UNIT 4

Outsourcing

4.1 Introduction to Outsourcing

Meaning of Outsourcing

Outsourcing is the business practice of hiring a party outside a company to perform services and create goods that traditionally were performed in-house by the company's own employees and staff. Outsourcing is a practice usually undertaken by companies as a cost-cutting measure. As such, it can affect a wide range of jobs, ranging from customer support to manufacturing to the back office.

Outsourcing was first recognized as a business strategy in 1989 and became an integral part of business economics throughout the 1990s. The practice of outsourcing is subject to considerable controversy in many countries. Those opposed argue that it has caused the loss of domestic jobs, particularly in the manufacturing sector. Supporters say it creates an incentive for businesses and companies to allocate resources where they are most effective, and that outsourcing helps maintain the nature of free-market economies on a global scale.

Outsourcing can help businesses reduce labor costs significantly. When a company uses outsourcing, it enlists the help of outside organizations not affiliated with the company to complete certain tasks. The outside organizations typically set up different compensation structures with their employees than the outsourcing company, enabling them to complete the work for less money. This ultimately enables the company that chose to outsource to lower its labor costs.

Businesses can also avoid expenses associated with overhead, equipment, and technology.

In addition to cost savings, companies can employ an outsourcing strategy to better focus on the core aspects of the business. Outsourcing non-core activities can improve efficiency and productivity because another entity performs these smaller tasks better than the firm itself. This strategy may also lead to faster turnaround times, increased competitiveness within an industry and the cutting of overall operational costs.

Companies use outsourcing to cut labor costs and business expenses, but also to enable them to focus on the core aspects of the business.

Examples of Outsourcing

Outsourcing's biggest advantages are time and cost savings. A manufacturer of personal computers might buy internal components for its machines from other companies to save on production costs. A law firm might store and back up its files using a cloud-computing service provider, thus giving it access to digital technology without investing large amounts of money to actually own the technology.

A small company may decide to outsource bookkeeping duties to an accounting firm, as doing so may be cheaper than retaining an in-house accountant. Other companies find outsourcing the functions of human resource departments, such as payroll and health insurance, as beneficial. When used properly, outsourcing is an effective strategy to reduce expenses, and can even provide a business with a competitive advantage over rivals.

Need for outsourcing

• Cost Effective-

This is one primary reason from where the need of outsourcing came into the picture. Mainly with the developed countries like US and UK, the skilled and proficient labor available in these countries is very expensive according to the minimum wage policies available with them. So, the processes like marketing, Sales, web development etc. they started outsourcing to the developing countries like India where they could find good quality skilled labor with very fewer wages which tend to save on their capitals and make them invest on core activities.

•    Skilled Specific Vendors-

These outsourcing vendors are the ones specialized in the task assigned as they have the good number of skilled labor with them, who knows all the complexities of the task and ready with all the possible solutions required which makes the process handling smoother than having done in-house by hiring people as it turns out to be less feasible in terms of quality. Being skilled specific it helps the business to improve the effectiveness of the job.

•    More focus on core activities-

One important factor that has come up with outsourcing is more focus on prime and core activities of the business. Outsourcing the backend and less important task always makes you available to focus on what is more important and directly associated with the business. Let’s say if you hire an in-house web developer and designer to get your website done you will be more engaged with them tracking on their work and left with less or no time to focus on core activities which tend to make you lose on them and in turn lost in business which shows the importance and need of outsourcing in an avid way.

•    Saves on Infrastructure and Technology-

One important aspect of outsourcing is it eliminates the need of investing more in infrastructure and further technologies. Outsourced business partner shares the responsibility and do invest in them which again saves on the business capital and makes the business person use that fund to procure more needed and latest technologies related to core business activities which turn out to be a more beneficial deal for any organization raising the need of outsourcing.

•    Risk Sharing-

When one needs to take all the responsibilities related to business and the whole risk lies on them, then they use to refrain them from doing certain things. It turns out to be one demotivating factor actually. And at the same time, if one outsources certain business activities it certainly divides the risk also as one need not worry about the loss of data during a technical crisis, accident, natural calamities or market fluctuation. Your outsourced business partner will always be there to assist you in any such kind of crisis. This definitely is one important factor and raise the need for outsourcing.

•    Deals with Talent shortage-

One of the reasons why outsourcing is considered is the lack of required resources in a particular country or locality. While choosing an outsourcing agency one does their homework well and choose the area where require an amount of skilled resource available that too in a cost-effective manner. India is being considered on priority while outsourcing as it’s been a pool of highly skilled and technologically sound resources with effective English communication skills.

•    Time zone benefit-

Its one benefit businesses enjoy while outsourcing their projects especially if it’s in India where people work 24 hours and 7 days in shift making their business going on always in a virtual manner even when their physical office setups are closed.

•    Improved customer services-

By relying on more skilled and qualified people for specified jobs you tend to serve better quality to your clientele which ensures more satisfied customers giving you more business and increasing your revenue which definitely calls for the need of outsourcing.

Scope of Outsourcing.

1. Financial services: In today’s competitive environment, with volatile economic conditions and high levels of regulations, fund managers, bank managers, and investment banks are identifying middle and block office as an area where they can gain competitive advantage. The challenge however lies in finding new ways to lower costs, gain more flexibility and make processing more efficient without losing control. Financial services must be outsourced to a provider who has domain knowledge as well as experience which would set you apart from the rest.
2. Technology translation services: The technology sector changes on such a faster pace that seems impossible to stay current on new developments. New developments in the sector can lead to new. Terminology being used by stakeholders on a daily basis. One cannot afford to have documents containing outdated terms and information which may prove that the technology used is not up-to-date. One must rely on professionals who stays up-to- date with respect to latest trends in the world of technology, so that one must be on the cutting edge of technology.
3. Writing services: Writing can be outsources in two aspects:
   (i) Copy writing.
   (ii) Proofreading.
   The companies may not have the budget required to hire a professional writer but they still want their advertising and marketing copy written in an attractive and compelling manner. Therefore, they outsource the job to freelance writers, are hired on a contractual basis to complete individual projects on a need of writing basis.
4. Customer support services: Customers need different types of information from a company. Interaction with customers is required for sales and marketing. The function includes:
   (i) Marketing: Marketing tasks includes
   telemarketing, surveys, management of marketing campaigns, etc.
   (ii) Customer analytics: It includes profitability analytics, reporting and complaint analysis.
   (iii) Sales: It includes inbound sales, outbound sales, co-browsing, etc.
   (IV) Support: It includes activation of accounts,
   registration of new customers and recording complaints.

