Business process outsourcing

From Wikipedia, the free encyclopedia Jump to: navigation, search This article is written like a magazine article; it does not use the direct, balanced tone expected of an encyclopedia. Please discuss this issue on the talk page. Editing help is available. (December 2008) This article contains weasel words: vague phrasing that often accompanies biased or unverifiable information. Such statements should be clarified or removed. (December
2008)

Business process outsourcing (BPO) is a subset of outsourcing that involves the contracting of the operations and responsibilities of specific business functions (or processes) to a third-party service provider. Originally, this was associated with manufacturing firms, such as Coca Cola that outsourced large segments of its supply chain.[1] In the contemporary context, it is primarily used to refer to the outsourcing of business processing services to an outside firm, replacing inhouse services with labor from an outside firm. BPO is typically categorized into back office outsourcing - which includes internal business functions such as human resources or finance and accounting, and front office outsourcing which includes customer-related services such as contact centre services. BPO that is contracted outside a company's country is called offshore outsourcing. BPO that is contracted to a company's neighboring (or nearby) country is called nearshore outsourcing. Given the proximity of BPO to the information technology industry, it is also categorized as an information technology enabled service or ITES. Knowledge process outsourcing (KPO) and legal process outsourcing (LPO) are some of the sub-segments of business process outsourcing industry.

Contents
[hide]

1 Industry size 2 Benefits and limitations 3 Threats 4 See also 5 References

[edit] Industry size

India has revenues of US$10.9 billion[2] from offshore BPO and US$30 billion from IT and total BPO (expected in FY 2008). India thus has some 5-6% share of the total BPO Industry, but a commanding 63% share of the offshore component. This 63% is a drop from the 70% offshore share that India enjoyed last year: despite the industry growing 38% in India last year, other locations like Philippines, and South Africa have emerged to take a share of the market[citation needed] . China is also trying to grow from a very small base in this industry. However, while the

BPO industry is expected to continue to grow in India, its market share of the offshore piece is expected to decline. Important centers in India are Bangalore, Hyderabad, Chennai, Kolkata, Mumbai, Pune, Patna and New Delhi. The top five Indian BPO exporters for 2009-2010 according to NASSCOM are Genpact, TCS BPO, WNS Global Services, Wipro BPO, and Aegis Ltd..[3]

[edit] Benefits and limitations

An advantage of BPO is the way in which it helps to increase a companys flexibility. However, several sources[which?] have different ways in which they perceive organizational flexibility. Therefore business process outsourcing enhances the flexibility of an organization in different ways. Most services provided by BPO vendors are offered on a fee-for-service basis[citation needed]. This can help a company becoming more flexible by transforming fixed into variable costs.[4] A variable cost structure helps a company responding to changes in required capacity and does not require a company to invest in assets, thereby making the company more flexible.[5] Outsourcing may provide a firm with increased flexibility in its resource management and may reduce response times to major environmental changes[citation needed]. Another way in which BPO contributes to a companys flexibility is that a company is able to focus on its core competencies, without being burdened by the demands of bureaucratic restraints.[6] Key employees are herewith released from performing non-core or administrative processes and can invest more time and energy in building the firms core businesses.[7] The key lies in knowing which of the main value drivers to focus on customer intimacy, product leadership, or operational excellence. Focusing more on one of these drivers may help a company create a competitive edge.[8] A third way in which BPO increases organizational flexibility is by increasing the speed of business processes. Supply chain management with the effective use of supply chain partners and business process outsourcing increases the speed of several business processes, such as the throughput in the case of a manufacturing company.[9] Finally, flexibility is seen as a stage in the organizational life cycle: A company can maintain growth goals while avoiding standard business bottlenecks.[10] BPO therefore allows firms to retain their entrepreneurial speed and agility, which they would otherwise sacrifice in order to become efficient as they expanded. It avoids a premature internal transition from its informal entrepreneurial phase to a more bureaucratic mode of operation.[11] A company may be able to grow at a faster pace as it will be less constrained by large capital expenditures for people or equipment that may take years to amortize, may become outdated or turn out to be a poor match for the company over time. Although the above-mentioned arguments favor the view that BPO increases the flexibility of organizations, management needs to be careful with the implementation of it as there are issues, which work against these advantages. Among problems, which arise in practice are: A failure to meet service levels, unclear contractual issues, changing requirements and unforeseen charges, and a dependence on the BPO which reduces flexibility. Consequently, these challenges need to be considered before a company decides to engage in business process outsourcing[12] A further issue is that in many cases there is little that differentiates the BPO providers other than size. They often provide similar services, have similar geographic footprints, leverage similar technology stacks, and have similar Quality Improvement approaches.[13]

