The Principles of Effective Business Process Outsourcing - Coursework Example

Business Process Outsourcing 1. Introduction 1 2. The objective of Business Process Outsourcing 2 3. The principles of effective Business Process Outsourcing 3 4. Merits and demerits of BPO 6 5. The problems, issues and challenges of BPO 8 6. The future of BPO 9 7. Appendix: Case Companies: 9 8. References: 10 1. Introduction BPO is “the contracting of a service provider to completely manage, deliver and operate one or more of a client’s functions” (Misra 2010). Many businesses are involved in the activities of outsourcing at the present time: from finance to call centre, from development and research to IT software programming. And it has expanded worldwide: from “support from India”, “from made in China” to “finance in the United States”. Furthermore, Jan & Michael (2010) states that Business Process Outsourcing (BPO), among other activities is a new catalogue of outsourcing, and is an option that has been that is being practised by most organisations the world over. The transfer of business activities such as the customer services e.g. call centres, human resources management, monetary services etc., to third party is known as the BPO. Agrawal et al. (2006) further explains that Business process outsourcing, on the other hand, involves more than letting a partner produce parts and components. 2. The objective of Business Process Outsourcing Cory (2012) posit that the absence of clear objectives can create difficulties in managing the outsourcing process in a number of areas including the relationship supply of the most suitable selection, by coming up with the contract and administrating the supplier relationship. Well founded goals will assist in the effective management o f the outsourcing strategies (Misra 2010). Typical objectives for outsourcing can include (e.g., Bharadwaj et al. 2010), (e.g., Wang & Guo 2010; Geis 2010), enhancing levels of quality, and costs of outsourcing activities reduction while getting the higher levels of services in activities provisions (e.g., Brenda 2010). The objectives for outsourcing are significant from a number of perspectives as mentioned below: Selecting the supply relationship – The objectives established for outsourcing will assist in selecting the type of supply relationship that should be adopted. For example, if the organisation is focusing primarily on attaining the lowest price, then an adversarial relationship is likely to be the most appropriate. Monitoring supplier performance – Once the relationship is established the performance of the supplier must be assessed on an ongoing basis. The outsourcing objectives will inform the metrics used to assess suppler performance throughout the life of the relationship. For example, if enhanced service is the key objective for outsourcing, then clearly there must be a number of metrics used to measure performance in this area (Malmgren & Anderson 2010). Monitoring the supply nature relationship –It is important to monitor whether the relationship is meeting the overall outsourcing objectives. Conditions in the supply market can change which may affect the relationship with the supplier. The sourcing organisation’s competitive position – It is important that the outsourcing objectives are linked with strategic objectives of the organisation. In relation to critical activities, some of the objectives of outsourcing must reflect the overall strategic goals of the organisation. Although, objectives that can be achieved in the short-term of outsourcing in a relatively short period of time may include reduced costs and increased productivity, there will be other objectives that are only achievable over the long-term. For example, an objective of outsourcing may include jointly developing complementary skills and capabilities in a particular process (Cory 2012). 3. The principles of effective Business Process Outsourcing The BPO strategic intent: the agreement of the outsourcing goals should be made clear by both the client and the second party so as to allow the outsourcing provider to work in growing and building the initial relationships in the continued success in the necessary direction. Stating of the objectives, expectations, and goals: the client firm’s expectations should be defined in details in terms of place, time, where and what for all the objectives. Criteria’s like improved quality are not easy to quantify. Issues that can be included in the agreement include scenarios such as when the quality has been measured after reducing the complaints from the customer to the client firm (Jan & Michael 2010) Clear time horizons establishments: the agreements should clearly state the commencement and end of the time in agreement when fixing the period of time in the outsourcing project agreement. The agreement should be established the review fixed times in the situations where it the agreement does not have a fixed time frames. At this point the two parties are in a position to re-evaluate the agreements and even formulate changes without consequence (Bharadwaj et al. 2010). Service provider’s service scope definitions: the service provider’s services and non-services should be defined in the agreement. The service provider is not allowed to carry out the activities and services beyond the scope as stipulated in the agreement; this is because some of these services are identified as the core activities of the client firm (Cory 2012). . The provider’s client firm roles: the systems, financial, technology support, human resources provided by the client should be defined in the agreement. Activities such as expected