Introduction To BPO PDF

Introduction to BPO
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JNU, Jaipur
First Edition 2013
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Index
I. Content..................................................................... II
II. List of Figures........................................................VI
III. List of Tables...................................................... VII
IV. Abbreviations.................................................... VIII
V. Case Study............................................................ 112
VI. Bibliography....................................................... 126
VII. Self Assessment Answers................................. 129
Book at a Glance
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Contents
Chapter I........................................................................................................................................................ 1
Overview of BPO Industry........................................................................................................................... 1
Aim................................................................................................................................................................. 1
Objectives....................................................................................................................................................... 1
Learning outcome........................................................................................................................................... 1
1.1 Introduction............................................................................................................................................... 2
1.2 BPO Explained, Importance and Types of Services................................................................................. 2
1.3 Types of Services Rendered by BPOs....................................................................................................... 2
1.4 Job Profile in BPOs................................................................................................................................... 3
1.5 Other Roles in BPOs................................................................................................................................. 3
1.6 Key Skills Required for BPOs.................................................................................................................. 3
1.6.1 The Voice.................................................................................................................................. 3
1.6.2 The Thought Process................................................................................................................. 4
1.6.3 Future Potential in the BPO Industry........................................................................................ 4
1.7 Challenges and Threats Facing the BPO Industry.................................................................................... 4
1.8 Cost/Quality Model Resulting in Outsourcing......................................................................................... 5
1.9 Cost/Quality Model................................................................................................................................... 5
1.10 Getting Familiar with Non Voice/ TP/ Back Office................................................................................ 6
1.11 Familiarisation on High-Volume Data Requiring Processing................................................................. 6
1.12 Understanding Conversion of Paper to Images...................................................................................... 6
1.13 Concept of Split-Screen.......................................................................................................................... 7
1.14 Importance of Documentation................................................................................................................ 7
1.15 Rule Set Data Entry................................................................................................................................ 7
1.16 Latency.................................................................................................................................................... 8
1.17 Getting Familiar with Voice.................................................................................................................... 8
1.18 Introduction of Regional Accent and Grammar Modification................................................................ 8
1.18.1 Correct Vowel and Consonant Pronunciation......................................................................... 9
1.18.2 Differences between Vowels and Consonants........................................................................ 9
1.18.3 The International Phonetic Association.................................................................................. 9
1.18.4 The Vowels.............................................................................................................................. 9
1.18.5 The Vowel Sounds.................................................................................................................. 9
1.18.6 Diphthongs............................................................................................................................ 10
1.18.7 Consonant Sounds..................................................................................................................11
Summary...................................................................................................................................................... 12
References ................................................................................................................................................... 12
Recommended Reading.............................................................................................................................. 13
Self Assessment............................................................................................................................................ 14
Chapter II.................................................................................................................................................... 16
Business Process Outsourcing.................................................................................................................... 16
Aim............................................................................................................................................................... 16
Objectives..................................................................................................................................................... 16
Learning outcome......................................................................................................................................... 16
2.1 Introduction............................................................................................................................................. 17
2.2 Typical BPO Services............................................................................................................................. 18
2.3 Outsourcing and Off-shoring ................................................................................................................. 18
2.4 Sustainability of Global Demand for BPO Services . ............................................................................ 19
2.4.1 General Trends in Tradability of Services ............................................................................. 19
2.4.2 Growth of BPOs Worldwide .................................................................................................. 24
2.4.3 Main Drivers for Growth ....................................................................................................... 28
Summary...................................................................................................................................................... 30
References.................................................................................................................................................... 30
Self Assessment............................................................................................................................................ 31
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Chapter III................................................................................................................................................... 33
Developing BPO Strategies........................................................................................................................ 33
Aim............................................................................................................................................................... 33
Objectives..................................................................................................................................................... 33
3.1 Introduction............................................................................................................................................. 34
3.2 Sourcing and How it Relates to Transformation..................................................................................... 34
3.3 Business Case......................................................................................................................................... 37
3.4 Introduction to Nelson Hall’s Business Case Methodology................................................................... 40
Summary...................................................................................................................................................... 43
References.................................................................................................................................................... 43
Self Assessment............................................................................................................................................ 44
Chapter IV................................................................................................................................................... 46
Business Process Modelling and Simulation............................................................................................. 46
Aim............................................................................................................................................................... 46
Objectives..................................................................................................................................................... 46
4.1 Introduction............................................................................................................................................. 47
4.2 Evaluation Criteria of BPM Tools.......................................................................................................... 47
4.3 Tools for Business Process Simulation................................................................................................... 48
4.3.1 Business Process Modelling Tools.......................................................................................... 48
4.3.2 Business Process Management Tools..................................................................................... 49
4.3.3 General Purpose Simulation Tools.......................................................................................... 50
4.4 Evaluation Criteria for BPS Tools.......................................................................................................... 51
4.4.1 Modelling Capabilities............................................................................................................ 51
4.4.2 Emulation Capabilities............................................................................................................ 52
4.4.3 Output Analysis Capabilities.................................................................................................. 52
4.5 Comparison of BPS Tools....................................................................................................................... 53
4.5.1 Modelling Capabilities............................................................................................................ 53
4.5.2 Simulation Capabilities........................................................................................................... 54
4.5.3 Output Analysis Capabilities.................................................................................................. 55
Summary...................................................................................................................................................... 57
References.................................................................................................................................................... 57
Self Assessment............................................................................................................................................ 58
Chapter V..................................................................................................................................................... 60
Outsourcing................................................................................................................................................. 60
Aim............................................................................................................................................................... 60
Objectives..................................................................................................................................................... 60
5.1 Outsourcing............................................................................................................................................. 61
5.2 The 5 W’s of Outsourcing....................................................................................................................... 61
5.2.1 Who Should Outsource?......................................................................................................... 61
5.2.2 Why Should a Company Outsource?...................................................................................... 62
5.2.3 What Should a Company Outsource?..................................................................................... 63
5.2.4 When Should a Company Outsource?.................................................................................... 63
5.2.5 Where Should a Company Outsource?................................................................................... 63
5.3 Benefits of Outsourcing.......................................................................................................................... 63
5.4 Disadvantages of Outsourcing................................................................................................................ 64
5.5 Types of Outsourcing.............................................................................................................................. 64
5.5.1 Nearshoring............................................................................................................................. 64
5.5.2 Offshoring............................................................................................................................... 64
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5.5.3 Onshoring................................................................................................................................ 64
5.5.4 Information Technology Outsourcing..................................................................................... 65
5.5.5 Knowledge Process Outsourcing............................................................................................ 65
5.5.6 Business Process Outsourcing................................................................................................ 65
5.6 Sales Outsourcing:How is it Done?........................................................................................................ 66
5.7 Benefits of Sales Outsourcing................................................................................................................. 66
5.8 Marketing Outsourcing........................................................................................................................... 66
5.9 Marketing Outsourcing as a Business Model......................................................................................... 67
5.10 Different Types of Marketing Outsourcing........................................................................................... 67
5.11 Ten Precautions while Outsourcing...................................................................................................... 68
Summary...................................................................................................................................................... 69
References.................................................................................................................................................... 69
