process outsourcing some Implementation issues
Outsourcing is the buzzword in these days. Outsourcing is nothing but allowing
someone else to do your work for you so that you are able to devote your time to
more important jobs. This concept is relevant in all areas, as today one can
also outsource some routine chores to some other person. Outsourcing is a
smarter way of doing business. It is a huge business opportunity today. In
today’s fast moving business scenario, business firms are contemplating various
methods in achieving greater success. More and more firms are looking at new
ways to reduce costs and meet the pressures of increasing accountability
post-Enron. They are looking for more tasks that can be outsourced. And if
possible off shored to high-quality, low-cost locations. Hence the reason why
many firms are outsourcing some of their processes in reducing their burden and
concentrating on core competent areas. Business process outsourcing became the
trend and almost all companies are moving in this direction. Everything from
technology support to payroll to travel to financial services to customer care
is being outsourced to specialists big and small, known and unknown.
possibility that this opportunity make an enormous impact has even caught the
imagination of politicians. Many states are trying to lure big BPO outfits. Some
are even willing to change policies for that. Karnataka has changed its labour
rules to allow women to work in night. Andhra Pradesh is willing to change
school and college curricula.
Need for outsourcing:
business firm needs to perform various functions in carrying out its business.
Of these various functions it performs certain functions which are not its core
areas. A manufacturing firm’s core area is the process of manufacturing and its
allied areas. But however, traditionally it performs various other processes
like HR functions, Accounting & Financial functions which requires less thrust.
In today’s competitive world one needs to have more efficient and effective way
of functioning. So, the firm may concentrate on its core competent area i.e.
manufacturing and achieving greater success in manufacturing a product. The
other functions may be outsourced to some specialists who are not part of the
oraganisation. By this way it can reduce it costs on those processes. This kind
of outsourcing gave a new scope of business and many independent companies are
emerging and offering its specialized services to firms who are outsourcing
report advocated the “India offshore model”, which very much signifies the role
India is playing in this business. Indian business process outsourcing (BPO) and
call centre companies- or –ITES – are coming of age. Even as a debate rages in
the US on the pros and cons of outsourcing, a “new supply chain of expertise”
links the west to India and other outsourcing centres. From Philippines to
Singapore, Malaysia, Brazil and Carribbean, says Ravi Aron, Professor of
Information and operations management at the Wharton school of the University of
Pennsylvania. For Indian BPO companies, the new phenomenon offers a route to
participation in core US business processes. If they are able to steadily move
up the value chain, they will become more like business partners and less like
mere suppliers of services to US and other global companies.
BPO sector is growing so fast that even Nassocom-McKinsey, which in 1999, had
estimated that BPO will be worth $17 billion in India by 2008, revised its
estimate to $21billion- 24 billion. Another report on the BPO industry by ICICI
securities has projected India’s share of the global process outsourcing
services to rise from 1.2 per cent of a $75 billion market in 2002 to 8.7
percent of a $103 billion market in 2007. The bottom line is that India offers
huge cost advantages that few can ignore. In US and UK, contact centre services
cost around $22 to $ 30 per hour. In India the rate is $12 to $16 per hour. The
main drivers of outsourcing, according to the ICICI Securities report are: Cost.
Quality, Technology and Reliability.
Outsourcers basically outsource non-core areas (functions) like, HR, Finance,
IT, Logistics, Facilities management, Marketing & Sales. Some of the major BPO
firms operating in India are EXL Service (Noida-based), Spectramind (Wipro),
Daksh (Gurgaon-based), WNS, v Customer, Tracmail, HCL e-serve, Epicentre, ICICI
onesource (Bangalore-based). GTL, Progeon (INFOSYS), Smartserve (NIIT).
company, Airtel, promoted by Bharti group has developed a network of more than
100 outsourcing partners who manage a host of activities from payment
collections, bill printing, cash management, customer service and distribution.
The company wants to come out of almost everything other than three core
activities: business planning, networking planning and market planning. LG
Electronics, Samsung Electronics India Information and Telecommunication, Pfizer
India, Philips India and Max New York Life are leading the pack of outsourcers.
Pfizer India, which has been in India for over 60 years outsources 40% of
manufacturing to 20 companies, all building maintenance (at the Mumbai corporate
office) is done by Knight Frank, corporate travel is outsourced to Cox & Kings,
payroll to India Life Hewitt and cash management to Deutsche Bank.
backdrop of above discussions this paper makes an
to outline the implementation issues in BPO.
Implementation Issues in BPO :
effective implementation of any outsourcing decisions rests on critical
consideration of the following
first basic issue to be addressed is by identifying its core competence area,
which the firm can’t afford to outsource because of strategic reasons. However,
some processes of the core competence can also be outsourced to derive the
benefits of the specialists’. For ex. The designing and engineering skills for
automobiles. Choosing the areas to be outsourced.
thing to be done is to identify the areas which the firm can outsource. Here the
firm should concentrate upon the available resources, the know-how, and the
importance of the area in the context of the firm’s image, the cost and the
specific requirements of the firm.
above variables should be evaluated thoroughly to decide whether a particular
function can effectively be outsourced. Even if a function yields positive
results after evaluation the peculiar characteristic of the function and the
business may not permit the outsourcing of that function.