levels of contributions, amount and time horizons expected from the client firm should be included, so as to reduce the technology listings that are supposed to be transferred to the provider (Malmgren & Anderson 2010). Transition roles definitions: each parties responsibilities at the time of work transition from the client to provider agreement definition. Control of activities and managements definition: whoever manages and controls the otsourcing process from its beginning to the end should be defined in the agreement, since the implementation, follow-up, and design are significant in the overall project success. Mangers should be assigned specific area of duty in each of the phases in the control process. Communication lines definition: a detailed reporting agreement between the providers and the client firm should be described to allow all the concerned parties to understand their reporting communication lines (Cory 2012). . Making the agreements a win-win situation; there should not be any favours even hidden surprises in the agreement favouring either of the two parties involved. All the agreements should be maintained in both the long and short-terms and should be fair for both of the parties. Provisions to reward penalties for non-compliance and benefits for compliance set-up: reward system for motivating the provider in exceeding the firms expectations should be included in the agreement and on the other hand, when the expectations are not met, the clients cost should be paid either in part or in full payment by the provider. Penalties and rewards should be clearly stated. 3.1. The suggested steps of an effective BPO approach or methodology The processes involved in the outsourcing decision passes through several steps which are stipulated below. First step: listing of the available in-house resources Second step: comparison of the available services with the in-house resources assessments in the market to effectively perform similar functions. Third Step: evaluations and the identifications of the potential bidders by use of the market intelligence, and recognising the other companies’ experiences with outsourcing. Fourth Step: the procedure of competitively bidding and evaluating of the bids according the criteria selected including the proposals requests, and the comparison and clarifications of the bids by visiting other vendors’ locations and appraising their competence. Fifth step: this is the negotiation phase where the letter of intent is involve and the terms and conditions of the contract stipulated thereof (Jan & Michael (2010). Step 6: contract signing by both parties. Seventh step: this is the transition phase, and it is the step where the client’s facilities functions are transferred to the ones of the vendor. It is mandatory for the management to be involved if it means job losses. Eighth step: this is the ‘Steady state period’. It is the beginning of the cost-cutting and the end of the transition phase for the company. Ninth step: this is the termination or negotiation phase of the contract. The termination might take place in a situation where the relationship turns sour with the vendor as a result of issues with the service quality or in case the company acquires a better vender to perform the same duty. The renegotiation might also take place when the company wants to continue with the project outsourcing with the same vendor after the expiry of the same contract (Jan & Michael 2010) 4. Merits and demerits of BPO 4.1. Advantages of Outsourcing: Cost Savings and gaining Outside Expertise Table 1.2: Outsourcing Advantages: Costs Savings and Gaining Outside Expertise. Reasons for outsourcing Potential advantages Cost saving - Business activities costs outsourced to a provider will reduce compared to the cost of in-sourcing the same activity. - When a client firm outsources business activity, they can be left with assets (e.g., technology), which can be converted to cash to deal with short-term problems (i.e., saving interest costs on loans). In many cases, the outsource provider purchases the assets, at market value or above, making the outsource provider a short-term source of funds. - Can turn fixed costs (assets) into variable costs (leasing agreements). - Can reduce nonproductive assets on balance sheet. - When external financing id too costly to invest in a capital expansion, a firm can outsource the need for the capital investment. - Client firm becomes part of the outsourcing provider’s network or supply-chain, helping to reduce costs for both parties. Acquiring outside expertise. - Core and non-core products services competencies can get a boost as a result of improving their original ideas from the activities of outsourcing. - The client company can benefit from wide range of skills and expertise acquire through outsourcing exercise. 