Self Assessment............................................................................................................................................ 70
Chapter VI................................................................................................................................................... 72
Challenges in the BPO Industry................................................................................................................ 72
Aim............................................................................................................................................................... 72
Objectives..................................................................................................................................................... 72
6.1 Challenges in the BPO industry.............................................................................................................. 73
6.2 Attrition................................................................................................................................................... 75
6.2.1 About the Industry.................................................................................................................. 76
6.2.2 Causes..................................................................................................................................... 76
6.2.3 Analysing Causes of Attrition using a Multilevel Approach.................................................. 77
6.2.4 Recommendations................................................................................................................... 78
6.2.5 The Win-Win Model............................................................................................................... 79
Summary...................................................................................................................................................... 81
References.................................................................................................................................................... 81
Self Assessment............................................................................................................................................ 82
Chapter VII................................................................................................................................................. 84
Scope and Need of BPO.............................................................................................................................. 84
Aim............................................................................................................................................................... 84
Objectives..................................................................................................................................................... 84
7.1 Need of the BPO Industry....................................................................................................................... 85
7.1.1 Customer Relations................................................................................................................. 85
7.1.2 Getting your Money’s Worth.................................................................................................. 85
7.2 Scope of BPO.......................................................................................................................................... 85
7.3 Current Scenario..................................................................................................................................... 87
7.3.1 Why People Join BPOs?......................................................................................................... 87
7.3.2 Why People Leave BPOs?...................................................................................................... 87
7.4 Future Scenario....................................................................................................................................... 87
7.5 Indian ITES-BPO Industry: Nasscom Analysis...................................................................................... 88
7.5.1 The Indian ITES-BPO Scenario:............................................................................................ 88
7.5.2 Key Highlights of Indian ITES-BPO Sector Performance..................................................... 89
7.5.3 Key Highlights of Domestic BPO Industry............................................................................ 89
7.5.4 Contrary to Concerns of India................................................................................................ 89
7.6 Key Growth Drivers of Indian ITES-BPO Exports................................................................................ 90
7.7 BPO: Three Rules to Live By................................................................................................................. 91
7.8 Future of BPO Industry........................................................................................................................... 92
7.8.1 Future of BPO in India............................................................................................................ 92
7.8.2 Future of BPO in China.......................................................................................................... 92
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7.8.3 Future of BPO in Russia......................................................................................................... 92
7.8.4 Future of BPO in Philippines.................................................................................................. 92
7.9 Area of Concern in BPO......................................................................................................................... 93
Summary...................................................................................................................................................... 94
References.................................................................................................................................................... 94
Self Assessment............................................................................................................................................ 95
Chapter VIII................................................................................................................................................ 97
BPO and KPO............................................................................................................................................. 97
Aim............................................................................................................................................................... 97
Objectives..................................................................................................................................................... 97
8.1 Difference between BPO and KPO......................................................................................................... 98
8.2 KPO........................................................................................................................................................ 98
8.3 KPO: A Step Ahead of BPO................................................................................................................... 99
8.4 Demand Side Perspective of KPO: Well Beyond Cost Arbitrage......................................................... 100
8.5 Supply Side Perspective of KPO: People, Quality, Differentiation and Marketing............................. 100
8.6 Why KPO?............................................................................................................................................ 101
8.7 Benefits of KPO.................................................................................................................................... 102
8.8 What KPO can Deliver to You?............................................................................................................ 102
8.9 Scope and Research of KPO................................................................................................................. 103
8.10 Bottlenecks in Future Growth............................................................................................................. 104
8.11 Why India to be preferred to other Countries?.................................................................................... 105
8.12 Why is India the preferred KPO Destination?.................................................................................... 107
Summary.................................................................................................................................................... 108
References.................................................................................................................................................. 108
Recommended Reading............................................................................................................................ 109
Self Assessment...........................................................................................................................................110
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List of Figures
Fig. 2.1 Gartner’s BPO model...................................................................................................................... 17
Fig. 2.2 Limiting BPO definition: IT-enabled services................................................................................. 18
Fig. 2.3 Off-shoring and outsourcing............................................................................................................ 19
Fig. 2.4 Share of services in global trade...................................................................................................... 20
Fig. 2.5 Share of services in global economy (in % share)........................................................................... 21
Fig. 2.6 Shift in services trade structure (in % share)................................................................................... 22
Fig. 2.7 Structure of other commercial services exports.............................................................................. 23
Fig. 2.8 Shift in structure of inward FDI stock (in % share)........................................................................ 24
Fig. 2.9 Locating BPOs: A graphical illustration.......................................................................................... 25
Fig. 2.10 Global BPO market by 2010......................................................................................................... 27
Fig. 2.11 Global commercial services importers.......................................................................................... 28
Fig. 3.1 Relationship between the dimensions.............................................................................................. 34
Fig. 3.2 Sourcing strategy (and how it relates to specific sourcing propositions)........................................ 35
Fig. 3.3 Relationship between sourcing strategy and specific sourcing propositions.................................. 36
Fig. 3.4 Fundamental equation of outsourcing............................................................................................. 38
Fig. 3.5 The evolution of the business case using a generic route map ....................................................... 40
Fig. 3.6 The anatomy of a business case methodology................................................................................. 40
Fig. 3.7 Main component of business case methodology............................................................................. 41
Fig. 6.1 Employees....................................................................................................................................... 80
Fig. 7.1 Employees ITES-BPO..................................................................................................................... 88
Fig. 7.2 Exports ITES-BPO (USD million).................................................................................................. 89
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List of Tables
Table 2.1 Modes of supplying services for cross-border transactions.......................................................... 21
Table 2.2 Shift in distribution of inward FDI stock in services (in % share)............................................... 24
Table 2.3 WTO illustration on capturing e-commerce data.......................................................................... 25
Table 2.4 Estimated markets for BPOs......................................................................................................... 26
Table 4.1 Modelling capabilities................................................................................................................... 54
Table 4.2 Simulation capabilities.................................................................................................................. 55
Table 4.3 Output analysis capabilities.......................................................................................................... 56
Table 7.1 Export figures of ITES-BPO......................................................................................................... 87
Table 7.2 Destination of BPOs in India........................................................................................................ 88
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Abbreviations
AICTE - All India Council Technical Education
APO - Analysis Proves Outsourcing
B2B - Business to Business
B2C - Business to Consumer
BOI - Board of Investments
BPM - Business Process Management
BPO - Business Process Outsourcing
BPR - Business Process Reengineering
BPS - Business Process Simulation
CAGR - Cumulative Annual Growth Rate
CCNA - Cisco Certified Network Associate
CEO - Chief Executive Officer
CFO - Chief Financial Officer
CIO - Chief Information Officer
CIS - Customer Interaction Services
CMM - Capability Maturity Model
CPN - Coloured Petri Nets
DTI - Department of Trade and Industry
EPCs - Event-driven Process Chains
ERP - Enterprise Resource Planning
F&A - Finance and Accounting
FDI - Foreign Direct Investments
GATS - General Agreement on Trade in Services
GDP - Gross Domestic Product
HRO - Human Resources Outsourcing
ICT - Information and Communications Technology
ID - Instructional Designing
IDC - International Data Corporation
INR - Indian Rupee
ISO - International Standards Organisation
ITECC - Information Technology and Electronic Commerce Council
ITES - Information Technology Enabled Services
ITO - Information Technology Outsourcing
KPO - Knowledge Process Outsourcing
LPO - Legal Process Outsourcing
MHRD - Ministry of Human Resource Development
MIS - Management Information System
MTI - Mother Tongue Influence
NAC - Nasscom Assessment of Competence
NAFTA - North American Free Trade Agreement
NASSCOM - National Association of Software and Service Companies
NSR - National Skills Registry
RA - Regional Accent
ROI - Return On Investment
RPO - Research Process Outsourcing
SLAs - Service Level Agreements
SME - Small and Medium Enterprises
UGC - University Grants Commission
UK - United Kingdom
UNCTAD - United Nations Conference on Trade and Development
US - United States
USD - US Dollar
WFM - Work-flow Management
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Chapter I
Overview of BPO Industry
Aim
The aim of this chapter is to:
• introduce business process outsourcing
• elucidate challenges and threats faced by the BPO industry
• explain importance and types of services provided by BPO
Objectives
The objectives of this chapter are to:
• define latency
• explicate concept of split screen
• enlist job profile and roles in BPO
Learning outcome
At the end of this chapter, you will be able to:
• understand future potential in the BPO industry
• identify importance of documentation
• recognise regional accent and grammar modification
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Introduction to BPO
1.1 Introduction
BPO stands for Business Process Outsourcing. It means outsourcing of business processes from developed countries
to the developing or third-world countries to get faster results and bigger profit margins. The BPO buzz started in India
in the mid nineties. Very few people explored this field in the beginning and ever since it has undergone a sea change.
The scenario today is markedly different from what it was a few years back. People were unsure about the future
of the industry. Even those who opted to be a part of the industry took their job as a gap option than a progressive
career option. However, today the same industry has established itself as one of the pillars of the Indian economy.
It has actually given a kick-start to our economy. More and more aspirants are not only joining the industry but also
consider it a preferred option today. Many qualified doctors, lawyers, engineers, teachers and business professionals
are steadily joining BPOs and KPOs due to flexi work-hours and options to be able to work from home.
1.2 BPO Explained, Importance and Types of Services

