Business Process Out Sourcing (BPO)

OUTSOURCING AND IT BASED BUSINESSES

SUPER SPECIALISATION OPERATIONS & SCM
COURSE DURATION: 1 HR PER WEEK FOR 12 WEEKS COURSE CREDIT: 1 1. BASICS OF OUTSOURCING (4 HRS) Definition, Level, and modes of out sourcing .Reasons for outsourcing Benefits and pitfalls. Competitive strategy and outsourcing. Outsourcing agreements. Strategic outsourcing. Trends in outsourcing. Criteria for vendor selection Risks involved and managing risks in the global economy Trends in outsourcing 2. BUSINESS PROCESS AND IT OUTSOURCING (4 HRS) Evolution, constitution, models and types. BPO services and best practices, drivers and inhibitors. BPO domains: HR, Financial services, HealthCare, Transportation , Telecommunication , Call centers Indian BPO industry Emerging BPO domains: Entertainment, media and publishing 3. OFFSHORE OUTSOURCING (4 HRS) Definition ,types - Production /services/ innovation, need for outsourcing benefits, concerns, Risks Business models, best practices, Strategy creation and execution REQUIRED READINGS: MARCIA ROBINSON AND RAVI KALAKOTA: Offshore Outsourcing SARIKA AND KULKARNI: Business Process Outsourcing (Jaico Publishing House - 2005) PAUL DAVIS: Whats this India business?

Agenda Basics Of Out Sourcing

What is BPO? Level, & Modes of out sourcing, Reasons of out sourcing, Benefits & pitfalls Competitive Strategy & out Sourcing, Strategic Out Sourcing, Out Sourcing Agreement, Trends in out sourcing, Criteria For vender Selection Risks Involved & Managing Risks in Global Economy Trends in outsourcing..

What is BPO?
Business process outsourcing (BPO) is the contracting of a specific business task, such as human resources and customer service, to a third-party service provider. BPO is general term used to describe the out sourcing of critical, but non core, business process of organization to external vendors for a long period of time based on pre-defined performance metrics This allows companies to focus on their core business processes. BPO is implemented as a cost-saving measure for tasks that a company requires.

BPO Categories
It is often divided into two categories: - Back Office Outsourcing which includes internal business functions such as billing or purchasing. - Front Office Outsourcing which includes customer-related services such as marketing or tech support.

Modes of Outsourcing
Home-sourcing: allowing workers to work at
home as an alternative to setting up shared service centers; home-sourcers may be employees of the organization being served or may be employees of an outsourcer that is providing services to the organization; not to be confused with telecommuting

Modes of Outsourcing
Select Sourcing: using multiple outsourcing vendors to provide
certain services Offshoring: is BPO that is country.
contracted outside a company's own contracted

Onshoring: domestic outsourcing; is BPO that is

with the company's own country Near-shoring: is BPO that is contracted to a company's neighboring country.. Insourcing: taking back in-house functions that were previously outsourced; sometimes referred to as backsourcing; sometimes used to describe foreign-headquartered multinationals operating subsidiaries in the US

Modes of Outsourcing
Home-sourcing: allowing workers to work at home as an
alternative to setting up shared service centers; home-sourcers may be employees of the organization being served or may be employees of an outsourcer that is providing services to the organization; not to be confused with telecommuting

Transformational [out]sourcing:

Re-engineering an existing process or function to improve performance and decrease cost; leverages third-party expertise for a limited period of time; long-term goal is for the organization to achieve self-sufficiency before the outsourcing contract ends; sometimes referred to as up-skilling Facilities Management: onsite, outsourced management and staffing of non-core, back office functions; frequently marketed to law firms as a "bundle; such as space management, physical plant maintenance, internal and external moves, Courier etc

Modes of Outsourcing
Shared service centers (SSCs): can be onshore or
offshore; may be integrated into the organization, organized as a separate entity owned by the organization, or entirely outsourced; Captive outsourcing: outsourcing within a single company; one type of SSC Co-sourcing: describes the practice of partnering with third-party providers to outsource selected tasks, functions or projects within a service department; usually pertains to an organizations commitment to engage in a long-term partnership with a vendor; sometimes referred to as selective outsourcing or out-tasking- Cash ai ICICI PRU.