4.2. Reasons why organizations internationalise Table 1.3: Reasons why organisations internationalise Reasons why organizations internationalise their business operations Types of advantage Product costs Tangible intangible Reduced risks Secure supply and materials sources Improved customer service Attracts new markets Learning to improve business activities and systems Attract human resources from global market 4.3. Disadvantages of Outsourcing: Table 1.4: Disadvantages of outsourcing Reasons for not outsourcing Potential disadvantages Increased costs -Lag time in service from outsource provider due to distance can add substantially higher delivery costs (e.g., air freight, air mail, etc.) to client’s customers. -Can be costly and difficult to change and outsourcing agreement without costly penalties. -Excessive transition costs for provider training. -The expense of negotiating, maintaining, and enforcing outsourcing agreements may outweigh the benefits. Control and direction loss. -A client’s dependence on the outsourcing proving company might experience variety of problems (e.g., loss of markets higher coats, etc.). -Loss of flexibility in controlling business activities, final product, etc. by client managers. Lack of constant flexibility. Problems with the client employees. - Might lead to employees working for the outsourcing provider and even some of them losing their jobs as a result of organization restructuring. Negatively affecting company clients. - Service delivery may be delayed and company consumers may experience increased costs. - The activities transition from the client to the outsourcing provider might disrupt operations. Managing relationships dificulties -Advantages of outsourcing might be difficult to qualify -problems with the changes in the design of the products ordered from an afar. . -too much time and investment vested on the relationship building with the provider of outsourcing exercise. Other risks -All of the outsourcer’s risks are also assumed by the client firm (provider’s financial limitations, poor service, older technology, et.). -Require an alliance with an undesirable provider (e.g., a provider with a negative reputation). -Outsource business activities may cause the client firm to lose skills that might be needed in their future. -Outsourcing business activities may cause the client firm to lose its corporate knowledge within the firm over time. -Weakens innovative capacity in the longer term. -Failure in outsourcing can mean the eventual failure of client firm. -Outsourcing fan result n security or confidentiality breaches. 5. The problems, issues and challenges of BPO 5.1. Challenges of outsourcing: There are occupational and professional, human resource development considerations, political and economic ramifications and social challenges (Sarosh & Aruna 2010). The outsourced countries have to face the human development and challenges of the widening scope of outsourcing and increase in quantity of outsourcing that would need more skilled and trained manpower in specific areas. The countries must spend more resources on educating, training in focused vocational and professional areas, and ongoing upgrading of these skills and training in new skills to meet the demands of increased outsourcing as well as the new trends in outsourcing (Misra 2010). These countries will have great apprehensions about loss of outsource business if trained manpower supply is not timely. There are economic challenges and ramifications on two counts: because of ever growing competition from other emerging markets for getting outsourcing business share and lack of timely trained manpower supply. Both can result in employment and revenue loss and so economic growth (Bharadwaj et al. 2010). What is to be outsourced also would need political nod and policy considerations for economy and employment and protecting own people’s capabilities and sensibilities. Weerakkody (2010) argues that the social challenges of outsourced countries are to handle the changing social norms and values and the consumerism among younger generations who are able to earn more at a fairly young age. And then Michael & Prabakar (2009) concurs that though such consumerism is creating markets and boosting economy of host countries, he challenges are further undergoing change overtime with both outsourcing and outsourced countries getting more knowledgeable, more demanding and more cost conscious on one hand; and on the other hand the newer trends and business models are coming up in outsourcing Ronan, Paul & Alan (2010) (Kroes 2009; Mann Arti et al. 2010; Brown 2010). The challenge of stiff competition is growing up among countries with high or low strengths as outsourcing product and services scope is widening through different developing countries have different outsourcing strengths (Sonia et al. 2010). 6. The future of BPO BPO shall continue to evolve as a unique type of partnership (Sameer et al. 2007). Its evolution will encompass global, political and managerial aspects. And in addition to that Sonia et al. (2010 also speculates that, globally, the performance of specific business functions will continue to migrate to those low-cost areas of the world and that have the requisite skills to perform the tasks. This evolution is inescapable, but lessons from the past will tell us that costs even in those areas will rise. For example, while India has experienced an economic boom as companies have sought out its low-cost, talented labour pool to perform a wide variety of business functions, its costs are also on the rise. Turnover of talented employees, rising pay scales, hiring and annual bonuses, and the need for a competitive benefits package – which can even include a dating allowance for employees – will inevitably erode the cost difference over time. Politically, countries and governments engage in the rhetoric of lost jobs (wages, taxes, earnings) – particularly in election years (Sriram et al. 2011). Although providing symptomatic relief is a necessary safety net, long-term viability is found in an educated workforce with cutting edge skill for jobs of the future. From the business/managerial perspective, the pendulum will continue to swing as companies strike the right balance in-house work, strategic alliance, and outsourced relationships (Thomas & Duening 2007). 