Outsourcing: IT and Business Processes

IT outsourcing is the practice of using an external service provider to deliver some or all of the IT functions required by a business including managing infrastructure, directing strategy and running the service desk.

IT outsourcing providers can take full responsibility for all IT maintenance and support, this is called a fully managed service, or they can provide additional support for an internal IT team, this is sometimes referred to as co-sourced IT support and is usually an approach taken by larger organisations.

A company may use one provider for all their IT requirements, or multiple service providers to deliver different elements.

Types of IT outsourcing

Offshore outsourcing

This involves sending IT-related work to a company in a foreign country, such as India, China or the Philippines, which offers political stability, lower costs and tax savings.

Nearshore outsourcing

The process of sending IT-related work to a company in a country which shares a border with your own. Theoretically, this should make travel and communication between the two companies easier.

Onshore or domestic outsourcing

This involves contracting an external service provider, located in the same country as you, to provide IT-related work, remotely or on-site.

Cloud computing

Contracting an external service provider to provide IT-related services over the internet, such as Infrastructure-as-a-Service, Platform-as-a-Service and Software-as-a-Service.

Managed services

This involves contracting an external company to provide network management functions such as IP telephony, messaging and call centers, virtual private networks (VPNs), firewalls and networking monitoring and reporting.

4.2 Business Process Outsourcing (BPO)

Business process outsourcing (BPO) is a method of subcontracting various business-related operations to third-party vendors. Although BPO originally applied solely to manufacturing entities, such as soft drink manufacturers that outsourced large segments of their supply chains, BPO now applies to the outsourcing of services, as well.

Understanding Business Process Outsourcing (BPO)

Many businesses, from small startups to large companies, opt to outsource processes, as new and innovative services are increasingly available in today's ever-changing, highly competitive business climate.

Broadly speaking, companies adopt BPO practices in the two main areas of back office and front office operations. Back office BPO refers to a company contracting its core business support operations such as accounting, payment processing, IT services, human resources, regulatory compliance, and quality assurance to outside professionals who ensure the business runs smoothly.

By contrast, front office BPO tasks commonly include customer-related services such as tech support, sales, and marketing.

Business process outsourcing is on the climb, evidenced by the fact that in 2017, the estimated global market size of outsourced services was 88.9 billion U.S. Dollars, which was up $12 billion from the previous year.

The breadth of a business' BPO options depends on whether it contracts its operations within or outside the borders of its home country. BPO is deemed "offshore outsourcing" if the contract is sent to another country where there is political stability, lower labor costs, and/or tax savings. A U.S. Company using an offshore BPO vendor in Singapore is one such example of offshore outsourcing.

BPO is referred to as "nearshore outsourcing" if the job is contracted to a neighboring country. Such would be the case if a U.S. Company partnered with a BPO vendor located in Canada.

A third option, known as "onshore outsourcing" or "domestic sourcing," occurs when BPO is contracted within the company’s own country, even if its vendor partners are located in different cities or states.

BPO is often referred to as information technology-enabled services (ITES) because it relies on technology/infrastructure that enables external companies to efficiently perform their roles.

The Attraction of Business Process Outsourcing (BPO)

Companies are often drawn to BPO because it affords them greater operational flexibility. By outsourcing non-core and administrative functions, companies can reallocate time and resources to core competencies like customer relations and product leadership, which ultimately results in advantages over competing businesses in its industry.

BPO offers businesses access to innovative technological resources that they might not otherwise have exposure to. BPO partners and companies constantly strive to improve their processes by adopting the most recent technologies and practices.

Since the U.S. corporate income tax is among the highest in the developed world, American companies benefit from outsourcing operations to countries with lower income taxes and cheaper labor forces as viable cost reduction measures.

BPO also offers companies the benefits of quick and accurate reporting, improved productivity, and the ability to swiftly reassign its resources, when necessary.

The Disadvantages of BPO

While there are many advantages of BPO, there are also disadvantages. A business that outsources its business processes may be prone to data breaches or have communication issues that delay project completion, and such businesses may underestimate the running costs of BPO providers.

KEY TAKEAWAYS

1. Business process outsourcing (BPO) is a method of subcontracting various business-related operations to third-party vendors.
2. Although BPO originally applied solely to manufacturing entities, such as soft drink manufacturers that outsourced large segments of their supply chains, BPO now applies to the outsourcing of services as well.
3. BPO is deemed "offshore outsourcing" if the contract is sent to another country where there is political stability, lower labor costs, and/or tax savings.

4.3 BPO Vendors

How does BPO Work?

• It allows the company to significantly reduce costs. The company does not have to maintain an additional structure, expand the staff, provide a social benefits package for full-time employees.
• As for the strategic tasks, outsourcing makes it possible to concentrate resources on the main production, as well as improve operational control.
• On the technological side, outsourcing opens up access to higher technologies. If the staff does not have the necessary specialists, they can be engaged. The quality of service significantly increases, as a third-party company is obliged to control the quality of the work provided under the contract.
• You will have the flexibility in cost allocation. No need to draw up a work schedule and reduce the permanent staff: just engage temporary labor, depending on need

There are many directions of outsourcing, and new ones continue to appear. People now outsource logistics, personnel selection, document management, repair work, service, processing of telephone calls (call-centers), programming, bookkeeping and so forth.

The processes can differ, depending on the specifics and industry of each organization.

