Business process outsourcing (BPO) is a form of outsourcing that incorporates the bonding of the functions and responsibilities of a particular business operations or procedures to a third-party service supplier. Previously, this was coupled with manufacturing companies, such as Coca Cola that subcontracted large sections of its supply chain. In the present context, it is chiefly used to refer to the subcontracting of services.
BPO is normally classified into back office outsourcing - which incorporates internal business operations such as human resources or finance and accounting, and front office outsourcing - which incorporates customer-specified services such as call center services.
BPO that is sub-contracted outside a firm`s country is called offshore outsourcing. BPO that is contracted to a firm`s adjoining nation is called near-shore outsourcing.
Considering the immediacy of BPO to the information technology sector, it is also classified as ITES or information technology enabled service.
The other two sub-categories of BPO are:
- Knowledge process outsourcing (KPO) and
- Legal process outsourcing (LPO)
Size of BPO industry
From offshore BPO, India has annual turnover of US $10.9 billion USD and 30 billion USD was incurred from IT and total BPO sector in the year 2008. India holds a strong 63% share of the offshore outsourcing in comparison to the 5-6% share of the total BPO sector. But going by the estimates, it is revealed that this 63% share is a dip from the 70% offshore allocations it had in the previous fiscal year. Other offshore locations such as Eastern Europe, Philippines, Morocco, Egypt and South Africa have surfaced as market leaders despite the expansion of the BPO industry in India at 38% last year.
China, on the other hand, is also trying to emerge from a very small share holder in this large sector. The market share of India in the offshore market is expected to deteriorate, while the BPO sector is expected to expand in the nation. The significant BPO centers in India are Bangalore, Hyderabad, Kolkata, Mumbai, Pune, Chennai and New Delhi.
According to NASSCOM, the leading five Indian BPO exporters for the fiscal year 2006-2007 are Genpact, WNS Global Services, Transworks Information Services, IBM Daksh, and TCS BPO.
As per McKinsey, the worldwide BPO market is valued at $122 $154 billion. Out of this cost retail banking values 35-40, insurance 25-35, travel/hospitality10-12, auto 10-12, telecoms 8-10, pharma 8, others 10-15 and finance, accounting and HR combined worth 20-25.
The advantages of BPO
The major advantage of BPO is in context of augmenting a companys flexibility. Many services offered by BPO providers are given on fee-for-service basis. This can assist a firm in performing more flexibly by altering steady cost into a variable cost. A variable cost format assists a firm in reacting to the changes in measured capacity and does not demand a firm to do monetary infusions in assets, thus making a firm perform in a more flexible manner. Outsourcing may offer a company with high flexibility in its source administration and may lessen its reaction time to major alterations in the firm.
Secondly, BPO helps a firm to concentrate on its capabilities without being troubled by the requirements of bureaucratic controls. This way the major employees are discharged from executing administrative functions and can spend more time in establishing the companys chief processes. Concentrating on customer familiarity, product management, or operational quality will ensure a firm to generate an edge over the other companies in the cutthroat market competition.
Thirdly, BPO augments managerial flexibility by augmenting the velocity of business functions. Using linear programming can assist in trimming down the inventory levels and indirectly increasing the effectiveness and cut prices. Supply chain administration with the efficient utilization of BPO augments the momentum of many business functions.
Lastly, flexibility is estimated as a phase in the managerial life cycle. A firm can sustain its expansion objectives by keeping the business hindrances at bay. BPO permits the organizations to sustain their commercial agility, which they otherwise let go in their pursuit of growth. It circumvents an untimely internal changeover from its informal entrepreneurial stage to a more bureaucratic style of functioning
The limitations of BPO
Besides all the arguments in favor of BPO, it is seen that if the administration is not careful with the implementation of BPO certain issues will crop up which will perform against the above-mentioned benefits.
The problems which might surface are:
- Failure to achieve service levels
- Uncertain contractual problems
- Changing of demands
- Unanticipated charges
- Same geographic footprints
- Same services
- Same technology stack and
- Same quality development approaches
Therefore, these challenges should be duly met by the firm before it decides on allocating a business process outsourcing.
India as the ideal off shoring location in the world
In spite of the availability of rising off shoring location options, India has surfaced as one of preferred setting for outsourcing. A national level evaluation reveals that India owns larger share chiefly because of availability of well-educated English speaking engineers. In the contemporary scenario, the outsourcers assume India as more productive than Brazil, China, Hungary and Philippines which are comparatively low-price nations.
According to Gartner, the market evaluation firm, the industry expanded upto $310 bn by the end of economic year 08.
The price advantages of offshoring in India are sizeable. In comparison with US $19,000 in the US, it charges less than US$ 7,500 annually to appoint a call centre agent.
Hence, we can conclude that India is constructively located to administer its cost and quality gains, to achieve the sky-rocketing demand for offshoring of calculated business processes.