Outsourcing is usually defined as “an organisation entering into a contract with another organisation to operate and
manage one or more of its business processes.” BPO in a broader sense means employing an external agency or a
third-party vendor to get a job done to attain maximum accuracy at a comparatively lesser cost.
These business transactions could range from customer service, sales, collections and data processing to high-end
technical support, maintaining HR payrolls, predicting market trends and so on. There are different types of services
rendered by BPOs. These can be either voice-based or data -based (non voice). Companies that outsource their
services usually look for contact-centres with the best of services and infrastructure. The second decisive factor is
availability of skilled manpower at competitive rates. When these two conditions are met the host company and the
outsourced centre sign a contract and the project moves to the next stage. These days the concept of KPOs (Knowledge
Process Outsourcing) and LPOs (Legal Process Outsourcing) is also maturing. The telephone, e-mail and internet
chat are the communication means for the trained professionals in these centres who assist their customers sitting
overseas. KPOs and LPOs are subsets of BPOs.
1.3 Types of Services Rendered by BPOs

BPO offers various types of services, some of them are explained below:
• Customer support services: These services are voice, e-mail or chat based. The related call-centres operate 24/7
throughout the year. Typical examples include resolving customer queries related to customer’s bank-account
status, order status, product information, etc.
• Technical support services: These services are also depending on voice, e-mail or internet-chat. The technicians
at the outsourced centre work round-the clock to resolve customer queries pertaining to computer hardware,
software, peripherals and the internet. The queries handled include installation, product support, trouble shooting
and usage support. For example, if a customer is unable to connect to the internet it is the online technician
who troubleshoots the issue.
• IT helpdesk support: The IT professionals assist the internal customers (corporate employees) troubleshoot
issues related to password reset and other vital functions, Avaya phone non-functionality, or issues with MS
Outlook/Outlook express.
• Data-entry services: It includes entering data at a fast pace taking care to maintain a high degree of accuracy.
Examples for this service include maintaining data related to sales, purchase, mortgage, etc.
• Accounting services: This includes services related to maintaining general ledger, financial statements, balance-
sheets, bank reconciliation statements, assets and liabilities, etc.
• Internet/Online services: This includes online sales and purchases, e-booking and e-ticketing. This is one of the
fastest modes to reach out to a majority of the customers worldwide in the shortest span of time.
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1.4 Job Profile in BPOs
It is presumed by some that working in a BPO is like doing an odd-job to meet your education and other incidental
expenses. However, BPOs can provide some serious career options and give a competitive edge to your career. A
typical call centre is either voice or non voice based. A voice-based call centre usually requires direct interaction
with some clients or customers via phone. A non voice based call centre doesn’t require a direct interaction via phone
but you may still be interacting with the client through internet-chat and e-mail. In terms of hierarchy, almost all
BPOs look alike with a few essential differences that give each a distinct profile. The structure more or less looks
like this:
• Customer-service representatives: This is also known as level 1 or entry level workforce. Customer service
representatives are primarily the front-line and the most important workers in a BPO. This is because they are
the face of the company to international and other clients. They have the most critical and vital job profile.
• Technical support: This is usually specialised support. However, in most of the cases it is generic and doesn’t
require a specialised degree or diploma.
• Hardware support: You can be a graduate in any discipline with a diploma in computer-skills and with a basic
know-how of computer-applications. If you are technically inclined the companies train you on their hardware
before getting you on-board.
• Software support: Specialised technical support where you are expected to be a degree holder in computer
application or a technical graduate with knowledge of software applications like C, C++, Java or any other
language that is being used.
• Network support: It is another specialised field. People supporting servers are referred to as network engineers.
CCNA is a good course to begin with a career in networking field.
1.5 Other Roles in BPOs