• The production of a large volume of documents at the scale of a large company is a complex process that requires dedicated resources, the use of specialized equipment and technologies. Document outsourcing can reduce the cost of document production by an average of 15%, with a significant increase in quality and productivity.
• One of the fastest growing segments of the UPS outsourcing market is call centers, or the outsourcing of processes in customer relationship management (CRM). It allows to handle incoming phone calls automatically or with the participation of an operator. Its use allows to optimize call processing, reducing the time it takes to find the information that the client needs and ensuring the constant availability of the service. The vast majority of Western companies use these types of BPO, placing an expensive call center in places with cheap labor. It is traditionally believed that the leading provider of call center outsourcing services is Eastern Europe, which is able to provide Western companies with high-quality service at the lowest possible prices. On the basis of the call center you can have a number of services, such as information and reference support for customers; organization of technical support, etc. All these and many more services are provided by simply-contact.
• Outsourcing of personnel processes (human resources management) is one of the varieties of business process outsourcing. It is the full cycle of work related to the search and selection of personnel (recruitment, posting of job offers and access to resume databases).
• A rapidly developing form of outsourcing is the provision of accounting services. The main advantage of transferring accounting functions to an outsourcer is the liability factor for possible errors in accounting. The use of a specialized accounting organization implies the existence of contractual liability for damage, which is a more reliable form than the responsibility that the chief accountant bears under employment contract.
• Logistics outsourcing is currently being actively developed. This implies transferring individual logistics functions to a specialized company that has experience and a wide infrastructure to carry out the relevant operations.

BPO Service scope

The technology advancement is changing the world rapidly. The Artificial Intelligence (AI), Machine learning (MI) & robotics are one of the technologies that change the world. Siri, Alexa & Google Assistant are changing day to day life of everyone. Also, we have seen companies are using AI & MI to increase their efficiency. The manufacturing industry is using robotics to automate all the manufacturing process. According to data, more than 59% manufactures are using some sorts of robotics technology.

Days are gone when outsourcing business operations like back office, inbound & outbound calls, software, AP & AR, etc. were just new trends. Now they have become the necessity of business. All businesses want to focus only on their core business & for other operations, they prefer to outsource. For example, Apple only focuses on developing new technology and outsource their manufacturing to China.

Business process outsourcing (BPO) as we know it today originated during the 90s era. Large companies like GE, City bank, GM began to outsource their work to Indian companies typically to reduce expenses & save costs.

Nowadays, most of the businesses are looking for a company which can deliver a business value by using technology as a source of innovations rather than just providing the human resources & infrastructure for project delivery.

Below are some trends that will influence the business process outsourcing industry in future

A. Robotic Process Automation (RPA):

The robotics process automation (RPA) is the new technology which is emerged in the last few years. It will completely change the business process outsourcing industry. BPO service providers are adopting many customize software & cloud-based tools which aid to the automation. RPA is very efficient. It will help the company save cost but will lead to job losses in the business process outsourcing industry.

B. Focus on Communications Tools:

Previously every business process outsourcing company was highly dependent on website & IVR systems for the customer management. But in the 20th century, everyone is on social media & there are also different communications tools like live chat, WhatsApp, Skype, and others. These tools are changing the customer management & also helping to reach the level of customer delight. Many BPO companies are investing in Live agent services. These customer representatives are able to deal with the customer grievances in real time.

C. IT role in BPO services:

IT has influenced each & every industry. The business process outsourcing industry is not an exception. Many BPO companies are using custom software, portal, business analytics software, process automation software and many more. It helps companies reduce cost & turnaround time for business. It directly helps increase business efficiency.

D. New startups:

Every year millions of startups are getting started globally. They are under pressure to succeed with very few resources that’s why they outsource their IT infrastructure, networking, cloud database, software development, etc. It helps them focus on core business operations. But it is observed that most the BPO companies ignore this kind work as the requirement of such players is very small. They prefer to focus on Medium & large organizations.

Benefits of BPO

The reason for companies to outsource their business processes is pretty simple. Business Process Outsourcing enables business owners to reduce the burden of work and concentrate on other core aspects of their operation. Outsourcing to a third-party company, which is already well-established and has the relevant experience in providing services, is a much more convenient option. Outsourcing your business processes comes with a series of benefits.

1. Cost Reduction: Outsourcing helps organizations cut costs and save money, and is one of the most important reasons for people opting to outsource their business process. BPO has given rise to a talented pool of employees available at low wages results in huge cost reductions, which in turn results in better revenues for the company
2. Availability of Experienced Professionals: Recruiting new employees and training them involves a lot of hassle and is a huge cost to the company. When the tasks are outsourced to an already established company with all the resources, the troubles of hiring and training is conveniently avoided
3. Ability to Focus on Core Business: Since a considerable chunk of the business is outsourced to a service provider, the top management of the company can focus their attention on core operational areas. This also leads to better employee productivity and helps them make better and more informed business decisions
4. Excellent Source of Customer Feedback: Most BPO employees are in direct contact with the customers, as a result of which they are able to receive a first-hand feedback about products and services. This valuable feedback, in turn, helps the company to improve upon the services provided
5. Access to the Latest Updated Technologies: Buying a licensed version of the latest software and other technologies is very expensive. This proposition is also risky, especially for small to medium-sized businesses who cannot afford to dedicate a steady budget to buying the latest technologies. Therefore, it becomes difficult for a company to stay updated with the latest developments. Outsourcing to companies that already have access to the technology and have the relevant expertise therefore proves to be more advantageous for global organizations
6. Excellent Employment Opportunity: The BPO industry is one of the highest job providers in most countries. In fact, it is the ranked second in terms of the number of jobs created in some of the Asian countries. The remuneration provided to the employees is also one of the best in the industry, which is one of the major reasons for youngsters to work in BPO. The BPO industry has provided employment to a lot of talented youngsters and has single-handedly changed the GDP of various small countries

BPO and IT Services

In a very basic sense, most types of Business Process Outsourcing can be separated into two major categories – front office and back-office services.

Back office services, in general, are things like accounting and research, as well as various types of IT support services. A lot of the human resources types of BPO would go into that category, too.

Front office services involve things like customer interaction services and the use of third-party companies for things like on-site demos and selling to customers or answering questions, in person, on the phone or through digital media.

Within these two bigger categories, there is any number of different types of business process outsourcing. There are also things like payroll outsourcing, the outsourcing of employee records analysis and the outsourcing of business intelligence, which we’ll discuss a little bit later.

An entirely separate category of BPO involves what's called "knowledge process outsourcing" or KPO. Companies may be outsourcing the work of mining business data for insights, or looking at dashboards to support top-level decisions. However, the whole phenomenon of KPO could rightly be called business intelligence consulting, so it may not be something that, in some people’s minds, falls into the category of BPO as a whole.

Domestic and International BPO Strategies

Another way to analyze business process outsourcing is to look at where third-party services are provided. Here, there are three categories—offshore, nearshore and onshore BPO.