[edit] Threats
Risk is the major drawback with Business Process Outsourcing. Outsourcing of an Information System, for example, can cause security risks both from a communication and from a privacy perspective. For example, security of North American or European company data is more difficult to maintain when accessed or controlled in the Sub-Continent. From a knowledge perspective, a changing attitude in employees, underestimation of running costs and the major risk of losing independence, outsourcing leads to a different relationship between an organization and its contractor.[14][15] Risks and threats of outsourcing must therefore be managed, to achieve any benefits. In order to manage outsourcing in a structured way, maximizing positive outcome, minimizing risks and avoiding any threats, a Business continuity management (BCM) model is set up. BCM consists of a set of steps, to successfully identify, manage and control the business processes that are, or can be outsourced.[16] Another framework, more focused on the identification process of potential outsourceable Information Systems, identified as AHP, is explained.[17] L. Willcocks, M. Lacity and G. Fitzgerald identify several contracting problems companies face, ranging from unclear contract formatting, to a lack of understanding of technical IT- processes.
[18]

[edit] See also

Outsourcing Offshoring Nearshoring Homeshoring Globalization List of call centre companies Banking BPO Services Recruitment Recruitment Process Outsourcing Software testing outsourcing BPO security Business process outsourcing in India Business process outsourcing in the Philippines Website Management Outsourcing Captive service Offshoring Research Network Legal outsourcing

[edit] References

1. ^ Tas, J. & Sunder, S. 2004, Financial Services Business Process Outscourcing,

Communications of the ACM, Vol 47, No. 5

2. ^ Cover Story 3. ^ NASSCOM Announces Top-15 ITES-BPO Exporters Rankings for FY 09-10 4. ^ Willcocks, L., Hindle, J., Feeny, D. & Lacity, M. 2004, IT and Business Process

Outsourcing: The Knowledge Potential, Information Systems Management, Vol. 21, pp 715
5. ^ Gilley, K.M., Rasheed, A. 2000. Making More by Doing Less: An Analysis of

Outsourcing and its Effects on Firm Performance. Journal of Management, 26 (4): 763790.
6. ^ Kakabadse, A., Kakabadse. N. 2002. Trends in Outsourcing: Contrasting USA and

Europe. European Management Journal Vol. 20, No. 2: 189198

7. ^ Weerakkody, Vishanth, Currie, L. Wendy and Ekanayake, Yamaya. 2003. Re-

engineering business processes through application service providers - challenges, issues and complexities. Business Process Management Journal Vol. 9 No. 6: 776-794
8. ^ Leavy, B. 2004. Outsourcing strategies: opportunities and risk. Strategy and

Leadership, 32 (6) : 20-25.

9. ^ Tas, Jeroen, Sunder, Shyam. 2004. Financial Services Business Process Outsourcing.