Some of the other roles which BPO plays are listed below:
• Business analyst: Professionals working in this field are necessarily post graduate degree holders in finance,
statistics, economics or mathematics. It includes market predictions and business or financial analysis of
companies. This profile is usually related to KPOs (Knowledge Process Outsourcing).
• Medical transcription: Professionals working in this field are known as Medical Transcriptionists. One usually
needs to be a science graduate to be a MT. Though there is no client interaction one needs to interpret and
transcribe medical-related data that requires good listening skills, English writing and good typing skills.
• Technical writing/ instructional designing: Here we are talking of the art of designing instructions for learners
to make the learning process effective. Many institutes have mushroomed with courses in ID (Instructional
Designing). It is also referred to as content development.
• Language specialists: Foreign languages like Chinese, Spanish, French and German, etc., are also in great
demand. These languages help one find a suitable placement with the leading BPOs.
1.6 Key Skills Required for BPOs

To crack a BPO selection interview one needs to add a reasonable presence of mind to a focused thought-process
as well as good communication skills.
1.6.1 The Voice

Voice plays a key role in getting a placement with a voice-based call centre. The areas covered under voice are
grammar, pronunciation and rate of speech. It is necessary to speak grammatically correct sentences and the key to
this is to speak really short and simple sentences. Open your mouth wide and pronounce each word carefully. You
may sound loud at times but the whole idea is to be able to speak normally without any affectations. You may also
need to learn the skills of referring online dictionaries, e.g., www.m-w.com. Be careful about your rate of speech.
You should neither be too fast nor too slow. You should speak at a fairly comprehensible pace for instance, at 100-
120 words per minute.
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Introduction to BPO
1.6.2 The Thought Process

Logical thinking is an asset if you aim to crack a BPO interview. The subsets here are listening, organised thinking,
fluency and knowledge. The ears listen to the information and the brain processes it to formulate an impression.
Listen carefully to help your brain develop. Do not interrupt the speaker. Do not jump to conclusions. Do not carry
preconceived notions about anything or anyone. Think before you speak. Practice organised thinking. Brainstorm
one question at a time. First try to put simple ideas and then move on to complex ones. Try to maintain lucid speech
by using short and simple sentences. Avoid foghorns and fillers like ‘hmm’ ‘uuh’ I mean’ ‘it’s like’, etc. Also keep
yourself abreast with the latest developments and updates in your area of operation. Try to follow at least one news
channel as awareness alone gives you the flexibility and confidence to speak on connected topics and you don’t fall
short of words during the interview or discussion.
1.6.3 Future Potential in the BPO Industry

The BPO industry in India is growing at a fast pace. Off-shoring of more and more business processes is gaining
momentum in the global arena. According to the NASSCOM and McKinsey report, India has been the leading off-
shore destination during the last decade. It accounts for 65% of the global industry in off-shore IT that accounts for
46% of the BPOs here. Other sources indicate that the global market for offshoring exceeds US $300 billion. India
can still continue to grow at an annual rate of more than 25% and generate export revenues worth US $60 billion
by 2010. Most of the business comes from traditional industries like retail banking and cross industry functions
like human resources, finance and accounting. The following factors have helped India emerge as a global hub for
off-shoring:
• Talent pool
• Good infrastructure
• Operational excellence in terms of quality and leadership
• Conducive business environment including policy interventions like telecom reforms
• Declaration of IT and ITES as essential services to keep them out of political turbulence
• Continued growth in the domestic IT sector
Given continuous support from state and central governments, IT and ITES industries will continue to grow and
generate more and more employment opportunities to our educated youth.
1.7 Challenges and Threats Facing the BPO Industry

We have witnessed many security breaches in the recent past in data security and data fraud. Be it the HSBC call-centre
fraud issue or the Citibank credit card money siphon issue, they have raised a question mark about the credibility
and sustainability of the BPO industry in India. A result of this has been a gradual reluctance of European and South
American countries to outsource their jobs to India. As compared to the number of such cases in the West, their
incidence in India is negligible. However, the global media considers India a soft-target and, therefore, these cases
have got more coverage than necessary. The following are some more challenges that the industry faces today:
• Shortage of skilled workers: Despite the fact that English is treated with respect and is also the medium of
instruction in many of the public schools, yet only 25% of the technical graduates and 10-15 % of college
graduates from other streams are suitable for jobs in IT and BPO industry. Undeniably, English takes a front
seat when we talk about outsourcing but other languages like Spanish, French, German and Chinese, etc., have
an equally large scope in the BPO industry.
• Stringent government laws: There are a few state governments having a policy that is either not in favour of
a flourishing BPO industry or seeks to hold back its encouraging development or growth. The attitude of the
unions and lobbying in West Bengal are examples of this.
• Demand growth will slow down: Countries like Philippines are wary of transferring business process to off-
shore locations as their customers do not approve the initiative of outsourcing processes to far-flung areas. They
perceive these initiatives as a risk to their data security. It is often difficult for the companies to monitor business
processes outsourced other locations outside their countries as both profit margins and customer-satisfaction
tends to ring alarms. Thus, with the ‘demand’ slowing, the ‘market’ is inclined to shrink for India.
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• Competition: India faces competition from many countries in terms of cost. Other English-speaking countries
have now become serious competitors by enabling these services at lower costs. They may, however, be
compromising on the quality and standards that are vital. Similarly, China is marketing it’s excellence in terms
of infrastructure. Other countries who have joined this race are Vietnam, Mauritius and France.
• Language and accent: Internally, most of the IT and ITES Companies are concentrated down south for example,
Bangalore, Chennai, Hyderabad and Vizag and so on in India. However, experts find it is easier to mould or
neutralize the accent of aspirants in northern India. That is a major reason why DELL decided to set up it’s
facility in Chandigarh. Despite the fact that companies have invested a lot in southern India, they have failed
to tap the talent pool available down south due to a comparatively inflexible accent.
• Cost-cutting and attrition: Companies resort to cost-cutting to offer competitive prices to their clients. As a
result, salary slabs also tend to decrease and may lead to employee dissatisfaction and a mind-set that is in a
perpetual flux. These factors lead to employee dissatisfaction and hence attrition.
• Cultural differences: There is a marked difference between the culture that we experience in India as compared
to the one that exists in the US and the UK. Most of us find it tricky to relate to the way they interact with the
customers for example, we may not understand their expression of sarcasm which generally leads to customer-
dissatisfaction. The other important factor is the real-time difference which means that BPO assignments involve
working in odd-shifts. Such entry and exit times that involve travelling through deserted streets in the dead of
night, do not find many eager female aspirants. Thus, because of our conservative way of life many of us in
India remain restless to find our wards, especially girls, opting for jobs with call-centres. Though this perception
is evolving, it remains a major challenge for the BPO-industry.
1.8 Cost/Quality Model Resulting in Outsourcing