Offshore BPO involves outsourcing business processes to any country in the world, typically countries that are overseas from the client company.

Nearshore BPO involves outsourcing business processes to companies that are in a country adjacent to the client company's headquarters (ex: a company in the U.S. Outsourcing business processes to a company in Mexico, or vice versa).

Onshore BPO requires that the client and the third-party service provider are in the same country.

Benefits of BPO

One of the biggest benefits of BPO is cost control.

Typically, the client can get the third-party services for BPO at a cheaper price than what it would cost to pay people to do it in-house. Then, too, there are any of a number of savings in terms of international tax strategies and the cost of setting up services in a given country.

Another related benefit is that in-house people can focus on core operations, rather than having to do all of the human resources and payroll work, or whatever else is being outsourced.

Concerns with BPO

One major concern with BPO is security. To a large extent, many BPO setups require the company to surrender vital or sensitive information to the vendor. They have to trust the vendor, to a certain extent, because that vendor has access to part of their data supply chain. Sometimes issues of compliance with national or industry standards come up as well.

Another concern with BPO involves the control that clients have to give to third-party providers. Sometimes there's a lot of concern about cost thresholds, where third-party service companies will suddenly raise the cost of services due to some benchmark.

Another big concern with BPO has to do with branding and customer interactions.

You could call this the identity management problem—it involves figuring out whether the third-party service company can make it look like the business processes are being done in-house, if that’s important to a particular process.

For example, if a third party company is providing people to demo products and services or engaging in customer interactions on behalf of the client, what will that look like to the customer? Will the front line worker be identified with the client or with the third-party service provider, or both?

In general, business process outsourcing can be an effective way for companies to fine-tune their operations to cut costs and create efficiencies if it’s done with the right research, analysis and due diligence.

Project Management approach in BPO

Outsourcing a complete project or an essential parts of a process to improve efficiency and reduce expenses is one of the most popular business practices in the 21st century.

Some of today's leading corporations follow a variety of outsourcing methods including both foreign and domestic contracting and off shoring to reap best benefits from international labor rates.

Since its introduction, outsourcing has proven to be a very important tool at reducing cost and maintaining high quality in a product or a service.

No matter how lucrative BPO or business process outsourcing has proven to be to an organisation, one of biggest challenges faced by global leaders in outsourcing is the effective management and monitoring of an outsources process, that is happening few thousand miles away across oceans.

International outsourcing can cause many a project leaders innumerable amount of stress they would not experience when directing internal teams and most of the challenges the main organisation face when operating a BPO is not caused by the technical incompetency’s of the outsources.

According to several project leaders and Chief Operating Officers, who juggle numerous outsourcing teams in their daily life, one of the main crippling issues in managing a BPO is the lack of communication and the understanding of priorities between each party.

Communication of information, deadline and priorities is the glue that bind diverse organisations into a cohesive unit. While maintaining an unbroken line of communication is important to make sure that every team and their members are in the same page of the play book, communication does not necessarily translate into instant comprehension, when working with BPOs located in other countries.

When working with team members whose first language is not English it is best to supplement written requirements with diagrams and other visual aids, as use of conventional communication methods of choice like google chat and skype fail in most occasions.

Use of a flexible collaboration platform, which combines easy communication options with a secure document sharing method is ideal to iron out the misunderstandings that could arise when trying to communicate with an offshore BPO team.

Maintaining a cloud based secured repository of data and files can also make sure that everybody is working off the same file. Retaining a single authoritative file enables different teams to work on the same file at the same time from different locations without overwriting each other’s work.

In addition, a BPO processes should involve a tracking mechanism for measuring the team's productivity and quality. Using a multi taking project management software for all the teams would help to keep everyone updated about the movement of other teams.

A golden rule would be to manage the project exclusively through the software and never through emails, a step that would greatly increase transparency of the project. A project management software could also help to keep a track of task load each members of the team is handing at any given time and would allow a greater a synchronization of work between teams.

For an example if there are two teams handing the product stationed at different time zones, which are eight hours apart, One team can collaborate over the task management tool to hand over the task to the other when they are signing off for the day.

Although greater are its responsibilities, outsourcing is here to stay and planning ahead, adapting quickly and using the right tools can make BPO work for you.

BPO and IT-enabled services

In the last two decades, technology oriented development policies have taken the center stage. ITeS has opened windows for job opportunities, service offerings and outsourcing in major economies -the key beneficiaries being – India and China. Propelled by the increase in outsourcing of web applications and product envelopment and by a growing number of clients, Connet is well positioned in the ITES market.

Whereas the growth is high, and the prospects are enormous, there are many deployment issues for establishment of IT enabled services.

• High Capital Investments
• High Volume Transactions
• Continuous Business Availability
• Time Turnaround
• High Communications cost
• Lack of trained and reliable resources
• Role model/Guide or Help to start-ups.

ITeS provide a range of IT-intensive processes and services, which includes business process outsourcing (BPO) and knowledge process outsourcing (KPO),
provided from a distant location and delivered over telecom networks. ITeS focus on verticals such as content management, finance and accounts, research and analytics segment. Our services are used in various stages starting from data and workflow management to data warehousing, mining and business intelligence. We also provides customized solutions in the field of product management, independent testing and enterprise applications.

ITeS includes:
Customer Interaction services -including call center facilities with adequate telecom infrastructure, trained consultants, access to requisite databases, Internet and other online information infrastructure to provide information and support to customers 24x7.
Back office operations -data entry, data conversion including finance and accounting and HR services.
Transcription/Translation services
Content development/animation/engineering/design and GIS
Other services including remote education, data search, market research, network consultancy and management

The favored application areas are areas where there is huge amount of data that needs to be processed and utilized for delivering the results, or the data is the outcome of the service. In all cases, without use of IT the task would otherwise be unmanageable. Some of the most important areas where IT enabled services can be deployed are:

• Telemarketing
• Helpdesk
• Customer Support Centers
• Data Ware House
• Transcription Centers
• GIS Mapping for Transport tracking
• Electronic Distribution.

Key Takeaways:

• The Artificial Intelligence (AI), Machine learning (MI) & robotics are one of the technologies that change the world.
• One of the main crippling issues in managing a BPO is the lack of communication and the understanding of priorities between each party.
• The robotics process automation (RPA) is the new technology which is emerged in the last few years. It will completely change the business process outsourcing industry.