Modes of Outsourcing
Best sourcing: sourcing from countries or
regions that provide the best value; i.e., shopping around for the best deal. Can involve breaking a process down into smaller component parts in order to outsource each of the parts to whichever country offers the best value given the respective countrys skill sets, pricing, and the need for geographical diversification and risk mitigation; sometimes referred to as best shoring. Call centers Operations centers Support centers Virtual contact centers Contracting/Subcontracting Out Legal process outsourcing

Benefits Of Out Sourcing

Focus Best Practices Cost reduction: one of the biggest attraction Reduction of capital requirements Change of Cost structure-Going from fixed to variable cost

Reasons of Out sourcing

Cost Reduction Focus on core competencies Improve quality Increase speed to market Faster innovation Conserve capital

Pit falls of Out sourcing & challenges

Long Term Contracts Data Leakage issues Process Leakage Quality & turn around time Right Vender for Right process Which process to out source- Critical, Non critical Relation ship with venders & payment issues Work culture of vender etc

How does BPO works & levels

Complete Transfer BPO involves complete transfer of business or function to an external function to an external service provider
Ownership of A particular Process Only

Its the transfer of ownership of the process, BPO would allow organization to completely outsource full process with all sub elements & focus on core element IT outsourcing IT out sourcing involves specific tasks only, but often not an end to end process like maintenance of server, IT intensive Functions BPO is most easily applied across IT intensive functions such as payroll, Human Resources, Financial counseling, Logistics, Administration, Customer interface applications

Types of outsourcing
Three notable types of outsourcing are application development, IT infrastructure outsourcing, business process outsourcing

How to Choose an Outsourcing vendor

Experts point to the importance of investigating vendors thoroughly before signing any contracts. They recommend requesting documentation and other information to substantiate strengths, experience, and success in the following areas: Financial stability To withstand the fluctuation of the current economy the provider should be well-funded and have a wide client base across which to spread costs. Organizations should ask themselves, "Is there a chance this company will close its doors within the next two years due to lack of capital?" Years in business While outsourced security services are fairly new, security products and companies are not. A provider with several years in the security business offers valuable experience and stability.

MSS experience Clients should ask for biographies of personnel managing the MSSP. Note background and leadership skills, among other items. Effective leaders are capable of motivating team members to be disciplined and dedicated to the detailed security tasks.
Customers While investigating, organizations should ask how long the average client relationship has lasted and ask for comments from existing customers regarding the services provided. Reputation Clients may take note of comments from third parties, such as analysts and industry trade writers. However, this should not replace a thorough, in-person investigation.

Out Sourcing Agreements

Types of outsourcing contracts Outsourcing contract is the base on which is built the relationship between the customer and the outsourcing service provider. Outsourcing contract has a great impact on financial performances of the outsourcing companies. 4 categories of outsourcing contracts o Time and materials contracts o Fixed prices contracts o Revenue share contracts o Hybrid contract

Out Sourcing Agreements

Time and materials contracts o Customer pays an accepted hourly or daily rate for input provided by the outsourcing service provider; o Other unexpected expenses of the project will be calculated to the customer on final invoice; o Are based on direct work hours at defined fixed hourly rates and materials at cost; o Are recommended when deliverables of a project cannot be estimated; 4

Out Sourcing Agreements

Fixed prices contracts o Payment is based on changeable factors (e.g. time and effort in activity execution); o Customer will pay on agreed-upon for all work developed by the outsourcing service provider; o Less risky than time and materials contracts; o Are recommended when deliverables of a project can be very well estimated; 5

Out Sourcing Agreements

Revenue Share contracts o Are used in case when the software product developed for a customer will go through a whole chain of customers; o Do not present a high risk for the customer if the product will not be sold; o It will be a golden fountain for developers if the product will be successfully sold;

Hybrid contracts
o It is about a combination of the previous contracts;

Strategic Outsourcing
Companies outsource parts or components that are not one of their critical core processes for economic gain or better quality. An electronics manufacturer may choose to outsource its sheet metal work for control panels. Or an off-road equipment manufacturer may outsource a sub-assembly, such as a cab for a tractor. Strategic Outsourcing: At the strategic level, outsourcing allows not only the transfer of control to an outsider, but also the method of manufacture using a different technology or process. In strategic outsourcing a company may transfer an entire product, a product line, or an entire plant for strategic value. Benefits of Strategic Outsourcing The benefits generally are lower costs, higher quality, and shorter lead times. The term "lean manufacturing" is coined to represent half the human effort in the company, half the manufacturing space, half the investment in tools, and half the engineering hours to develop a new product in half the time.

Competitive Advantage
Competitive advantages give a company an edge over its rivals and an ability to generate greater value for the firm and its shareholders. The more sustainable the competitive advantage, the more difficult it is for competitors to neutralize the advantage. There are two main types of competitive advantages: comparative advantage and differential advantage. Comparative advantage, or cost advantage, is a firm's ability to produce a good or service at a lower cost than its competitors, which gives the firm the ability sell its goods or services at a lower price than its competition or to generate a larger margin on sales. A differential advantage is created when a firm's products or services differ from its competitors and are seen as better than a competitor's products by customers.

