cost savings, and
-
Improve
management ’s focus on more strategic issues.
Today,
these rules no longer apply. The definition of business process outsourcing
hasn’t changed since its inception, but its potential reach and impact have
altered significantly. The BPO universe is expanding. Today, executives use BPO
to meet a diverse set of objectives, from tactical to strategic. Some still
contract out narrow processes to achieve cost savings. But others have begun to
use BPO for very different goals. They are using it to drive consistent
management practices through global operations, to start up new operations
quickly, to tap new sources of revenue, and to catalyze organizational change.
BPO
goes further than technology infrastructure or even applications. The
outsourcing provider takes primary responsibility for ensuring that the process
works, interfaces effectively with other company functions, and delivers the
outcomes intended.
10.0
STEPS TO BE FOLLOWED WHILE OUTSOURCING
10.1
Identifying Agency Needs
The
first step in the decision-making process is to identify the organizations'
needs. These needs lay the framework for projects and activities.
Address
the strategic interests and goals of the company - The strategic plan, the
information sources and the company's performance measures should all be taken
into consideration while identifying the company's needs. The goals of the
company serve as a basis for determining a project's success. Core competencies,
by and large, should not be outsourced. However, this might change if it is
found viable that resources or knowledge from an external source could
supplement the available in-house resources. Specify the service to be provided
and identify the rationale behind the outsourcing. The needs could include
cutting costs, enhancing service levels, moving to a different technology
platform, increasing technical know-how and skills within the organization.
10.2
Selecting the Vendor
Outsourcing
skeptics believe that an outsider cannot provide the same attention as the
in-house team. Therefore, a thorough vendor scrutiny becomes vital before
assigning critical technical roadmaps and confidential information to him.
Understanding
the emphasis of a vendor's business, or what it is that drives the vendor, is
essential while choosing the appropriate vendor to meet the specific needs. A
vendor selection team should be developed that would recognize business areas
for the project. The vendor selection team should comprise senior management,
legal staff with contract expertise, technical staff, end users and financial
staff.
Following
is a vendor selection checklist. The parameters on which the vendor should be
assessed have been carefully chosen, and it is advised that before entering into
a relationship, the vendor selection checklist must be completed. Further, while
taking a decision based on our vendor selection checklist, it is advisable to
assign weights to the parameters mentioned. The three most important factors
considered while choosing an outsourcing vendor included price, quality and
flexibility.
10.3
Experience and Expertise
As
with any procurement process even in an outsourcing initiative the relevant past
experience and skill-sets of the prospective vendor should be considered and
given due weightage.
This
will not only ensure that best practices are adopted in the outsourced activity
but also high efficiency is likely to be maintained. Besides selecting a vendor
with relevant past experience is likely to give the company a further edge in
terms of reduction of training time and costs.
A
strong track record and a positive reputation of the vendor are other important
criterion, which will ensure that the partnership has been struck with the
correct match. This could further be ensured by undertaking a reference check.
10.4
In-house facilities to meet the agency’s needs
It
is important that the prospective vendor already has their processes and
infrastructure in place to handle the assignments to be outsourced to them. The
vendor should be financially sound. Any investment made by the vendor should be
towards improving the processes rather than towards architecting them.
10.5
HR Issues
It
is imperative to take into account the HR issues that may arise in the
vendors’ organization. The type of selection and hiring processes of the
vendor can go a long way to ensure the quality of the assignment. Also retaining
and training policies are important as these ensure that the quality of the
resources improve with time rather than deteriorate. It is desirable that mature
employees populate the vendor organization rather than immature ones.
10.6
Ability to ramp up
Most
businesses are cyclic in nature and hence there will be slack seasons as well as
peak seasons. Hence the vendor organization should have a flexible business
model and be in a position to ramp up/reorganise its resources as well as ramp
down its resources without any major problems – organizational, legal etc.
10.7
Security
The
vendor organization should be able to instill a certain comfort level as far as
maintenance of confidentiality regarding the business process, business
standards, business data etc is concerned. Hence it is important that well
defined security policies are implementable in the vendor organization and there
is a respect for intellectual property within the organization.
It
is most desirable that the vendor organization has a sound and resilient
business plan in place. This will ensure that the vendor does not collapse with
the loss of a single client or with changes in the business environment.