3.4 BPO Business Model

Strategy for Business Process Outsourcing

Hire the best talent

Employers in BPO services sector generally give more emphasis focus on quantity rather than quality during hiring process. That is, the companies hire a large of bunch of employees due to piling of work from multiple projects. It’s true that a big number of employees is necessary for the handling the heavy chunks of work.  But making sure that each employee is equally proficient is also necessary to get the best results.

So, make sure that experts from respective department participate in hiring of the new ones. The final shortlisted individuals then should be screened by top management before hiring.

Also, questions of technical round should be prepared by inclusion of some real life examples.

Retain the best ones

Retaining the best employees is equally vital to score more in terms of efficiency related to BPO services.

Some major strategies to retain the talent pool in BPO sector include:

• Regular training for executives to gain excellence
• Flexible work shifts to decrease burden
• Work from home facilities (if applicable for a job type)
• Surprise bonus for the top performers
• Cool culture – Pool tables, gym and reading room
• And, Of Course! Hike in remuneration which satisfies them 

The retention not only helps in providing work effectiveness but it helps you most when you are planning to expand the business.

Use Business analytics

Business intelligence (BI) which is in trend among various industries has also a huge scope in Business Process Outsourcing.

This technology which uses multiple techniques for deriving useful information from raw data is full of benefits for BPO services sector.

Through this technology, business process outsourcing related operations especially call centers can get detailed insights about their work processes.

A firm can identify number of cycles and contacts used for resolving the concern of a customer using BI. It can be also be implemented to examine the average time taken by an executive to handle the issue.

Measuring lost calls and those in queue is also essential information that one can derive through BI.

One can also study the satisfaction level of customers which is the most vital information a call center can utilize.

So, utilizing the most effective BI solution for generating detailed insights can be the wisest investment by a BPO firm. 

Implement Cloud computing

Cloud technology is slowly becoming a necessity for various industries

This technology is in initial stages when it comes to BPO sector. Still, its implementation in your BPO can help you in solving various storage related challenges.

You can scale up your BPO services without major impact on existing resources.

Also, you have the flexibility to access it from anywhere in the world. So, you can easily implement ‘bring your own device (BYOD)’ policy in your firm.

Last but not the least, expenditure related to servers and maintenance will be decreased through cloud substantially. This will help in controlling overall budget of your BPO.

Various industry gurus believe that cloud may be a threat to the security of the data. But choosing a renowned cloud vendor for your BPO services solves this issue.

Exploit the potential of Social media

BPO sector is also touched with the charm of social media. You can strategically use social media platforms to investigate the behavior of customers. This can be further utilized to create strategies to get the desired results.

Channels like Twitter and Facebook are the most effective tools which BPOs can use for maintaining decent relations with the customers.

BPO firms can also effectively analyze the reputation of their clients through social media. 

Take Support from Psychologists

This may sound a bit weird and totally opposite to the regular strategies of BPO management. But actually, hiring a psychologist can help your contact center with two major benefits.

First: A psychologist can impart skills active listening and improved speaking skills to the executives. This can give a big boost to the overall efficiency of your employees.

Second: This one is bit indirect but equally effective. The psychologist can provide multiple exercises and techniques which can help the employees to curb the anxiety and stress. This will ultimately boost their yield. Both these reasons put a light on how you turn your conventional BPO into a power house of productivity.

Process of BPO

When companies refer to business process outsourcing, they often sort the type of work that they’re outsourcing into two categories. These categories are back office outsourcing and front office outsourcing.

• Back office outsourcing is the form of BPO which deals primarily with in-house necessities of business. These include payroll, billing, or similar tasks.
• Front office BPO refers to outsourcing tasks that include customer services, such as marketing or tech support.

Your company might benefit from one or both types of outsourcing. The type of outsourcing that will be most beneficial depends on your company’s specific needs.

Types of Outsourcing

When most people hear the word “outsourcing” they think of offshore outsourcing. But this isn’t the only kind of BPO.

• Offshore outsourcing happens when your company hires a company located overseas to fulfill certain work requirements. One example is a company based in the United States outsourcing to a company in India.
• Nearshore outsourcing happens when you contract work to a neighboring country. An example of this is if your company is in the USA and you outsource to Mexico.
• Onshore outsourcing is when you outsource work to another company within your own country. An example is when a USA-based company hires a USA-based outsourcing firm.

Offshore outsourcing is the most common, but it’s not the only option. You can also find third-party outsourcing business in locations that are closer to home.

The processes outsourced, however, are rarely the core ones. After all, if it’s something critical to company success, you really wouldn’t trust a contractor doing it. You’re more likely to benefit from outsourcing support roles, such as customer relations. This way, your team back home can focus more on your core functions, rather than trying to learn new skills. This is, at the end of the day, a win-win. Instead of having to start a customer support team from scratch, you’re giving the job to a company that specializes in it – and you’ll end up spending less, to boot.

ITO Vs BPO

Business process outsourcing (BPO) and information technology outsourcing (ITO) both represent ways that a business can reach beyond its own capabilities and introduce another provider for support. Each of these providers have unique roles, but there is some overlap as well. Essentially, a company turns to ITO and BPO providers to create more efficient work flows. An ITO provider should create cost savings tied to computer networks and other information technology systems, while a BPO provider's services should lead to greater operational efficiencies in most all areas of a business.

A business may turn to hire both ITO and BPO providers. The scope of services offered by both of these providers is different, and one does not eliminate the need for the other. Also, on average, there is no rivalry between the types of services offered by BPO and ITO providers.

Unless financial savings are uncovered relating to technology systems and procedures, an ITO provider has not made a difference. Once a BPO provider has been hired, improvements in business processes that may lead to greater financial results at a business must be realized in order for that service to be deemed a success. The efficiencies attained through a BPO provider could be tied to human resources, finance, or really any operational area of an organization that is part of a company's core business.

Although ITO and BPO services are designed to complement one another, it may make sense for an organization to adopt one before the other. Introducing an ITO provider first can lead to the quickest financial savings, which is a good place to begin. An ITO provider does not need to remain engaged over the long term, as after potential cost savings are identified, those changes can be appropriated by the business. Once any cost savings are realized, the conditions may be ripe for a BPO provider to enter the scenario and create greater operational efficiencies throughout the organization.

