Business process outsourcing

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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 services.

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 center 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]

According to management consultancy McKinsey & Co., the global "addressable" BPO
market is worth $122 – $154 billion, of which: 35-40 retail banking, 25-35 insurance, 10-12
travel/hospitality, 10-12 auto, 8-10 telecoms, 8 pharma, 10-15 others and 2-5 is finance,
accounting and HR.[citation needed] Moreover, they estimate that 8% of that capacity was utilized
as of 2006.[citation needed]

[edit] Benefits and limitations

An advantage of BPO is the way in which it helps to increase a company’s 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 company’s 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 firm’s 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. Using techniques such as linear programming can reduce cycle time and
inventory levels, which can increase efficiency and cut costs[citation needed]. 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[who?]as a stage in the organizational life cycle. BPO helped to
transform Nortel from a bureaucratic organization into a very agile competitor[citation needed]. 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 an
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]
CASE STUDY

Recruitment is a Challenge in Call Center/BPO

Industry…Competencies for Recruitment Professionals…measuring their efficiency
and ROI !!!

Purpose:
For high growth organizations, attracting, hiring and retaining the right talent is
critical. Add the right players to your team and you have a key source of competitive
advantage. Attract the wrong talent and you will have difficulty meeting your strategic
goals and objectives. "Hire a wrong person…who is not able to fit into an
organization…he will leave, resulting in high attrition rate". "Hire a person…give him
wrong information…or misrepresent the policies of the companies and procedure
and you will not even know what harm you have done to the organizations "public
image" ".

Introduction
More than anybody else in HR Department the onus is high on "Recruitment
Specialist", he is like "companies" advertising manager.

He must be well versed with the "Business" of the company, its strategies and
policies.

It is for him to keep himself updated with the latest skill sets, available in the market.
It is for him to "keep" him self updated with the "Business Competitors" of the
organization. Even the onus of "retaining people is on "Recruitment Specialist".

It is for them to find if the "person" will be able to fit into the "culture" of the
organization.

4 P's of Recruitment

Product
What positions are you trying to fill? What do you have to offer to potential
candidates? Who else is trying to hire similar candidates and how can you gain a
competitive advantage?

Price
How much are you willing to pay top quality candidates (e.g., salary and benefits,
other costs associated with the hiring process)? Is this more or less than your
competition?

Person
What is your target market? Who are you trying to hire? What competencies are
needed for the jobs you have to fill? Are these competencies valid? What does the
ideal candidate look like?

Promotion
Where can your ideal candidates be found? How will you let these candidates know
about your job openings and encourage them to apply? What resources can you use
to generate a diverse candidate pool?

Searching for "Right" profile

1. Networking - Developing relationships with institutions that have direct or

indirect access to culturally diverse candidates
2. Internet - Searching web databases, placing ads at various career sites
geared toward a diverse array of individuals, attending on-line career chats
3. Resume Services - Purchasing a packet of resumes that match identified
hiring criteria and contain a significant level of diversity.
4. Direct Mail Campaign - Systematically sending recruitment materials to
culturally diverse individuals who meet your hiring criteria and organizations
that have access to such individuals.
5. Job Fairs - Participating in job and career fairs that cater to culturally diverse
job seekers.
6. Newspaper/Periodical Advertising - Placing job ads in periodicals that cater to
culturally diverse individuals.
7. Radio & Television Advertising - Placing job ads on shows that cater to
culturally diverse individuals.
8. Professional Associations - Becoming actively involved in a professional
association that caters to underrepresented members of a particular
profession

Recruitment: Return on Investment (ROI)

Recruitment return on investment (ROI) understands and compares the elements,

costs and risks of a recruitment related project to the expected benefits, for example;
recruitment technology, recruitment centre implementation or process re-
engineering.

Recruitment ROI can assist in building a business case for the organization's
decision makers to evaluate the benefits and estimated return on the investment to
upgrade an organization's recruitment function.

In summary, the recruitment ROI process would address the following:

1. Tangible and intangible benefits to the organization, including increased

quality and savings in time and money through implementation
2. Estimated cost of services and associated technology
3. Investment/payback period of the recruitment project
4. Issues and costs associated with not proceeding with the recruitment project

Measuring the Effectiveness of Recruitment Process

Collecting data and calculating the ratios is only the first step. Metrics are a tool for a
larger analysis of your recruiting effectiveness.

Metrics don't just mean time and cost. It's about looking for every point of transaction
with a candidate and tracking it from the time and cost perspective-every activity that
pulls a candidate into the process and the path that takes the candidate through to
an accepted offer.