Outsourcing refers to the migration of non-core operations from internal production to an external entity specialising
in the management of that operation. The trend towards outsourcing is a manifestation of several developments
which have radically altered the business landscape:
• Technology: The advent of information technology and its various applications have dramatically lowered the
cost of communication. There was a time just a few years back when phone calls to the US cost nearly Rs. 100
a minute. Today, with technologies like VOIP, the calls may be made for less than Rs. 2 a minute, which has
made it financially possible to carry out business activities from not just India but any part of the globe.
• Emergence of a ‘Service Driven Economy’: Today, customer is the King. The success of any business depends
on unparallel customer experience. This has led to the emergence of a trend for companies to offer personalised
customer service. In turn this has led to a spurt in demand for businesses like call-centres and transaction
processing.
• Cost-cutting: Organisations world-wide are grappling with cost-cutting pressures which has led them to look
at low-cost countries like India and China to carry out some of their business activities.
1.9 Cost/Quality Model

The decision to outsource is often made to lower costs, redirect or conserve energy directed at the competencies
of a particular business, or to make more efficient use of labour, capital, technology and resources. The concept of
‘outsourcing’ has its genesis in the theory of ‘competitive advantage’ in basic economics. According to the principle
of competitive advantage, it is beneficial for two countries to trade if one has a lower relative cost of producing
some good or services. In other words, according to this theory a country should specialise in products and services
in which they have a comparative advantage. It is preferable for a country to trade where there is a comparative
advantage. In the process both countries benefit from such a trading practice. India is one of the youngest nations in
the world with a big pool of talented and English speaking workers. It is estimated that by 2010, India will have the
highest number of English speakers in the world. The availability of skilled English speaking manpower encourages
and enables organisations to carry out various business activities in India.
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Introduction to BPO
1.10 Getting Familiar with Non Voice/ TP/ Back Office

The BPO industry operates in two domains. The first is the voice-based process and the other is non-voice based or
data process. In a voice based process the front line agents or technicians interact with the customers directly over
the phone. Compared to this, the interaction in a non-voice process is based entirely on e-mail or chat. An additional
form of a non-voice process is a data process. Data-process often involves maintenance of customers’ data, records
and/ or other confidential information. It also involves data conversion. In simple terms data-processing is converting
data into information. Hence it is also referred to as information services. Unlike traditional data-entry jobs that
were more clerical in nature and involved less of attention, out-sourcing data-processing or back office support jobs
enables companies to concentrate more on their core competencies like sales, collections, banking, etc., while there
is a third-party vendor to manage all their data. The BPO governance model enables the BPO to take ownership
of the process and adhere to service level agreements thus decreasing cost and improving efficiency. Generally,
the outsourced processes are featured by low complexity, high interdependence and low strategic importance.
However, the trend is changing day by day and more and more complex processes are being outsourced to different
call centres.
1.11 Familiarisation on High-Volume Data Requiring Processing

Outsourcing data-processes has become an increasingly popular way to reduce cost and concentrate on the core
competencies. However, most of the companies manage these needs in-house though they can execute them better
and economise if they outsource these jobs. In the past, these offices, factories, companies, etc., had to maintain a lot
of flies as most of the data were stored in black and white or hard-copies. It needed more space to store and protect
those files. Creating back-ups was also difficult as photocopies of the documents or records were as fragile as the
originals and they required as much more space as the originals. Thus there was a need to implement a method to
enable handling a lot of data with lesser data-loss risks. The emergence of computers as a tool to save these enormous
amounts of data happened as a timely boon!
1.12 Understanding Conversion of Paper to Images

In simple terms, conversion of paper files into computer files is referred to as paper to images. There are various levels
of such a conversion. According to Advanced Computer Innovations, Inc, there are four levels of this conversion
sequence.
Level 1 (Viewable)-Convert as images only

If you need to transfer paper documents to computer files for archival storage and occasional viewing, simply scanning
them as images is usually sufficient. This is the least expensive option, but the converted flies are not searchable for
text and can neither be updated nor edited.
Level 2 (Searchable)-Convert as images and add text content for searches

This is a suitable option for transferring paper documents to computer files for archival storage and viewing and
also to enable a search for any text content. The paper documents are saved as image files, which is what you see
when you view them. However, an unformatted text layer is added to each image. This layer is not viewable, so it
need not be formatted. However, it contains searchable text that can be used to index, categorise and search your
converted files.
Level 3 (Web Publishing)-Convert to web pages for internet publishing

This option is for converting paper-based information to computer files for publishing on the internet or the web. The
paper documents are first scanned to images. Then, using OCR and layout extraction software, the text and layout of
the scanned images is interpreted to produce HTML files for web publishing. This involves several considerations,
such as:
• interpreting and dealing with layout elements
• handling multiple columns, text-boxes and insets
• analysing and converting tabular material
• special processing of images and graphics
• recognising lists and auto-numbering
• judicious hyper-linking
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The converted HTML files may then be additionally organised or encapsulated into an integrated e-book, e-learning
application or other web-based resource depending on your requirement and the nature of the information.
Level 4 (Revisable)-Convert to fully formatted, revisable and functional documents

This, by itself, is a complete option. Your paper documents are scanned into images and converted to text, but with
the following additional considerations:
• convert to editable text with formatting and layout
• accurate conversion of multi-column layout
• proper conversion of text-boxes and insets
• correct layout and matching of tables and tabular material
• font matching for your target requirements
• proper formatting of lists and numbered paragraphs, with true auto-numbering
• correct interpretation and placement of headers and footers
• true insertion of footnotes,endnotes and references
• individualised attention to images and graphics
• correct entry of equations, formulas and scientific/technical material
In addition to the special considerations and requirements, a professional completion may also need functioning
table of contents, index and cross-references. For example, paper documents containing technical drawings may
require those drawings to be produced for a particular software platform to provide the highest level of usability
and functionality.
1.13 Concept of Split-Screen

Gone are the days when people struggled to multitask using their PCs. In developing countries like India, computer
literacy still remains a challenge due to economic constraints. Often the number of people who want to use computers
is more than the number of computers available. This is also one of the major challenges for our schools. A multi-
point enables children to use a computer simultaneously with each child having his/ her own computer mouse and
an on-screen cursor. Split-screen technology enables a second user to plug in a second mouse and keyboard and spilt
the screen into two sections. Thus both users can operate from a single computer simultaneously and independently.
This may not be relevant for generic applications but works well for data-entry, look-up and simple data-processing
given that it splits the user’s hardware cost into half.
1.14 Importance of Documentation

