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Business process outsourcing (BPO) portends the complete relocation of a business process to external service providers. It is informed by the need to deliver value and quality to clients by assigning tasks outside one work discretion to external service providers. The BPO trend germinated from initial transfer of simple processes to external service suppliers and has evolved into a complex process that relies heavily on technology, viable and practical solutions and diverse concepts ranging from management to implementation orientation of the companies. Whereas the initial aim was cost cutting, BPO have outgrown that and have ensured the offer more in terms of value and quality, drawing to them to positive and visionary change, eventually transforming the customer company and strengthening its competitive edge.
BPO (Business Process Outsourcing) relies heavily on the use of technology. Interestingly, the IT field is largely one of the commonly areas where managers tend to employ the outsourcing strategy. The process of outsourcing would involve the hiring of a third-party company or service in other countries to do IT-related activities. Those activities are usually related to System Development, Data Center Operations, Project Manager, Open Source, Web Development, Application Management, Application Development, and Quality Maintenance (including testing and quality assurance). Managers can also outsource hiring agencies and even salary processing agents among other services depending on the nature of business they engage in. On completion, the processed information is relayed to the hiring party for further action in a complete form. Therefore, it integrates the use of technology, either way.
The advantages of outsourcing through BPO's outweigh the disadvantages. The advantages include cost cutting, time saving, and reliance on expert advice, cater to changing customer demands and, increased turnover for the firms. BPO's offer an avid control and administration alternative thus reducing the administrative costs drastically. It also gives employers time to focus on the interest areas and planning. Finally, it offers an avid exploration of the company from an eye outside the company. This means a better vision for the organization.
Managers grapple with the hardest of situations in an effort to strike a balance between the core administrative duties. Some of these duties can be adequ
In recent years, lots of companies are using business process outsourcing (BPO) as their management system. As time goes by, business process outsourcing is growing and growing at rapid rate. In order to operate business successfully, companies need to understand what business process outsourcing means. BPO is a management system which uses hiring another company for their operation and business activities. BPO can cover financial processes, human resources processes, customer services, and so on. It means BPO is very useful and helpful because it can be applied in diverse fields.
Business process outsourcing is divided into two categories: back office outsourcing, and front office outsourcing. Back office outsourcing contains internal business activities such as accounting system, human resources management, administration, etc. As an example, assume that there is paper producing company. This company can provide paper with high quality and speed, but the company does not know how to manage employees well, or how to do finance processes. In this case, the company should choose back office outsourcing. This is not helpful for increasing productivity, but it is necessary for running the business. Front office outsourcing includes customer-related functions such as customer service, advertising, technical support, and marketing. To keep contact with customers is crucial, so phone or e-mail is used as means of communication. Front office outsourcing is focused on this function. It helps the company to concentrate on the main business, and the company can keep good relationship with their customers.
Business process outsourcing will be developed continually in the future. In the future trend of BPO, the use of automation will rise. As the company uses automation systems, it can save the cost of labour. Also, the flexibility of BPO system will be well-developed rather than. And customers will take more powerful control in designing good deals. Expertise predict that the number of BPO providers will increase and the competition will be fiercer. It will make the quality of BPO systems higher.
Currently, many big manufacturing companies only use technology development and services. The manufacture and assembly of parts are finished through outsourcing. This way, they can reduce the labour cost. For instance, before Microsoft entered the global video game market, there was still some dispute among executives about whether to outsource the manufacturing or to produce X-box by themselves. After studies and surveys, the results showed that outsourcing manufacturing could bring more benefit to the company. Thus, they decided to cooperate with a company Flextronics. Flextronics completed the assembly and significant logistics functions for Microsoft. This strategy alliance brought low cost and high quality to Microsoft. Another main player in the outsource market is Sony. Sony has developed high technology; however, labour and overhead cost the company too much and let it has a low competitive power in Japan. The approach of outsourcing is a best solution for them to improve the competitive power to satisfy East Asia market. Taiwan's Foxconn and Wistron became the cooperator with Sony to manufacture frameless LCD and Google TVs. With acquiring LCD TV plants in Mexico, Foxcom was expected to become the biggest TV manufacturer for Sony. In addition, outsourcing also generally happens in car market. In India, Volkswagen licensed to produce Polo and Jetta in order to open the market in India. Volkswagen can get more market share in India without investing more money. Suzuki, can get more production volume and profit in India.