Recruitment metrics measure the effectiveness of the recruitment function. These

metrics deliver valuable and relevant information back to business stakeholders.
Their purpose and benefits are to:

1. Demonstrate the real value of the recruitment function

2. Gain the buy-in of business decision makers to invest in and optimize the
recruitment function
3. Provide an accurate picture of current costs and outcomes
4. Demonstrate changes and impacts to the organization over time
5. Establish shared accountability between the Recruitment Centre, Hiring
Managers and/or business units
6. Manage costs
7. Analyze productivity
8. Assist in the identification and evaluation of risks

A good Recruitment Specialist must be in a position to answer the following

questions:

A. How much time and expense does your administrative staff expend to open,
respond, and route resumes to the hiring team? The best way to do this is to
figure out an average cost per resume and track how many resumes you
receive for each job to be able to calculate the administrative cost per job.
B. How much time does your hiring team / recruiter spend screening through
resumes? This may also be an average cost per resume received for the job.
C. If your organization conducts preliminary phone interviews, how many were
conducted and how much time was spent by the recruiter to prepare, conduct,
summarize and communicate the results of those interviews?
D. Do you have an automated applicant-tracking program? This is an indirect
cost that you may choose to pro-rate across your hires for a specific period of
time, somewhat like depreciating a new computer on your taxes.
E. Did your hiring team or the interviewee incur any travel expenses that were
reimbursed by the company?
F. How much time was spent scheduling interviews?
G. How many staff members were involved in the interviews? How long per
interview? How many interviews? What is the average cost of the
interviewers' time
H. How much time and what was the cost for follow-up with candidates during
negotiations and to notify those that were not hired?
I. What was the cost of referral fees from a recruiting agency or an employee
referral?
J. What costs will the company be paying for the new hire to relocate? Some
costs may include moving company, airplane tickets, hotel accommodations,
 temp housing, house hunting visits, assistance with sell/buy, or
spouse/dependent assistance.
K. What was the cost for background investigations and/or reference checks?
Drug screens?
L. If there was a signing bonus, how much was it?
M. What costs does the company typically incur to bring someone onboard -
orientation, mentor, benefits enrollment, computers, cell phones, uniforms,
etc.?
N. How long did it take to fill the position from start to hire date? What could you
have done to reduce the time to hire and not have impacted the quality of the
hire?
O. What was the impact on productivity while the position was left vacant? This is
a very difficult calculation to conduct especially depending on the position.
However, it does have an impact on the hiring manager and the organization
as a whole. If it can't be quantified, at least keep it in mind.
P. How satisfied was the hiring manager / organization with the hire? This
assessment can be done following the hiring but should be repeated again 3 -
6 months after the employee has been on the job to get a real sense of how
successful the hire was.

Calculations for Recruitment Specialist

Cost per Hire: (Cost per hire is a calculation you can use any time you are hiring.
Let's say you are a consulting firm bidding on a big project. Cost per hire can help
you estimate the costs associated with adding new positions as part of being
awarded the contract for the new project.)

Costs involved with a new hire

[Advertising + Agency Fees + Employee Referrals + Travel + Relocation + Recruiter
Pay & Benefits] /Number of Hires

Turnover Cost:
Costs incurred when an employee leaves the organization
Cost to Terminate + Cost per Hire + Vacancy Cost + Learning Curve Loss
(Note: Cost to terminate includes severance, unemployment, exit interviews, legal
fees, temp replacements, etc)

Turnover Rate:
Measures rate that employees leave an organization
[No. of Separations During Month ÷ Average No. of Employees During the Month] x
100
(Note: Define what status of employee you will monitor. It might not make sense, for
example, to monitor temporary employees. It could skew the statistics for your full-
time staff and lead you to false conclusions. Consider conducting a position-specific
analysis)

Time to Fill:
Number of days from job requisition approval to new hire starts date
Total Days to Fill Requisitions /Number Hired
Conclusion

For a Recruitment Professional to be efficient and effective, there is so much to do.

They can play an important role in "Organization Transformation", provided they are
"true an fair" in their dealings. I have also mentioned in one of my "earlier write-up"
that "Recruitment Professional" are corrupt, there is a good and bad face of each
profession, all that is matter is how true you are to yourself and your integrity.

BPO - What is Business Process

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

BPO is distinct from information technology (IT) outsourcing, which 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.

An offshoot of BPO is KPO -- knowledge process outsourcing. Considered by some to be a

subset of BPO, KPO includes 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
provider to evaluate new insurance applications based on a set 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, product development and
legal e-discovery, as well as a number of other business functions.