7. Appendix: Case Companies: 7.1. Appendix 1: Case Company one: CASE STUDY: INNOVATION COMPANY BANKING INSTITUTIONS SERVICE PROVIDER OUTSOURCING CLIENT A management company in Canada, DA Mutual Financing deals with technological innovations and also provides investment management and consultations. It the lowest cost-operator available in among the Canadian reputable organisations. Management transition process, Outsourcing is custody fund administration, and securities lending is an outsourcing funds administration to OUTSOUIRCING CLIENT firm services in 2011 with a clear strategy of pursuing growth and low-cost operations strategies. OUTSOURCING CLIENT proposed the addition of a portion of idea of value addition in a response to a buyers request to push for revenue added ideas as well as a funds innovation. The innovative projects deemed to be of importance by both parties are now provided for the capital for these innovative projects. In the case of investment information, data warehouse is now resulting as one of the intended projects. this central repository solves the buyer’s need for a flexible reporting tool and is Designed with a wide range of value, access to marketing data risk-mitigation and, while trying to solve the needs of a provider and reduce the amount of data flowing randomly in the database of the company. 7.2. Appendix 2: Case Company two CASE STUDY: BALANCED SCORE CARD COMPANY TRW AUTOMOTIVE SERVICE PROVIDER SATYAM MANUFACTURING TECHNOLOGIES INC. (SMTI) The company has been involved in the outsourcing of the applications management, embedded systems, global IT services, engineering services, and e-business solutions, all encompassed in the global IT services in the year 2010. TRW rates Satyam on a scorecard in their monthly operations review; a replication also witnessed with Satyam which also rates TRW on its scorecard. The two companies collaborate on the corrections courses for the purpose of improving their ratings o the scorecard based on the ratings score. Satyam’s scorecard could reflect scheduled or quality issues as an example. But the TRW’s scorecard might as well reflect provisions of inadequate of the new projects requirements on its scorecard. The two companies can then collaborate on the opportunities of misunderstanding eliminations from the required perspectives in a joint review. 8. References: Misra, BR 2010, The Use of Outsourcing as a Business Strategy, IT Concepts Application Technologies, vol. 2, no. 7, pp. 996-1007 (online: EBSCOHOST). Agrawal, MR., Kishor, R & Rao, HR 2006, Market reactions to E-business Outsourcing Announcements: An event study, Information & Management journal, vol.43, no. 7, pp. 861-873 (online: Elsevier). Cory, 2012, Magic BPO Success Secrets, eBookIt, USA. Bharadwaj, SS, & Saxens, KBC 2009, Building winning Relationships in Business Process Outsourcing services, Industrial management data systems, vol. 109, no. 7, pp. 993-1011 (online: Emerald). Wang, Y., & Guo, J 2010, The Research of Test-Driven Business Process Outsourcing, 2010 Second World Congress on Software Engineering, vol. 2, no. 33, pp. 277-280 (available: JSTOR). Geis, G 2010, An Emperical Examination of Business Outsourcing Transactions, Virginia law Review, Vol. 96, no. 2, pp. 241-300 (available: Bepress). Brenda, H 2010, Outsourcing and the Small business, Business Outsourcing journal, vol. 3 no.18, (available: EBSCOHOST). Malmgren, ME., Anderson, D 2010, Managing Risk in Complex and Business Critical Outsourcing of services, Academy of Management Review, (available: Proquest). Brown, RH 2010, Hype Cycle for Business Process Outsourcing, 2010, Business Process Outsourcing Journal, Issue: July (online: Science Direct). Mann A. et al. 2010, Are there contagion effects in IT and Business Process Outsourcing, Decision Support System, vol. 1, no. 45, pp. 6-9 (online: OpenUrl). Kroes, JR 2009, Firm Value impacts of Offshore Business Services Outsourcing, Decision Sciences Journals, issue: January, pp. 302-308 (online: Emerald). Jan, VB, & Michael, R 2010, Handbook on Business Process Management 2: Strategic Alignment, Governance, People and Culture, Springer Heidenberg Dordrecht London New York. Ronan, M, Paul, & Alan, M 2010, Integrating the critical success factor method into the business process outsourcing decision, Technology Analysis strategic Management, vol. 22, no. 3, pp. 339-360, (online: Tailor & Francis). Sarosh, K, & Aruna, R 2010, Globalisation and outsourcing: confronting new human resource challenges in India's business process outsourcing industry, Industrial Relations Journal, vol. 41, no.2, pp. 136-153, (online: Business Source Premiere). Weerakkody, V Z I 2010, A value and risk analysis of offshore outsourcing business models: An exploratory study, International Journal of Production Research, vol. 48, no. 2, pp. 613-634 (online: Tailor & Francis). Michael, A, & Prabakar, K 2009, Impact of outsourcing on business-to-business marketing: An agenda for inquiry, Industrial Marketing Management Journal, vol. 38, no. 4, pp. 376-378 (online: Proquest). Sonia, D et al. 2010, Outsourcing and Strategic Outsourcing, Journal of International business studies, vol. 19, issue: 1994, pp. 258-266 (online: Science Direct). Thomas, N., & Duening, RLC 2007, Essentials of Business Process Outsourcing, Business Process Management Journal, vol. 2, no. 1, p. 230 (online: Amazon). Sriram, N et al. 2011,The antecedents of process integration in business process outsourcing and its effect on firm performance, Journal of Operations Management, vol. 29, no. 1-2, pp. 3-6 online: Tailor & Francis). Sameer, K et al. 2007, Application of a process methodology and a strategic decision model for Business Process Outsourcing, Journal of Management, vol. 6, no. 4, pp. 323-342 (online: JSTOR). Read More