Not only manufacturing can be outsourced, but also management. Toronto's Pearson Airport made an agreement with IBM Canada Ltd to outsource the operation management for entire infrastructures such as kiosks, workstations, flight information displays and networking upon which more than 30.4 million passengers rely on annually. IBM changed the traditional way from the per usage basis system to decide provides better level of service for customer. It can also eliminate the additional cost from middlemen. Base on IBM's IT system, Toronto's Pearson Airport can provide higher quality and more efficient service without increasing overhead cost.
Why is it important for managers to know about outsourcing?
1. Facilitating Relationship
When we have outsourcing companies, the most important point is communicating well with each other. Especially, if the companies are in different countries such as from America to India. they almost rely on each other by communicating. In this case, manager role is crucial. For example, 'Apple' has an outsourcing call centre company in India because there are many people who want to work in India, and 'Apple' can use these people for lower wages. When they hire employees in India from America, managers should be good at communicate through technologies.
2. Delivering Service
Managers are responsible for deliver the outcomes and align overall business objectives. Managers do not have to know specific tasks about both side of companies, but it is better to know about general information such as background, process, HR system. When managers know, their processing must be faster than normal, and both companies can save their time to work more.
3. Monitoring Process
Business outsourcing companies are sometimes located far from each other. In this case, they have to hire someone who can monitor how employees work for both companies. Managers can go to the other countries to monitor outsourcing company, and if there is problem, managers can report to main company's headquarters, and company can contact outsourcing company right after they know.
4. Security risk
When two companies work together, if they can believe each other entirely, it will be really good relationship for both. However, the reason why people make contract and work together is that they want to make more money. Company should be able to protect by itself. Particularly, IT companies need to be more careful for security. One of article said that "Sixty percent of respondents reported not mandating security from scratch, while 20 percent of those surveyed in the U.K. failed to accommodate security at all in the outsourced applications." (PC world, 2008) At least companies can attempt to protect themselves against the specific threat posed by lazy programming using backdoor detection systems, a growing category of software.
1. Significant cost savings
Salaries of staff are much lower in BPO companies compared to Western countries due to differences in cost of living. The companies can achieve significant savings on employment taxes and other overheads.
2. Flexibility / Scalability
Companies that outsource will have the flexibility to upscale or downscale these operations as required, driven by business needs. When these processes are handled in house, companies have to deal with the problems of recruiting more during the busy times and the attendant problems of downsizing during less busy times. Whereas when these same processes are outsourced, there is a vast resource of available skilled manpower that can be tapped on based on business requirements.
3. Focus on core activities
Companies that outsource can focus on their core business activities and leave back office operations to the BPO. Back office operations are high maintenance, but at the same time, they cannot be ignored - they are usually critical to the business, though not the core activity of the business. They can continue to offer their customers a whole spectrum of services. But they could focus on doing higher end, value added services that yield higher margins, while using BPO units to process the lower end, low margin services.
BPO service providers are usually backed by high-end technology that makes it possible for them to provide quality services. Encrypted web enabled software, servers, scanners and secure networks allow quick and accurate data transfers. Multiple servers in different locations provide effective disaster recovery systems. The other advantage is with technology getting outdated at a fast pace, companies can reduce their investment in technology for areas that are outsourced. The BPO service providers, on the other hand, have the resources, the expertise and the desire to have state of the art technology and solutions for the services they provide.
5. 24 X 7 Operations
Companies in the USA and Europe can reap the benefits of having 24X7 operations, due to differences in time zone. While their local employees sleep, their Indian BPO service providers could still carry on work. They could get overnight delivery of work, if necessary.
Companies could still keep complete control on the data and / or their customer accounts. They could retain all the original files and documents, with only the back office work being done by the BPO. Some BPOs even provide the option of working with remote access to the company's server. Alternatively, they would get the data uploaded to their own server or get the data scanned and sent by secure e-file share systems. Employees at the BPO service providers usually sign a non-disclosure agreement, which also protects confidentiality of the data.
