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Business process outsourcing (BPO) contains the transmission of processes along with the associated operational activities and responsibilities, to a third party with at least a guaranteed equal service level and where the client contains a firm grip over the (activities of the) vendor for mutual long term success. BPO is positively related to the search for more efficient organizational designs: cost reduction, productivity growth and innovative capabilities. Hence, a source for strategic advantage.

Traditionally, BPO is undertaken by manufacturing firms. For instance Coca Cola, where almost the entire supply chain is outsourced and the company is essentially becoming a marketing organization. [1] However, BPO is nowadays rapidly conquering the service oriented firms as well. A well-known example is provided by the Bank of America, who outsourced their entire HR function to Exult, one of the leading Human Resources BPO vendors. [2]

BPO is often divided into two categories: back office outsourcing, which includes internal business functions such as billing or purchasing, and front office outsourcing, which includes customer-related services such as marketing or tech support. A back office is a part of most Corporations where tasks dedicated to running the company itself take place In popular usage "marketing" is the promotion of products especially Advertising and Branding However in professional usage the term has a wider meaning of The endless opportunities IT provides, stimulates (cross-border) BPO activities. BPO that is contracted outside a company's own country is sometimes called offshore outsourcing. Offshore outsourcing is the practice of hiring an external organization to perform some business functions in a country other than the one where the products or services BPO that is contracted to a company's neighboring country is sometimes called nearshore outsourcing. Nearshoring means Sourcing service activities to a foreign lower-wage country that is relatively close in distance or time zone (or both

Use of a BPO as opposed to an application service provider (ASP) usually also means that a certain amount of risk is transferred to the company that is running the process elements on behalf of the outsourcer. An application service provider (ASP is a business that provides computer-based services to customers over a network BPO includes the software, the process management, and the people to operate the service, while a typical ASP model includes only the provision of access to functionalities and features provided or 'served up' through the use of software, usually via web browser to the customer. BPO is a part of the outsourcing industry. Outsourcing is Subcontracting a process such as product design or Manufacturing, to a Third-party company It is dependent on information technology, hence it is also referred to as information technology enabled services or ITES. Information technology ( IT) as defined by the Information Technology Association of America (ITAA is "the study design development implementation support Knowledge process outsourcing and legal process outsourcing are some of the subsets of business process outsourcing. Knowledge process outsourcing (KPO is a form of Outsourcing, in which knowledge-related and information-related work is carried out by workers in a different company or by a


Contents

Industry size

India has revenues of 10. India, officially the Republic of India (भारत गणराज्य inc-Latn Bhārat Gaṇarājya; see also other Indian languages) is a country 9 billion USD[3] from offshore BPO and 30 billion USD 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 Eastern Europe, Philippines, Morocco, Egypt and South Africa have emerged to take a share of the market. Eastern Europe is a general term that refers to the Geopolitical region encompassing the easternmost part of the European continent. The Philippines ( Filipino: Pilipinas, officially known as the Republic of the Philippines (fil ''Republika ng Pilipinas'' RP Morocco (المغرب "al-Maghrib" officially the Kingdom of Morocco (المملكة المغربية is a country located in North Africa This article is about the country of Egypt For a topic outline on this subject see List of basic Egypt topics. The Republic of South Africa (also known by other official names) is a country located at the southern tip of the continent of Africa China is also trying to grow from a very small base in this industry. China ( Wade-Giles ( Mandarin) Chung¹kuo² is a cultural region, an ancient Civilization, and depending on perspective a National However, while the BPO industry is expected to continue to grow in India, its market share of the offshore piece is expected to decline.

The top five Indian BPO exporters for 2006-2007 according to NASSCOM are Genpact, WNS Global Services, Transworks Information Services, IBM Daksh, and TCS BPO. [4]

Acccording to McKinsey, 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 20-25 is finance, accounting and HR. Moreover, they estimate that 8% of that capacity was utilized as of 2006. Pakistan has also emerged as potential market for IT based BPO companies. Pakistan () officially the Islamic Republic of Pakistan, is a country located in South Asia, Southwest Asia, Middle East and [5]

BPO increasing the flexibility of organizations

One of the most important advantages of BPO is the way in which it helps to increase a company’s flexibility. However, several sources have different ways in which they perceive organizational flexibility. Flexibility is the absolute range of movement in a joint or series of joints and muscles that is attainable in a momentary effort with the help of a partner or a piece of equipment 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. This helps a company becoming more flexible by transforming fixed into variable costs. [6] A variable cost structure helps a company responding to changes in required capacity and does not requisite a company in investing in assets and hereby making the company more flexible [7]. Outsourcing may provide a firm with increased flexibility in its resource management and reduce response times to major environmental changes.

• 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 dictate [8]. Core competency is something that a firm can do well and that meets the following three conditions It provides consumer benefits It is not easy for competitors to imitate 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 [9]. The key in this lies in knowing, which of the main value drivers to focus on – customer intimacy, product leadership, or operational excellence. Focusing on one of these drivers may help a company create a competitive edge. [10].