Strategic Outsourcing for Competitive Advantage

Outsourcing, once used mainly for downsizing and cost reductions at major corporations, should be used as a strategic tool to deliver a forceful impact on corporate growth and financial stability. By outsourcing non-essential work, the corporation can free valuable resources and focus on its areas of competitive advantage. To achieve that result, the corporation must know its core competencies, the type of work within the organization, and manage the outsourcing process.

Strategic Outsourcing for Competitive Advantage

The unit of competitive advantage work is work that should be retained within total corporate control and often described as inhouse work. This is associated with the defined areas of core competency. Usually, non-essential work and much of the necessary cost type work are subject to outsourcing. The valueadded support work often has a mix of potential outsourced activities as well as work chosen to be done internally. For outsourcing to make sense, the enterprise should be able to get the product or service done better, faster, and less expensive. If a vendor or partner in this endeavor cannot do it to defined standards as well as the enterprise, the arrangement will likely fail. So, when the core competencies have been defined and the work mapped-out, what is needed to raise the probability of success?

BPO to India
According to the NASSCOM and Everest India report, Indian BPO industry would grow nearly five-fold from its present revenue to reach US$50B by 2012. Indian revenues from BPO are estimated to have grown 107% to $ 583 million. Leading Competitors: - Philippines, Mexico, Canada, China and Ireland. 67-72% of costs to call centers operating in the US/UK is directly linked to man power costs. India only spends 33-40% of costs on man power. This includes training, benefits and other incentives for labor.

Statistics of the Future

India's BPO Market in 2008 Service Line HR Customer Care Payment Services First Estimate (1999) Second Estimate (2001) 5.4 4.1 2.9 3.5-4.0 8.0-8.5 3.0-3.5 2.5-3.0 1.5-2.0 2.5-3.0

Content Development 2.6 Administration Finance Figures in $ billion 1.3 0.7

Statistics of the Future Comparison of India Vs US BPO operating costs

US$ Cost per FTE (Full Time Employee) Personnel G&A Expense Telecom Property Rentals Depreciation TOTAL EXPENSES

United States 42,927 8,571 1,500 2,600 3,000

India 6,179 1,000 2,328 847 1,500

India as % of US costs 14% 12% 155% 33% 50% 20%

58,598 11,854

Capabilities: Why go to India?

Language
Major attraction for Multinationals Advantage over competitors

Educated Employees
Large number of qualified workers Proven to be the best in the IT and computer software fields
Strong technical skills Eagerness to engage clients

Produce around 100,000 engineers annually

Trends
Looking at trends in trade, there is a possibility that India may be increasingly placed as a resource for offshore outsourcing in its relationship with the US and the entire world. A more detailed breakdown of professional and business services reveals that the number of services industries with declining employment has grown at an increasingly rapid pace in recent years. Outsourcing originally started with assembly, and progressed to manufactured components. Today it has crossed over into the office, with information technology comprising the lions share of what is being outsourced today.

Rules to Follow: BPO Guidelines

There are many BPO providers, so research to find the one that best suits your needs. Using one provider for multiple tasks will help streamline your BPO. Have some measure to check and control the output of your BPO. Communicate with your BPO.

Trends in BPO Industry

Based on interactions with numerous fortune 500 clients during the last 2 years, the trend was that these companies started excluding India from there Voice support strategies and started moving to Philippines but this trend has started to reverse in the last couple of months with some of the major (fortune 50) companies returning to India for voice support in general and technical support in particular after bitter experiences in Phil and their likes. There haven't been a lot of changes in trends in these 3 months from 2010. India, Philippines have continued to be major players in the English space. Existing BPOs haven't cracked the Chinese market yet though companies have been scorching for entry opportunities into this infinite market. The industry no more witnesses the stupendous growth it once did. Growth rates have been around 5% to 20% annually compared to the 200% and 300% growth rates during it's peak years. (No more VC investments) Some of the big players in this space include Accenture, Infosys, WNS, Convergys, Teleperformance, Sutherland, Sitel.

The other major trend that will impact the industry is the shift in focus of several clients in using social media for handling customer inquires etc.

Tips for Safe Outsourcing

If you are going to outsource to India, look for a company that will adhere to your security terms and conditions. Research the company thoroughly, and make sure they understand Intellectual Property laws. If you can, travel and visit the company first hand. Though this may not be applicable to smaller companies, it is a necessity for larger companies that have a lot vested in their outsourcing company. Conclusion Finally, it is important to realize that outsourcing has it benefits as well as its risks, and every company needs to determine for themselves, which is greater. By taking the time to diligently research an outsourcing company, you can lower your chance of being scammed and enjoy the benefits that outsourcing provides.