Other differentiating factors between ITO and BPO firms include the expertise behind each provider. ITO professionals are skilled to recognize the types of technology capabilities that are needed at an organization, ranging from storage to support to wireless services. Providers should be able to negotiate costs and terms or streamline services based on the knowledge that these industry professionals possess. BPO providers perform specific tasks on behalf of an organization, such as customer service, accounting, or personnel management.

Key Takeaways:

• Retaining the best employees is equally vital to score more in terms of efficiency related to BPO services.
• A BPO provider's services should lead to greater operational efficiencies in most all areas of a business.
• ITO professionals are skilled to recognize the types of technology capabilities that are needed at an organization, ranging from storage to support to wireless services.

3.5 BPO to KPO

Meaning of KPO

Knowledge process outsourcing (KPO) is the outsourcing of core, information-related business activities. KPO involves contracting out work to individuals that typically have advanced degrees and expertise in a specialized area.

The information-related work can be carried out by workers in a different company or by a subsidiary of the same organization. The subsidiary may be in the same country or in an offshore location to save costs or other resources.

Knowledge process outsourcing is the purposeful allocation of relatively high-level tasks involving specialized knowledge or problem-solving to an outside organization or third party that has a high level of subject matter expertise, often located in a different geographic region that the company itself.

KPO is different from business process outsourcing (BPO), which involves the outsourcing of labor and other operational work to a third party to save money. Although KPO is a subset of BPO, KPO involves far more specialized, analytical, and knowledge-based work.

Companies that engage in KPO look to obtain highly educated and skilled individuals without having the cost of training and developing those workers. Through KPO, a company can quickly add experts in specific fields to boost competitiveness and increase earnings.

KPO vs. BPO

The major reasons behind the outsourcing of business processes are reducing costs and maximizing efficiency. Outsourced solutions are now widely available to help both business process and knowledge process. While BPO and KPO are related to the business activities of an organization, both are not the same. While BPO refers to Business Processing Outsourcing, KPO is Knowledge Processing Outsourcing. Considered to be a subset of BPO, KPO services are more specialized and knowledge-based than BPO services.

KPO helps enterprises meet the customer's demand for high-quality services, provide operational efficiency and thus add strategic value to the products and services. KPO also enables companies to benefit from customized solutions - reduce design-to-market lead times; manage critical hardware efficiently; provide research on markets, competition, products and services; enhance organizational effectiveness in business administration; and help in dealing with rapidly evolving business scenarios. Legal process outsourcing services (LPO) are also a special type of KPO dealing with legal services. These services involve legal coding, E-Discovery services, E-Brief Hyperlink Services and Logical document determination.

According to India Brand Equity Foundation, companies outsourcing work to a KPO vendor can help save costs up to 32 per cent on revenues.

Opportunity and Scope and KPO challenges

Companies utilize KPO when they are looking for specialized knowledge and expertise where that knowledge base or skills cannot be found in-house. However, companies that engage in KPO offshore also typically do so in order to reduce costs by hiring skilled workers earning lower wages in another location instead of hiring one directly as an employee. Ideally, companies look to KPO to simultaneously obtain a highly-skilled workforce at a lower cost.

For example, a manufacturer might use raw materials, add value to those materials through various processes, and then sell the result as a final product. The company might look to KPO to determine how to improve efficiency in its production process so that it can deliver maximum value for the lowest possible total cost. The result of KPO might also help the company create a competitive advantage.

KPO can help companies reduce operational or production costs by creating new processes or streamlining efficiency. KPO also fills the gap or need for skilled employees in a particular field. KPO also frees up existing staff, including management, to do other work boosting efficiency and productivity.

The flexibility that comes with KPO allows a company to increase or reduce staff easily. For example, if economic conditions worsen, a company can easily reduce its KPO staff to cut costs. Conversely, a company can quickly hire specialized staff to boost profits or revenue. KPO helps a company to be more nimble and adapt to the changes in its industry and competitive landscape.

However, disadvantages do exist with KPO. Privacy of intellectual property and business security can be compromised if classified or proprietary information is lost, copied, or brought to a competitor. Companies have less control over the hiring process of outsourced workers. As a result, a company might not be able to ensure the character of its outsourced employees or the quality of their work. 

Implementing KPO can be time- and resource-intensive to establish a successful operation. Moreover, communication can be a concern and a challenge, due to legal, language, and cultural barriers. Another disadvantage might be that existing employees might feel threatened by the hiring of outsourced workers and feel their jobs are at risk. 

KPO Indian Scenario

India has become one of the most sought after destination for the companies wanting to outsource their business, knowledge, research, legal and related high-end processes. This not only boosts exports, increases national income and creates greater employment avenues, but also increases tax revenues, caters to the growth of other related industries like infrastructure, catering, etc. The companies involved in outsourcing activities tends to earn huge profits out of this and thus, are in a position to offer their employees the good and competitive pay packages, along with many attractive employee benefits. Companies outsourcing work to a KPO vendor can help save costs up to 32 per cent on revenues, assuming that the profit margin remains constant.

The Indian KPO services industry is estimated to be around USD5.7 billion currently and grew by 15-17% in the recent past. The Indian KPO providers offer a range of solutions to diverse industry segments such as FMCG, engineering, automobile, telecom, R&D, banking and financial services, insurance, etc. In the coming years, the volume and complexity of work being outsourced to the Indian KPOs is expected to increase tremendously, due to the competitive advantages mentioned. Analysts put cost advantage, as one of the most significant drivers of KPO business. Another critical driver is the prevailing shortage of skilled human resources in developed countries, like the USA and EU. 

India has a large pool of knowledge workers in various sectors ranging from Pharmacy, Medicine, Law, Biotechnology, Education & Training, Engineering, Analytics, Design & Animation, Research & Development, Paralegal Content and even Intelligence services. 

Cost savings, operational efficiencies, access to a highly talented workforce and improved quality are all underlying expectations in off shoring high-end processes to India. India’s intellectual potential is the key factor for India being the favored destination for K.P.O industry.