Documentation means maintaining records. All that is done needs to be documented for future reference for use
as well as revisions. This future reference material can be used by you as well as others who may want to continue
the same task for addition or revision. Documentation also assists mandatory legal obligations. For example, when
we go to a bank branch or call the branch, they ask for details such as our name, date of birth, address, last few
transactions, etc., for verification to ensure the safety and security of our accounts. This verification is based solely
on the documentation of previous interactions that the branch has had with us. Thus this stored information is not
only reliable but can also be used repeatedly. Documentation is no-doubt expense intensive but is a better alternative
than starting something from the beginning. It is often useful in medical and legal documentation and supports well
as a lifeline to the cases concerned.
1.15 Rule Set Data Entry

There are various rules set for the uniformity of data all over the world. Following are a few rules that must be
followed while documenting data.
• Maintain an updated index as the idea of the index is to list all the words that will give the desired result on
initiating a search
• Spelling must be correct
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Introduction to BPO
• Data must be accurate as accuracy leads to best results

• Use upper case for the first letter of a paragraph and sentence. What follows in the sentence has to be in lower
case
• Refrain from punctuation unless specified to use
• Refrain from using signs like /#/, /*/, /,/
• Be careful with name rules i.e., use the full legal name and club two part names together for example, Gagan
Jeet Verma as Gaganjeet Verma
• Use suitable prefix for example, Mr. for male and Ms. for female; periods are acceptable after the use of a
title or prefix for example, Captain. , Mr. Use suffix if it’s a part of the legal name for example, Jr. (junior), Sr.
(senior)
• In order to write the address, omit punctuation like (.), (,), (#), (/), (-). However, when you write the address
CIO (care of) is permitted.
• Use standard postal abbreviation like St for street, Ave for avenue, Ln for lane, St for saint, Ft for fort and Pt
for Port.
• Use abbreviation for directions for example, N for North, S for South, E for East and W for West. NE for
Northeast and SW for Southwest.
• Phone numbers: International phone numbers consist of three parts. Enter the international phone number in
the international country code field. DO NOT enter the dialling prefix of 011. Country code consists of one to
four digits. City code consists of one to three digits. City code is often presented with zero in front of it. DO
NOT enter the zero.
• E-mail address: Type addresses using lower/upper case as you see them. Make sure that you don’t leave empty
spaces.
1.16 Latency
For the transfer of non-voice data, we rely on the internet connection often through emails or by updating web-pages.
If you want to transfer a large file over your modem it might take several seconds, or even minutes. However, if
you break the same files or folders into smaller ones, it may take lesser time. Irrespective of the size of the data,
network devices go by a minimum time that cannot be shortened further. This is called the latency of the device.
For a typical Ethernet connection the latency is usually about 0.3ms (milliseconds). This factor limits the speed of
operations in non-voice processes; therefore, it is worth paying attention to ensure maximum output.
1.17 Getting Familiar with Voice

The English alphabet has 26 letters. Five out of these 26 letters are vowels and the rest are consonants. The scenario
changes when we use these consonant and vowel sounds. For instance, the words ‘cement and sand’ start with
different letters but give us the same initial sound /s/. However, the words ‘cement and cat’ though starting with the
same letter ‘C’ give us two different sounds /s/ and /k/ respectively. Thus the sounds exceed the number of letters
in English.
People from all countries are now working and living in a globalised environment where communication from and
to almost anywhere in the world may occur practically instantaneously. The advent of IT and IT enabled services
have further heightened the requirement of a global language and it’s usage to communicate better. Therefore, it
is of paramount importance to learn and use language the way it is and let it be devoid of grammatical as well as
phonetic errors as far as possible. We will focus on some of the essential components of voice here.
1.18 Introduction of Regional Accent and Grammar Modification

Our first language often influences our second language i.e., English. Unconsciously we start using the sounds
from our regional language when we speak in English. This is referred to as regional accent (RA) or mother tongue
influence (MTI). Our family, society and school play an important role in developing the kind of accent we possess,
for example, people down south find it difficult to pronounce the letter “H”, They pronounce it as ‘hech’ instead of
‘eich’. They tend to pronounce ‘honest’ instead of ‘awnest’ as ‘h’ remains silent in the word.
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In the usage of /s/ and /sh/ sounds in UP and Bihar belt for example, the word ‘Sugar’ is pronounced with a /s/ instead
of /sh/. This poses a major communication barrier while interacting with global customers. Thus there is a need to
know the sounds correctly, practice them and use them effectively. This helps in communicating better and people
across the world comprehend you without straining their ears or misinterpreting the message.
1.18.1 Correct Vowel and Consonant Pronunciation

In order to understand vowel and consonant sounds, you must know the concept of phonetics. Phonetics is the
scientific and systematic study of speech sounds. Languages are phonetic or non-phonetic.
• Phonetic: Where there is a one-to-one correspondence between spelling and pronunciation i.e., you read whatever
is written without any disconnects. Examples are found in Hindi, Portuguese and Russian.
• Non-phonetic: No correspondence between spelling and pronunciation. For instance the words ‘honest’ and
‘psychology’ in English. Other examples can be found in French and German.
Phonetically speaking, we are not looking at the number of letters, but the number of sounds needed to vocalise
what we call Standard English. This again varies from the number required for British English or Indian English.
American English requires 41 sounds.
Standard sounds: 41 Consonants- 24

Vowels- 17
1.18.2 Differences between Vowels and Consonants

Vowels are known as free sounds as while voicing them there is no obstruction in. All vowels are voiced when the
vocal chords vibrate as they produce these sounds. Consonants are produced when the air stream mechanism is
obstructed; sometimes the vocal chords vibrate, producing a voiced consonant and sometimes the vocal chords do
not vibrate, resulting in a voiceless consonant sound.
1.18.3 The International Phonetic Association

The IPA is the association that has designated a certain number of symbols called the IPA symbols, which are used
to represent the various sounds. These are standard symbols to ensure uniformity in their usage across the world.
These symbols find place in any standard dictionary for pronunciation.
1.18.4 The Vowels

There are 17 vowel sounds in English. The vowel sounds are those that are produced with no obstruction to the
passage of air. The air escapes unimpeded through the mouth. The tongue and lips change positions to produce each
vowel sound, but they do not come into contact with one another. These different positions of the tongue and the
mouth differ very slightly and the difference can sometimes be hard to detect. Vowel sounds are the most important
and they go on to determine the dialectical differences in English. The rule to pronouncing vowel sounds correctly
is to open your mouth as far as possible.
1.18.5 The Vowel Sounds