- Operational risks. Possible slippages on quality, cost or speed of process execution.
- People risks : High turnover and absenteeism affects the conduct of the business and the training costs are high in case of constant new recruitments
- Technology risks: Many outsourced business processes involve scanning and digitization of paper documents that are manually processed at onshore or offshore destinations. In these cases, unless a seamless computing and communication infrastructure is maintained at high levels of availability, business process execution suffers.
- Strategic risks. Related to issues such as protection of intellectual property, security and privacy.
- Composite risks. Longer term risks, such as losing the capability to execute such business processes in-house in the future due to loss of talent and knowledge of the business process.
Steps to overcome risks:
-The people risk can be overcome by efficient employee management with competitive salary in the industry and other benefits o retain the employees in the company
-The technology risks can be mitigated by good operations management.
-The strategic risks can be overcome by service level agreements and business continuity management and by making employees sign the disclosure agreement.
-There should be efficient knowledge management programs and a team of staff from the offshoring company must be knowledgeable about the processes outsourced. This will enable the execution of the processes in case it is planned to de done in house.
The Advantage and Disadvantage for Business Process Outsourcing
Today most of big companies begin to focus on the business process outsourcing because the global recession and the global competitive marketing, lots of reason support the outsourcing marketing is growing rapidly with an increasing number of companies. Today I will talk about the advantage and disadvantage for business process outsourcing. Let's focus on some of most important reason for advantage of outsourcing. The first important reason for outsourcing include obtaining reduced operational costs reduced time and resource, it can help most companies save up 35% of cost or more depending on your outsourcing partner that include the labour costs, the cost for operational infrastructure cost, even the training cost. Another, important reason for business process outsourcing is that global outsourcing can help the developing countries to increase the standard of living and give employment opportunities in developing countries, that usually happen in India, Philippines, Mexico, Brazil, China and so on (Bizbrim.com). Moreover, the business process outsourcing is the perfect solution for company risk management and legacy maintenance because the third outsourcing companies usually have useful operational expertise therefore; outsourcing is the perfect solution regardless of any company risk management.
There are also some disadvantage affect on the business process outsourcing. For example, the third outsourcing usually located in some developing countries; in those areas have different cultural, language issue, and time-zone problem with their parent company (David, 2009). Those challenges must be considered by the capital company, and then the time-zone issue will cause the difficult controlling problem between the outsourcing corporations with Capital Company. Then, building a relationship with business process outsourcing in developing countries will cause the unemployment in the capital company. Some of Americans point that there are three million jobs in the United States was lose in Americans since the recession in 2000 and that a large factor of this was due to outsourcing (Ron, 2011). Outsourcing is quite clearly a proverbial double-edged sword but the edge of the positive side of sword is more shining than the negative side. So most Multinational Corporation should pay attention to the business process outsourcing, it can bring the huge competitive advantage for most of big companies in the marketing environment.
In recent years business process outsourcing has become an important phenomenon. It is widely expected that business process outsourcing offers significance value to firms through lower costs, increase ability to scale, increase efficiency, enhance flexibility and better access to knowledge and technological resources.
1. Lower costs: By outsourcing the business processes, the companies can make huge savings in their operation cost. Making a contract for the business process outsourcing services proves beneficial for any company in the long run. The company can have an edge over its competitor by efficiently managing its operation costs and thereby improving business profits.
2. Enhanced flexibility and better access to knowledge and technological resources: By outsourcing the business process, the companies have more time focus on the how to access the new knowledge and technological resources. For example: DELL, as we know DELL is the leader of the online PC retailing store, meanwhile DELL outsourcing their call to India. In that case, DELL has more time to focus on access the new knowledge and new technology so they can develop new products.
3. Increase efficiency: By outsourcing the business process, the companies can use their funds more efficiency. For example, the average wage of call center is $11/Hour, however in India the average is very low according to BBC news Call centre bad for India, average call centre in the UK are about 12500 pond ($22000) a year, compared with 1200 pond($2100) in India. We can see the different easily.