What is BPO?
Business process outsourcing
means examining the processes that
compose the business and its functional
units, and then working with focused
service providers to both re-engineer
and outsource these at the same time.
BPO involves the full transfer of
responsibility for functions such
as transaction processing, policy
servicing, claims management, HR,
finance, and compliance to the outsourcing
company. The outsourcing provider
then administers these functions on
their own systems to agreed service
standards and at a guaranteed cost.
Typically, companies that are looking
at business process outsourcing
are hoping to achieve cost savings
by handing the work to a third-party
that can take advantage of economies
of scale by doing the same work
for many companies. Or perhaps the
cost savings can be achieved because
labor costs are lower due to different
costs of living in different countries
(labor arbitrage). In exchange for
the potential cost savings, the
company in question must relinquish
control over an aspect of their
business that explains why business
process outsourcing is often reserved
for non-critical, non-core type
of work.
What type of
activities are suited to outsourcing?
Typically BPO is divided into two
areas Front Office & Back Office
Front office
Inbound sales
Outbound sales
Telemarketing
Customer service
Help desk
Order processing
Technical support
Appointment setting
Debt collection
Market research
Back office
Accounting
Data entry
Database management
Claims processing
Transcriptions
Lease abstraction
Data extraction
Human resources
Why do companies
outsource?
Reduce and control operating costs
Improve company focus
Gain access to world-class capabilities
Free internal resources for other
purposes
Gain access to resources that are
not available internally
Accelerate reengineering benefits
Handle functions that are difficult
to manage or are out of control
Make capital funds available
Share risks
Bring in a cash infusion
What are the
trends in outsourcing in the next
5 years?
Over the next 5 years, outsourcing
will experience three key trends:
1) Broader adoption of outsource
models by companies of all sizes
and in many more countries. Today
much of the outsourcing is taking
place in the United States and to
a lesser extent, the UK, and primarily
in large companies. However, we
are seeing significant interest
and uptake in almost every country
around the globe with countries
such as Australia moving rapidly
to an outsourcing model.
2) Movement from transaction oriented,
tactical outsourcing to transformational
outsourcing on a strategic level.
Businesses will expect much more
than just being able to reduce costs
although that will continue to be
a key driver. Businesses will look
to outsourcing to provide them with
a faster time to market for products
and services, greater market reach,
and higher value out of their core
set of employees.
3) Dramatic increase in numbers
of countries that seriously develop
and promote outsourcing through
government policy and support and
industry involvement. New countries
coming to the forefront along with
communications and IT technologies
allow for work to shift in and out
of countries more easily that ever
before.
Can medical transcriptions
be considered for outsourcing?
Yes.
Which business
processes are suitable for outsourcing?
The targeted business processes generally
fall into the six areas:
1. Sales, marketing, and customer
service - call center, appointment
setting, telesales, database marketing,
Web sales, and marketing.
2. Human resources - payroll, benefits
administration, education, and training.
3. Logistics/distribution - procurement,
transportation, warehouse management,
and material management.
4. Payment services - credit/debt
card processing or check processing.
5. Finance/accounting - accounts payable/receivable
management, risk management, and general
accounting.
6. Administration - tax processing,
claims processing, and document management.
7. Manufacturing - design, production
and component inventory management
8. Information Technology - application
development and maintenance, desktop
support and helpdesk support.
Successful BPO requires three acts:
1) selecting the right activities
to outsource,
2) identifying the right supplier
to provide the services, and
3) ensuring the right governance
approach for the relationship.
Why is outsourcing
a key area of focus for large companies?
Most of the back-office infrastructures
of large firms were built for a previous
era - preglobalization, pre-Internet,
and pre-M&A. They must change
quickly to meet the need for economies
of scale and higher competition. For
the large firm, the benefit of BPO
is access to best practices, which
in turn enables improved efficiency
and substantial cost savings.
BPO makes sense in a fast-moving
world where management attention
needs to be on critical operational
processes and where management talent
is scarce. Doing fewer things well
and delegating what's non-core externally
is strategically crucial. Back-offices,
while important, are largely non-core.
Corporations are ready for BPO.
They understand traditional outsourcing
and are more comfortable embarking
on more complex outsourcing engagements.
What is the difference
between Outsourcing and Offshoring?
Offshore development and maintenance
is a subset of outsourcing. The outsourcing
provider may perform services on shore,
offshore, or in some combination of
the two. Increasingly companies are
looking to the markets of the Asia
Pacific choosing locations such as
the Philippines, India, China, Malaysia
and Australia.
The decision is based on a variety
of factors, not the least of which
is customer preference. Another
phrase being used more widely is
"near shore," which normally
means work done in outside the US
in neighbors to the immediate north
or south, Canada, Mexico or Caribbean.
Offshore outsourcing is gaining
a bigger share of the BPO market.
Reasons for this being many large
corporations are demanding that
offshore services be included in
a competitive outsourcing bid. These
customers have been attracted by
offshore vendors offering substantial
price savings ($20 - $30 per hour)
for IT services like software code
writing and testing, as well as
for business processes supported
by IT, like claims processing or
customer support.
What are some
things to consider in a BPO contract?
Some critical issues to pay attention
to in a BPO contract are:
• Work scope
• Rates
• Term & Termination
• Performance Guarantees
• Deflationary Pricing over
length of contract
• Training costs
• Data Security, Privacy, Confidentiality
and Continuity of Business
• Indemnification and Insurance
• Financial Strength of Vendor
Fixing a poorly defined contract during
a project is very difficult. So getting
it right is extremely important for
the overall success of any BPO engagement.