HRM functions. “HR in one company is always different from another. Culture,
personality, characteristics and values are specific to company. HR is
eventually a relationship and, hence difficult to outsource completely, barring
routine or mechanical functions like payroll processing,” says Madhukar Shukla,
Professor at Xavier’s Labour Relations Institute, Jamshedpur.
the contract period to be given to BPO firms. The contract issue, i.e., the
duration aspect will depend on the nature of the function to be outsourced and
its competence. The outsourcer has to think how long he can outsource the
functions. Some of the functions can be outsourced for a longer period and some
other for a short time.
long-term contract is handed out, it has a tendency to grow roots and embed
itself so deeply in the system that controls get weakened and there is a
blurring between the organization and its contractor. There is a need for close
supervision and monitoring of the work of the contractor. It can go wrong from
cost overruns, time overruns. Setting proper objectives and control mechanisms
to direct the contractors towards the objectives will also gain prominence. If a
company outsourcers the customer care management/customer relationship
management unction to a firm, it needs to see whether the firm is behaving in
the same way as the outsourcing company desires. Otherwise, the company will
lose its image and even loose its customers. Hence, there should be proper
mechanism to control the outsourced firm.
giving away outsourcing functions, the company needs to verify the credibility
of the firm in fulfilling the operations. Various processes requires expertise,
the claim of firms being expert in those processes is to be checked. The
credibility and trustworthiness of firms in doing the business is prominent
issue which, requires thorough investigation. Efficiency of BPO firms should be
seen before offering services to them.
Conflict (of interests)
firm may handle same operations for different organizations. Conflict of
interests arises from firms performing such functions. Therefore the scope for
such conflict has to be avoided by suitably drafting the SLA (Service Line
Agreement) which prohibits the BPO firm from entering into outsourcing contract
with another firm in the same business as the outsourcing firm is in.
of outsourcing functions is another important issue in BPO. Cost is the most
important factor in the outsourcing decision. The outsourcer should certainly
compare the cost of outsourcing a function vis-à-vis performing it by itself.
However, the expectation in cost saving as a result of outsourcing should be
reasonable one. Since companies basically look at cost reduction, the vendor
firms may quote very low cost, which ultimately lead to failure of the contract.
Vendor firms quote least prices to outdo their competitors and only the vendor
who has quoted the least cost will be awarded the contract. Now it is obvious
that the vendor finds it unviable to provide the quality services at such
reduced cost & hence the failure. Therefore it is to be kept in mind by the
companies that they can’t expect huge cost cut and better quality. What they
have to look for is the reasonable savings in the cost without compromising on
another issue to be considered while outsourcing. The firms should be selected
on the basis of continual services. Otherwise, the business gets affected a lot.
BPO clients did not want their business to be disrupted under any circumstances.
Outsourcers are clamouring for multilocational BPO operations and these would
throw up new opportunities. It is with the thought that, in case one place gets
affected, others will come to its rescue. And there would be business
continuity. Clients will not be happy with a BPO outfit that doesn’t have a
contingency plan. Without multilocational facilities and the assurance of
continuity, foreign companies don’t want to outsource mission critical
applications like finance and accounting, human resources, administration and
payment services to Indian companies. Apart from ensuring continuity there are
other advantages to be gained from going multilocational. Low skill jobs like;
data entry could be outsourced to countries where labour is cheaper than in
India. Second, some countries have data access legislation that prevents
databases and information from crossing geographical boundaries. BPO centers in
those countries could take care of that problem.
Process outsourcing is going to see bigger growth than IT in this decade. It
will reduce transaction costs and allow companies to disintegrate into process.
They would retain their core competency and outsource even critical processes to
specialist firms. Offshoring, infact, is going to become a new management
discipline. Wharton Business School is already offering courses to equip
executives with skills to manage the new style of functioning. Even big
companies are entering into BPO and new entrants will have to find a niche. The
outsourcers looking to implement outsourcing their non-core functions have to
consider the issues rose above. It will enable them to choose the right kind of
vendor and can look forward to implement the outsourcing job more effectively
and efficiently. But yet, disputes on costs, quality, lack of communication,
lack of streamlining of processes, non-adherence to SLAs, mismatch on
expectations and delivery are the major reasons for collapsed outsourcing deals.
“Outsourcing is a three-legged race, both the teams have to move at a planned
pace. For things to workout, changes need to be minimized during build-up hase,
or requirements need to be frozen at some stage of the project. An outsourcing
relationship fails due to a disconnect between customer expectations and
perceived results”. The costs of things going wrong are huge on both sides. It
can be thus concluded that, selection of the right activities to outsource,
identifications of the right supplier of the services and the right governance
approach (Service level agreements) for the relationship are the major thrust
areas in BPO.
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