• A third way in which BPO increases organizational flexibility is by increasing the speed of business processes. Using techniques such as linear programming is a way to reduce cycle time and inventory levels, which reduces a company’s slack. 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. [11]

• Finally, flexibility is seen as a stage in the organizational life cycle. BPO helped to transform Nortel from a bureaucratic organization into a very agile organization. A company can hereby help maintaining ambitious growth goals, which do not fit with regular incumbent strategies. [12] BPO therefore allows firms to retain their entrepreneurial speed and agility, which they would otherwise sacrifice in order to become efficient as they greatly expanded. It avoids a premature internal transition from its informal entrepreneurial phase to a more bureaucratic mode of operation. [13]

Challenges

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. Some tends to change their attitudes, personalities and character on how the way they talk to other clients. Although BPO has many potential advantages there are a few stumbling blocks, which could counter these advantages. Among problems, which arise in practice are: A failure to meet service levels, unclear contractual issues, changing requirements and unforeseen charges. When BPO does not work out as planned the company might well experience the way in which BPO makes a company very dependent on a vendor and therefore very inflexible. Consequently, these challenges need to be considered before a company decides to engage in business process outsourcing [14]

Threats

A major drawback involved, in Business Process Outsourcing are the risks. Outsourcing of an Information System, for example causes for instance security risks, both from a communication- and from a privacy perspective, and 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. [15][16]

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, and minimizing risks and avoiding any threats, a Business Continuity Management (BCM) model is setup. BCM consists of a set of steps, to successfully identify, manage and control that business processes that are, or can be outsourced. [17]
Another framework, more focused on the the identification process of potential outsourceable Information Systems, identified as AHP, is explained. [18]
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. [19]

References

  1. ^ Tas, J. & Sunder, S. 2004, Financial Services Business Process Outscourcing, Communications of the ACM, Vol 47, No. 5
  2. ^ Harmon, P. 2003, An Overview of Business Process Outsourcing, Business Process Trends Newsletter, Vol. 1, No. 9
  3. ^ Cover Story
  4. ^ NASSCOM Announces Top-15 ITES-BPO Exporters Rankings for FY 06-07
  5. ^ The Untapped Market for Offshore Services, 2006
  6. ^ Willcocks, L. , Hindle, J. , Feeny, D. & Lacity, M. 2004, IT and Business Process Outsourcing: The Knowledge Potential, Information Systems Management, Vol. 21, pp 7–15
  7. ^ 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): 763-790.
  8. ^ Kakabadse, A. , Kakabadse. N. 2002. Trends in Outsourcing: Contrasting USA and Europe. European Management Journal Vol. 20, No. 2: 189–198
  9. ^ 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
  10. ^ Leavy, B. 2004. Outsourcing strategies: opportunities and risk. Strategy and Leadership, 32 (6) : 20-25.
  11. ^ Tas, Jeroen, Sunder, Shyam. 2004. Financial Services Business Process Outsourcing. COMMUNICATIONS OF THE ACM Vol. 47, No. 5
  12. ^ Fischer, L. M. 2001. From vertical to Virtual; How Nortel’s Supplier Alliances Extend the enterprise [online]. Strategy+Business, Available from http://www.strategy-business.com/press/16635507/11153 [Accessed 5 February 2008]
  13. ^ (Leavy 2004, 20-25)
  14. ^ Michel, Vaughan, Fitzgerald, Guy. 1997. The IT outsourcing market place: vendors and their selection. Journal of Information Technology 12: 223-237
  15. ^ 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.
  16. ^ K. Altinkemer, A. Chaturvedi and R. Gulati. "Information systems outsourcing: Issues and evidence", International Journal of Information Management 14- 4 (1994): 252- 268.
  17. ^ Forbes Gibb, and Steven Buchanan. "A framework for business continuity management", International Journal of Information Management 26- 2 (2006): 128- 141.
  18. ^ Chyan Yang and Jen-Bor Huang. "A decision model for IS outsourcing", International Journal of Information Management 20- 3 (2000): 225- 239.
  19. ^ 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.

See also

External links

Outsourcing is Subcontracting a process such as product design or Manufacturing, to a Third-party company Offshore may refer to oil and Natural gas production at sea see Oil platform. Nearshoring means Sourcing service activities to a foreign lower-wage country that is relatively close in distance or time zone (or both Homesourcing also known as homeshoring is "the transfer of service industry employment from offices to home-based employees with appropriate telephone and Internet facilities" Globalization (or globalisation) in its literal sense is the process of transformation of local or regional phenomena into global ones Recruitment refers to the process of sourcing screening and selecting people for a job at an Organization or firm or for a vacancy in a volunteer-based organization Recruitment Process Outsourcing (RPO is a form of Business process outsourcing (BPO where an employer outsources or transfers all or part of its recruitment activities Software testing outsourcing provides for software testing carried out by the forces of an additionally engaged company or a group of people not directly involved in the process of Information security has emerged as a significant concern for banks mobile phone companies and other businesses that use Call centers or Business process outsourcing The Business process outsourcing industry in India refers to the Services Outsourcing Industry in India, catering mainly to Western operations of MNCs Business process outsourcing or BPO is an emerging industry in the Philippines. Offshore may refer to oil and Natural gas production at sea see Oil platform.
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