COMMUNICATIONS OF THE ACM Vol. 47, No. 5

10. ^ Fischer, L.M. 2001. From vertical to Virtual; How Nortels Supplier Alliances Extend

the enterprise [online]. Strategy+Business, Available from http://www.strategybusiness.com/press/16635507/11153 [Accessed 5 February 2008]
11. ^ (Leavy 2004, 20-25) 12. ^ Michel, Vaughan, Fitzgerald, Guy. 1997. The IT outsourcing market place: vendors

and their selection. Journal of Information Technology 12: 223-237

13. ^ Adsit, D. (2009) Will a Toyota Emerge from the Pack of Me-Too BPO's?, In Queue

http://www.nationalcallcenters.org/pubs/In_Queue/vol3no21.html
14. ^ Bunmi Cynthia Adeleye, Fenio Annansingh and Miguel Baptista Nunes. "Risk

management practices in IS outsourcing: an investigation into commercial banks in Nigeria", International Journal of Information Management 24 (2004): 167-180.
15. ^ K. Altinkemer, A. Chaturvedi and R. Gulati. "Information systems outsourcing: Issues

and evidence", International Journal of Information Management 14- 4 (1994): 252- 268.
16. ^ Forbes Gibb, and Steven Buchanan. "A framework for business continuity

management", International Journal of Information Management 26- 2 (2006): 128- 141.

17. ^ Chyan Yang and Jen-Bor Huang. "A decision model for IS outsourcing", International

Journal of Information Management 20- 3 (2000): 225- 239.

18. ^ L. Willcocks, M. Lacity and G. Fitzgerald. "Information technology outsourcing in

Europe and the USA: Assessment issues", International Journal of Information Management 15- 5 (1995): 333- 351. Retrieved from "http://en.wikipedia.org/wiki/Business_process_outsourcing" View page ratings

Rate this page Rate this page Page ratings What's this? Current average ratings. Trustworthy Objective Complete Well-written

I am highly knowledgeable about this topic (optional) I have a relevant college/university degree It is part of my profession It is a deep personal passion The source of my knowledge is not listed here I would like to help improve Wikipedia, send me an e-mail (optional) We will send you a confirmation e-mail. We will not share your address with anyone. (Privacy policy) Submit ratings Saved successfully Your ratings have not been submitted yet Your ratings have expired Please reevaluate this page and submit new ratings. An error has occured. Please try again later. Thanks! Your ratings have been saved. Please take a moment to complete a short survey. Start survey Maybe later Thanks! Your ratings have been saved. Do you want to create an account? An account will help you track your edits, get involved in discussions, and be a part of the community. Create an accountorLog in Maybe later Thanks! Your ratings have been saved.

Did you know that you can edit this page? Edit this page Maybe later Categories: Business process | Business terms | Information technology management Hidden categories: Wikipedia articles needing style editing from December 2008 | All articles needing style editing | Articles with weasel words from December 2008 | All articles with unsourced statements | Articles with unsourced statements from July 2009 | All articles with specifically marked weasel-worded phrases | Articles with specifically marked weasel-worded phrases from August 2009 | Articles with unsourced statements from August 2009
Personal tools

Views

Log in / create account Article Discussion

Namespaces

Variants

Actions Search

Read Edit View history

Top of Form

Special:Search

Bottom of Form

Navigation

Toolbox

Main page Contents Featured content Current events Random article Donate to Wikipedia Help About Wikipedia Community portal Recent changes Contact Wikipedia

Interaction

What links here Related changes Upload file Special pages Permanent link Cite this page Rate this page Create a book Download as PDF Printable version Deutsch Espaol Franais Portugus This page was last modified on 29 July 2011 at 17:24. Text is available under the Creative Commons Attribution-ShareAlike License; additional terms may apply. See Terms of use for details. Wikipedia is a registered trademark of the Wikimedia Foundation, Inc., a non-profit organization.