The Vowel sounds are:
• //-This is the smallest vowel sound also called the ‘schwa’. This is as small as someone punching your belly
and your instantaneous verbal reaction to that ‘uh’. It could occur in the beginning, middle or end of a word.
Examples: about, around, milkman, token, the
• /^/- This sound occurs in the medial position in words. Examples: brother, hut, mud, supper
• /æ/- This sound is an elongated vowel sound. The ‘a’ is stretched to say ‘ae’. It occurs in the initial and in the
medial position in words. Examples: apple, attitude, bat, hammer
• /a:/- The /a/ is a long vowel that occurs usually in the initial and medial position in words. Examples: Fast,
father, arm
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Introduction to BPO
• /I/- This is a short vowel sound which occurs in the initial and medial positions in words. Examples: interest,
impede, bitten, hit, pity
• /i:/- the long /i:/ sound occurs in the initial and medial position. Examples: eat, ego, Egypt, bee, sea
• /u/ -This vowel sound occurs in the medial position in words. Examples: put, wood, could, good
• /u:/- This vowel is the longer version of the vowel /u/. It usually occurs in the medial and final position in words.
Example: fool, moon, few, ado, feudal
• /Ɔ:/- This vowel sound occurs in the initial and in the final position in words. Examples: organ, ornament, pour,
door, gore
• /e/- It occurs in the medial and final positions in a word. Example: get, metal, speculate, hesitate and bend
• /ɚ/- This is an ‘r shaded vowel that usually occurs in the final position. Examples: bother, gather, maker,
wither
• /3:r/- A longer version of the I<J1.1 is the l3:rl sound. It usually occurs in the initial and medial position in
words. Examples: urge, urgency, turn, fern and bird
1.18.6 Diphthongs
Diphthongs or vowel-glides are a combination of two vowel sounds. Two vowels glide into one another that they
almost seem like one unit of sound. This is a concept seldom practiced by the Indian English-speaking population.
Diphthongs are stretched out when they are articulated and the Indian tendency is to substitute these with pure
vowels. American English has 5 diphthongs:
• /eI/- A combination of the /e/ and the /I/ sounds it occurs in words like gate, make, wait, vain, able
• /aI/- This diphthong is a combination of the /a:/ and /I/ sounds and it occurs in words like fine, kind, bright,
guide, die
• /ƆI/- A more commonly used sound it occurs in words like boy, oil, ploy, voice, point
• /au/- A combination of /a:/ and the /u/ sound it occurs in words like cow, plough, fowl , down, couch
• /ou/ - A typically American sound, it occurs in words like go, toad, ghost, post and moan
Alphabet Phoneme Examples
a // about, around, astound, bottle
a /^/ cut, butter, abundance, supper
a /æ/ apple , fascinate , hammer, attitude
a /a:/ father, Last, farmer
a /ɚ/ killer, sister, farmer, wither
a /3:r/ urgency, curd, fern, bird
e /e/ get, metal, speculate, hesitate
i /I/ interest, impede, input, hit,
i /i:/ feel, eat, ego , sea
o /Ɔ:/ oregon, Orange, or, mandatory
u /u/ put, wood, should, full
u /u:/ Fool, school, few, ado
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1.18.7 Consonant Sounds
The basis for any speech-sound is air and its free passage or obstruction in the mouth by different parts of the mouth
like the teeth, tongue, lips, upper palate and the soft palate, etc. We exhale air from our mouth while we speak
English. The air that rushes out of the lungs and emerges from the mouth undergoes various modifications before
it assumes the form of a speech-sound. There are three systems or stages through which the air passes before it
emerges as a speech sound.
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Introduction to BPO
Summary
• BPO stands for Business Process Outsourcing. It means outsourcing of business processes from developed
countries to the developing or third-world countries to get faster results and bigger profit margins.
• Outsourcing is usually defined as “an organisation entering into a contract with another organisation to operate
and manage one or more of its business processes.”
• The telephone, e-mail and internet chat are the communication means for the trained professionals in these
centres who assist their customers sitting overseas.
• Technical support services depend on voice, e-mail or internet-chat.
• A voice-based call centre usually requires direct interaction with some clients or customers via phone.
• Customer service representatives are primarily the front-line and the most important workers in a BPO.
• Voice plays a key role in getting a placement with a voice-based call centre.
• Off-shoring of more and more business processes is gaining momentum in the global arena.
• Outsourcing refers to the migration of non-core operations from internal production to an external entity
specialising in the management of that operation.
• The concept of ‘outsourcing’ has its genesis in the theory of ‘competitive advantage’ in basic economics.
• India is one of the youngest nations in the world with a big pool of talented and English speaking workers.
• Generally, the outsourced processes are featured by low complexity, high interdependence & low strategic
importance.
• In simple terms, conversion of paper files into computer files is referred to as paper to images.
• For the transfer of non-voice data, one rely on the internet connection often through emails or by updating
web-pages.
• The advent of IT and IT enabled services have further heightened the requirement of a global language and it’s
usage to communicate better.
• Vowels are known as free sounds as while voicing them there is no obstruction in.
• Vowel sounds are the most important and they go on to determine the dialectical differences in English.
• Diphthongs or vowel-glides are a combination of two vowel sounds.
• The basis for any speech-sound is air and its free passage or obstruction in the mouth by different parts of the
mouth like the teeth, tongue, lips, upper palate and the soft palate, etc.
References
• Nakkiran, S. & Franklin, J. D., 2004. Business Process Outsourcing (BPO): Concept, Current Trends,
Management, Future Challenges, Deep and Deep Publications.
• SOPLE, V. V., 2009. Business Process Outsourcing: A Supply Chain of Expertises, PHI Learning Pvt. Ltd.
• UNIT 1Understanding the BPO Sector I Culture, [Pdf] Available at: <http://cbse.nic.in/bpo-12/Bpo-XII-Unit1.
pdf> [Accessed 15 January 2013].
• UNIT 2 Source data for input I processing I voice, [Pdf] Available at: <http://cbse.nic.in/bpo-12/Bpo-XII-Unit2.
• P re m i e r B P O ’s I n t ro d u c t i o n , [ Vi d e o o n l i n e ] Av a i l a b l e a t : < h t t p : / / w w w. y o u t u b e . c o m /
watch?v=XL8YxFcfo_8>[Accessed 15 January 2013].
• ProcessFlows - Business Process Outsourcing, [Video online] Available at: <http://www.youtube.com/
watch?v=RZ7IqyKMtVA>[Accessed 15 January 2013].
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Recommended Reading
• Mehrotra, N., Business Process Outsourcing: The Indian Experience, ICFAI Books.
• Duening, N. T. & Click, L. R., 2005. Essentials of Business Process Outsourcing, John Wiley & Sons.
• Halvey, K. J. & Melby, M. B., 2007. Business Process Outsourcing: Process, Strategies and Contracts, 2nd
ed., John Wiley & Sons.
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Introduction to BPO
Self Assessment
1. An organisation entering into a contract with another organisation to operate and manage one or more of its
business processes is known as ____________.
a. outsourcing
b. accuracy
c. organisation
d. third-party
2. Match the following