Moreover, life sciences companies are facing major challenge due to the growing cost of R&D and, as a result, a growing number of pharma companies are turning to outsourcing and off-shoring as ways of reducing these costs. 

This market is expected to grow significantly during the next few years, with a notable increase in demand coming from the US as a result of the recent reforms in healthcare regulations.

However, today, the Indian KPO industry faces the challenge of adequate talent availability and high attrition rate among young professionals. Further, services in this sector are specialized and professionals with specific domain knowledge are only preferred. 

A higher education degree and an experience within the sector most often becomes a prerequisite to getting employed with a KPO company. However, these knowledge professionals often lack the inclination towards continuous learning and understanding of the dynamic nature of this profession. 

Furthermore, continuous training of business-related skills is essential in the outsourcing services sector. This is because, unlike the BPO industry, which is process oriented, the KPO market demands professionals with decision making, problem solving and analytical skills. 

During the recent economic crisis, all the industries across the globe felt the pinch on their revenues, forcing them to cut down their costs. The situation was further fueled by the growing political pressure, driven by the ever increasing unemployment in developed countries. This had a huge impact on the Indian outsourcing sector. 

Some other challenges faced within the Indian KPO sector is the continuously improving quality standards, further investment towards the KPO infrastructure, requirements of higher level of control, confidentiality and enhanced risk management. 

With its firepower of engineers, chartered accountants, doctors, MBAs, lawyers, research analysts, scientific researchers and PhDs, India is well positioned to address the global KPO need. In the future, it is envisaged that KPO has a high potential as it is not restricted only to Information Technology (IT) or Information Technology Enabled Services (ITES) sectors, and includes other sectors like Intellectual Property related services, Business Research and Analytics, Legal Research, Clinical Research, Publishing, Market Research (Market research KPO), etc.. 

KPO industry is having a bright future in India; there is still need to address many issues and challenges which restricts the healthy development of this industry. Efforts should be made to give appropriate training to employees of this industry as well as to develop a sound and healthy environment which do not have much detrimental effect on lifestyle of employees. More over education system should be transformed to cater to the needs of the industry. 

Key Takeaways:

1. The Indian KPO services industry is estimated to be around USD5.7 billion currently and grew by 15-17% in the recent past.
2. The Indian KPO providers offer a range of solutions to diverse industry segments such as FMCG, engineering, automobile, telecom, R&D, banking and financial services, insurance, etc.
3. KPO helps enterprises meet the customer's demand for high-quality services, provide operational efficiency and thus add strategic value to the products and services.
4. The information-related work can be carried out by workers in a different company or by a subsidiary of the same organization. The subsidiary may be in the same country or in an offshore location to save costs or other resources.

3.6 Outsourcing in Cloud Environment

Cloud computing offerings

Cloud computing is a subscription-based service that offers on-demand network access to a shared pool of configurable computer resources (e.g., networks, applications, servers, storage, etc.) that is usually hosted by the supplier and provided over the Internet. Such services can be rapidly provisioned and released with minimal transition services and management effort. Cloud services are outsourcing without a single dedicated data center. There are varying service models and deployment methods in cloud computing that provide a customer with different levels of control, flexibility, and management.

Cloud Computing Service Models

There are four primary service models in cloud-based outsourcing:

• Software as a Service (SaaS) provides software applications that are hosted by a supplier and made available to customers over the Internet.
• Platform as a Service (PaaS) provides an outsourced platform that is hosted by a supplier and allows customers to develop, test, and manage web applications.
• Infrastructure as a Service (IaaS) provides virtualized computer resources (e.g., servers, storage, and networking) on a pay-per-usage basis over the Internet.
• Desktop as a Service (DaaS) provides virtual desktops that are hosted by a supplier and accessible from anywhere via the Internet.

Cloud-based outsourcing is compelling for information services because it offers greater flexibility and economy. However, such solutions raise unique legal considerations including data privacy, security, and e-discovery issues. Suppliers are able to offer low cost, flexible solutions because they standardize their offerings for multiple customers. Consequently, suppliers are less likely than traditional outsourcing providers to adapt their solutions to the customer’s needs or negotiate contract terms to meet customer requirements.

Cloud Computing Deployment Models

Cloud deployment models represent a specific type of cloud environment distinguished primarily by ownership, size, and access. Each deployment model has varying degrees of data security, risk, and investment.

• Private cloud or on-premises cloud. The private cloud infrastructure provides a dedicated network and equipment that are operated solely for the customer’s business and are managed internally or externally. In a private cloud arrangement, the customer maintains all components of the associated technology, which includes any servers or software required to deploy cloud resources. Private clouds give customers a greater degree of flexibility and control over data security and storage but are also more expensive given the physical space, hardware, and environmental controls required.
• Public cloud. The public cloud is made available to the general public by a supplier who owns, operates, and hosts the cloud infrastructure and offers access to users over the Internet. Because users share the public cloud, this model offers the greatest flexibility (on demand scalability) and cost savings (pay as you go model). However, the public cloud has increased security risks as customers have no visibility or control over where the infrastructure is located, and it offers limited configuration and availability variance.
• Community cloud. The community cloud infrastructure is a multi-tenant cloud service model that is shared among several organizations and is governed, managed, and secured commonly by all the participating organizations or a thirdparty managed service supplier. Community clouds are a hybrid form of private clouds built and operated specifically for a group that shares common goals. With the community cloud, the costs of deployment and access are spread over fewer users than the public cloud, but there are more users than the private cloud.
• Hybrid cloud. The hybrid cloud is composed of two or more clouds (private, public, and/or community clouds) that remain separate but are bound together, offering the advantages of multiple deployment models. A hybrid cloud increases the flexibility of cloud computing as customers can leverage suppliers in either a full or partial manner. There are, however, increased potential risks with accessing multiple cloud platforms.