Print/export

Languages

T o p o f F o r m
Home > Outsourcing Strategy > Strategy Development Search B :

for

156324432

Go

o t t o m o f F o r m

| Highlights: | | |

| | |

Free Newsletter! Improve your Outsourcing skills and knowledge

Bookmark This Page

BPO - What is Business Sign up today! Process Outsourcing? Manage Subscriptions

Email This Page

Format for Printing

Submit an Article

Outsourcing AdLinks

Read More Articles

What is business process outsourcing (BPO)? BPO is the process of hiring another company to handle business activities for you.
What is Outsourcing? which

What is Offshoring?

BPO is distinct from information technology (IT) outsourcing, focuses on hiring a third-party company or service provider to do IT-related activities, such as application management and application development, data center operations, or testing and quality assurance. In the early days, BPO usually consisted of outsourcing processes such as payroll. Then it grew to include employee benefits management. Now it encompasses a number of functions that are considered "non-core" to the primary business strategy. Now it is common for organizations to outsource financial and administration (F&A) processes, human resources (HR) functions, call center and customer service activities and accounting and payroll. These outsourcing deals frequently involve multi-year contracts that can run into hundreds of millions of dollars. Often, the people performing the work internally for the client firm are transferred and become employees for the service provider. Dominant outsourcing service providers in the BPO fields (some of which also dominate the IT outsourcing business) include US companies IBM, Accenture, and Hewitt Associates, as well as European and Asian companies Capgemini, Genpact, TCS, Wipro and Infosys. Many of these BPO efforts involve offshoring -- 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. Since most business processes include some form of automation, IT "enables" these services to be performed.

What is BPO?

Offshoring to India

Offshoring to China

Glossary of Terms

Sourcing Directory

Outsource by Function

An offshoot of BPO is KPO -- knowledge process outsourcing. Considered by some to be a subset of BPO, KPO includes Outsource by Region those activities that require greater skill, knowledge, education and expertise to handle. For example, whereas an insurance company might outsource data entry of its claims forms as part of a BPO initiative, it may also choose to use a KPO service Outsource by provider to evaluate new insurance applications based on a set Industry of criteria or business rules; this work would require the efforts of a more knowledgeable set of workers than the data entry would. The current definition of KPO encompasses R&D, Outsourcing Strategy product development and legal e-discovery, as well as a number of other business functions.
Outsourcing Tactics

AdLinks Information

Legal

Also coming into use is the term BTO -- business transformation outsourcing. This refers to the idea of having service providers contribute to the effort of transforming a business into a leaner, more dynamic, agile and flexible operation. Useful Links The Basics of Business Process Outsourcing

Research & Statistics

http://www.sourcingmag.com/content/c060405a.asp Reducing Operational Risk in Business Process Outsourcing http://www.sourcingmag.com/content/c060802a.asp Move from Tactical to Strategic Sourcing http://www.sourcingmag.com/content/c050914a.asp
Top of Form

Tools & Templates

Vendors & Consultants

w hat_is_bpo.asp

Rate This Article: Current Rating: 3.66

Rate Now
Channels Poor 1 2 3 4 5 Excellent

View all top-rated articles

Business Process Mgt

Bottom of Form

Innovation

Copyright 2003-2011 Sourcingmag.com, CTQ Media. All Rights Reserved Reproduction Without Permission Is Strictly Prohibited Request Permission

Six Sigma

Quick Access

Publish an Article: Do you have a sourcing tip, learning or case study? Share it with the largest community of Outsourcing professionals, and be recognized by your peers. It's a great way to promote your expertise and/or build your resume. Read more about submitting an article. SPONSORED LINKS

Help

Search

Buy a Link Now

Advertise Here

Article Archives

Newsletter Archives

RSS/XML Feeds

User Feedback

Top of Form Bottom of Form

Please suggest site improvements.

Send
[ larger form ]

Home

Discussion Forum

Event Calendar

Job Shop

Link To Sourcingmag.com | Report A Problem | Submit Article For Publishing

Terms of Service. 2003-2011 Sourcingmag.com, CTQ Media. All rights reserved. v1.0, 0.1

About Sourcingmag.com

Contact Us Privacy Policy Site Map.