ITBM2
Unit 4OUTSOURCING Q1) What is the meaning and examples of Outsourcing?A1) 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 OutsourcingOutsourcing'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. Q2) Write the need for outsourcing.A2)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-It’s 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. Q3) Write a note on Outsourcing: IT and Business Processes.A3) 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 outsourcingOffshore outsourcingThis 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 outsourcingThe 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 outsourcingThis involves contracting an external service provider, located in the same country as you, to provide IT-related work, remotely or on-site.Cloud computingContracting 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 servicesThis 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. Q4) What is BPO?A4) 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 BPOWhile 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. Q5) How does BPO Work?A5)It allows the company to significantly reduce costs. The company does not have to maintain an additional structure, expand the staff, and 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. Q6) What are the Benefits of BPO?A6) 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. 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 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 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 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 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 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 Q7) Write the Strategy for Business Process Outsourcing.A7) Strategy for Business Process Outsourcing: Hire the best talentEmployers 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 onesRetaining 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 analyticsBusiness 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 computingCloud 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 mediaBPO 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 PsychologistsThis 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. Q8) Write the brief difference between ITO Vs BPO.A8) 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. Q9) What is the meaning of KPO? A9) 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. Q10) What is the Opportunity and Scope and KPO challenges? A10) 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.
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