Selection Considerations

Because each cloud model offers varying degrees of flexibility, efficiency, data security, and cost savings, the customer must select the appropriate model to meet its needs and manage the associated risks. Key considerations include whether the outsourced service is business critical and the sensitivity of the outsourced data. For example, public clouds work better where the outsourced service is not critical to the customer’s business and the outsourced data is not sensitive. Customers should carefully evaluate each of the following in selecting the right cloud computing service, deployment model, and supplier:

• The supplier’s security standards
• The availability and reliability of the service
• Price (i.e., whether the service will provide cost savings and whether it provides flexible, usage-based pricing)
• Data privacy (For example, does the outsourced data include personal data or competitively-sensitive data such as trade secrets)
• Service level agreement performance objectives/guarantees
• Scalability (i.e., whether the service allows the customer to easily increase or decrease usage and resources to accommodate changing business needs)
• Continuity of the service (For example, can the supplier suspend the services for non-compliance? What is the supplier’s business interruption/disaster recovery procedure?)
• Loss of control
• Supplier’s reputation and long term viability (For example, if the supplier is a start-up, the customer should evaluate whether it is well-funded, whether it has a strong vertical industry position, and whether it is innovative/proactive in updating the technology and exploring new services)
• Data location/storage concerns
• Regulatory issues
• The supplier’s technology lock-in position (This is where the supplier implements a proprietary solution for the customer, making the customer dependent on the supplier’s technology; which, by definition, is not available from another or successor supplier, and is problematic with PaaS solutions and occurs where the platform has limited compatibility with other software, equipment, solutions and/or where the supplier restricts or limits migration (i.e., does not provide termination assistance services and/or does not provide or allow data to be extracted and migrated for continued use).)
• The ability to easily transition upon expiration/termination of the service

3.7 Traditional Outsourcing vs. Cloud Computing

1. Active agents vs passive self-service usage of resources 

Traditional outsourcing of data processing, e.g. Payroll processing, involves commissioning agents, who are provided with data and tasked with processing the data actively for the user according to the user's mandate. The agent may itself engage sub-processors to assist with this processing. 

However, with public cloud services, users 'rent' pre-packaged IT resources from providers and then process data themselves in self-service fashion, using infrastructure/resources supplied by the provider. Infrastructure providers do not actively act as agent processing data for users but, at most, passively store data which users choose to store on the provider's infrastructure ready for retrieval by the user when needed. Such providers may be active in maintaining and supporting the infrastructure and environment within which users process their data (discussed below), but the data processing is generally performed by users operating the provider's resources on a self-service basis, not by the provider. 

Given the self-service nature of cloud, it is difficult to make sense of regulatory interpretations regarding 'intervenability' and data subjects' rights such as: 'A cloud provider may not provide the necessary measures and tools to assist the controller to manage the data in terms of, e.g., access, deletion or correction of data.' And 'The cloud client must verify that the cloud provider does not impose technical and organisational obstacles to these requirements, including in cases when data is further processed by subcontractors. The contract between the client and the provider should stipulate that the cloud provider is obliged to support the client in facilitating exercise of data subjects' rights and to ensure that the same holds true for his relation to any subcontractor'.

If a controller chooses to store personal data on a cloud service, it would upload, edit and delete the data in self-service fashion. Should a data subject request the controller to provide or correct their personal data, the controller may retrieve or edit the data, again in self-service fashion, and should not need any assistance or 'support' from the provider or sub-provider to do so. It is therefore unclear what issue these regulatory statements are aimed at. Similarly, 'The provider may even be instructed to answer requests on behalf of the client' may apply to a traditional outsourcing but are not relevant in self-service cloud. Indeed, controllers would probably wish the opposite – they would not want to pass on data subject requests to the provider to ask the provider to trawl through the controller's data looking for one person's personal data (which might be inimical to the rights of other data subjects whose personal data are also stored using that service), and providers are unlikely to accept any such request from controllers!

2.     'Direction of travel' and sequence of events

With traditional outsourcing, a user hires a processor to meet its specific processing needs. The processor may then engage sub-processors to help it fulfil its contract with the user. Successive contracts 'down the chain' of processors may therefore be easily tailored, from both timing and control perspectives. 

With cloud computing, however, the sequence of events and 'direction of travel' are the opposite. Many cloud services are pre-packaged standardised commoditised services, which may be built on existing 'sub-provider' services on the sub-provider's standard terms. The 'sub-service' in turn may be based on other existing services. The user chooses the provider and pre-built package that the user thinks best meets its specific processing and other needs. 

It may therefore be difficult if not impossible to change, particularly in different ways for different customers, any sub-contracts the provider already has in place with its sub-providers - because it has already pre-built its service using standardised sub-service(s), rather than being commissioned to provide a service to order.

3.     Standardized, shared infrastructure/environment

Public cloud computing providers use standardized, shared infrastructure/environments, often using relatively cheap commodity hardware, rather than tailoring to each customer. Customisation of the service is sometimes possible, but costs extra time/money. Private cloud allows the greatest degree of customisation and control, especially if on the user's own infrastructure and managed by it, and if on third party infrastructure and/or managed by a third party is closest to traditional outsourcing. 

True, some traditional outsourced processing may use standardized infrastructure, sometimes at large scale, but it is unlikely to be shared to such a degree as in cloud computing. Shared infrastructure undoubtedly involves more risks for users if the separation between users, which relies on software and logical separation rather than physical separation, is not implemented properly and securely.

4.     Differences in type, and degree of user control

As can be seen from the examples above, cloud services differ. With traditional outsourcing, the user has control over its processor, through the contract and its instructions to the processor. With cloud computing, while it is commonly thought cloud users lose control, much depends on type of service and exact nature and design of individual services. A 'one size fits all' approach to cloud is common, but would not be wise, because there are significant differences between services. 

Key Takeaways:

1. Cloud computing is a subscription-based service that offers on-demand network access to a shared pool of configurable computer resources
2. With traditional outsourcing, a user hires a processor to meet its specific processing needs. The processor may then engage sub-processors to help it fulfil its contract with the user.
3. The hybrid cloud is composed of two or more clouds (private, public, and/or community clouds) that remain separate but are bound together, offering the advantages of multiple deployment models.
4. Cloud services are outsourcing without a single dedicated data center. There are varying service models and deployment methods in cloud computing that provide a customer with different levels of control, flexibility, and management.

Reference Books:

1. Information Technology for Management, 6TH ED (With CD) By Efraim Turban, Dorothy Leidner, Ephraim Mclean, James Wetherbe (Ch1, Ch2)

2. Microsoft Office Professional 2013 Step by Step By Beth Melton, Mark Dodge, Echo Swinford, Andrew Couch

3. Tata McGraw Hill Joseph, P.T. : E-commerce An Indian Perspective (Ch-13,Ch-14)