A. Handles queries such as installation, product support,
1. Customer support services
trouble shooting and usage support.
B. Assist the internal customers troubleshoot issues
2. Technical support services
related to password reset and other vital functions.
3. IT helpdesk support C. Services are voice, e-mail or chat based.
D. Include entering data at a fast pace taking care to
4. Data-entry services
maintain a high degree of accuracy.
a. 1-D, 2-B, 3-C, 4-A
b. 1-A, 2-D, 3-B, 4-C
c. 1-C, 2-A, 3-B, 4-D
d. 1-A, 2-B, 3-C, 4-D
3. ___________ includes services related to maintaining general ledger, financial statements, balance-sheets, bank
reconciliation statements, assets and liabilities.
a. Online services
b. Accounting services
c. IT helpdesk support
d. Customer support service
4. ____________ are the fastest modes to reach out to a majority of the customers worldwide in the shortest span
of time.
a. Online services
b. Accounting services
c. IT helpdesk support
d. Customer support service
5. A ___________ call centre usually requires direct interaction with some clients or customers via phone.
a. non voice based
b. inbound
c. outbound
d. voice-based
6. ______________ are primarily the front-line and the most important workers in a BPO.
a. Managers
b. Customer service representatives
c. Call centres
d. Network supports
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7. _______ plays a key role in getting a placement with a voice-based call centre.
a. Education
b. Height
c. Experience
d. Voice
8. __________ is an asset if you aim to crack a BPO interview.

a. Education
b. Process
c. Logical thinking
d. Voice
9. The advent of information technology and its various applications have dramatically lowered the cost of
____________.
a. communication
b. outsourcing
c. offshoring
d. cost-cutting
10. ______________ means maintaining records and it assists mandatory legal obligations.
a. Communication
b. Documentation
c. Data Entry
d. Latency
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Introduction to BPO
Chapter II
Business Process Outsourcing
Aim
• introduce growth of BPOs worldwide
• elucidate Gartner’s BPO model
• explore problems with data on BPOs
Objectives
• define outsourcing
• explicate trends in foreign investments in services
• explore global commercial services
Learning outcome
• understand typical BPO services
• differentiate between outsourcing and offshoring
• recognise market for outsourcing and projected growth
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2.1 Introduction
Outsourcing can be defined as “the contracting of a service provider to completely manage, deliver and operate one or
more of a client’s functions (for example, data centres, networks, desktop computing and software applications)”.
Business Process Outsourcing (BPO), as defined by the Information Communication and Technology (ICT) Division
of the Board of Investments (BOI) of the Department of Trade and Industry (DTI). The DTI is the lead agency
charged with promoting BPOs in the country. It defines BPOs as: “the delegation of service-type business processes
to a third party service provider.”
This was derived from Gartner Dataquest’ definition of BPOs as: “The delegation of one or more IT-intensive
business processes to an external provider that, in turn, owns, administrates and manages the selected process or
processes based on defined and measurable performance metrics.”
Administration
Customer
Warehouse/ R&D Selection
Finance
Inventory
HR Customer
Contract Acquisition
Direct Manufacturing Billing
Procurement
Customer
Indirect
Retention
Procurement
Analytics/
Transportation/ Quality Control Payment
Customer
Logistics Services
Extension
Supply Chain Operations Business Sales, Marketing,

management Administration Customer Care
Fig. 2.1 Gartner’s BPO model

(Source: http://dirp4.pids.gov.ph/ris/dps/pidsdps0610.pdf)
Accordingly, BPO service offerings are categorised into four services, such as:
• Supply chain management includes activities such as transportation and logistics, direct procurement and
warehouse and inventory management
• Operations include activities such as research and development and contract manufacturing, which accounts
for over 50% of the BPO market today
• Business administration includes activities such as finance and accounting, human resource, billing and payment
services, indirect procurement and administration services such as claims and policy processing
• Sales, marketing and customer care includes activities such as customer selection, acquisition, retention and
extension
Of these four, the latter two (i.e., business administration and sales, marketing and customer care) follow more
closely the DTI’s definition of BPO activities. Based on this definition, there are three key elements of BPOs:
• It is limited to service-type activities, specifically business support services and sales-related functions
• These activities should be IT-intensive
• These activities should be outsourced
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Introduction to BPO
Specifically, therefore, BPOs as defined by the DTI includes the outsourcing of IT-intensive activities, that is,
Business Administration (for example, administration, finance, HR, billing, indirect procurement and payment
services) and Sales, Marketing and Customer Care (for example, contact centres, customer selection, acquisition,
retention and extension).
Contact Centers
Administration
Customer
Finance Selection
HR Customer
Acquisition
Billing
Customer
Indirect Acquisition
Procurement
Customer
Payment
Extension
Services
Business Administration Sales, Marketing, Customer Care

Fig. 2.2 Limiting BPO definition: IT-enabled services

2.2 Typical BPO Services

BPO serves in many fields; some of the areas where BPO has contributed excellent services are listed below:
• Banking services
• Insurance services
• Sales and marketing services
• Mortgage services
• Asset management services
• Web-related services
• Finance services
• Health care
• Customer care
• Credit card services
• Human resources services
2.3 Outsourcing and Off-shoring

Outsourcing eventually took the path of “off-shoring” or locating to low-wage countries. Typically, these countries
are less developed economies with a large base of educated workforce. Low-wage skilled workers and professionals,
coupled with efficient and cost-effective telecoms infrastructure, were the main value proposition of lower-income
countries. International telecoms costs declined in a number of developing countries as they liberalised their
telecoms sectors and consciously offered incentives to attract outsourced service activities. Developments in ICT
made services more transportable and fragmented and simplified the tasks involved, thereby allowing them to be
relocated more easily.
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A variety of service products were affected by this trend from simple low value data encoding to high-value processes
such as architectural design, analysis of x-ray films and software development. Initially, lower-cost “inshore” or
domestic locations were explored; followed by “near-shore” countries (for example, Ireland, in the case of the
United States). As domestic outsourcing developed into off-shoring, the overlap has created confusion especially
with their many derivative terms (for example, in-sourcing, right sourcing, near-shoring, etc.). A large reason for the
confusion can be traced to the observation that domestic outsourcing eventually also leads to off-shore outsourcing.
On the other hand, in the search for cost savings, not all business processes that migrate to least-cost countries are
outsourced. Companies can choose to still do these service activities internally that is, assign it to an affiliate. This
is variously referred to as off-shoring, intra-firm (captive) off-shoring, captive shared service centres, etc.
Internalized or Externalized Service Production

Internalised or Externalised Service Production
Internalized
Internalised Externalized (Outsourced)
Externalised (Outsourced)
Production kept in-house A computer company
Home Country
at home contracts a call center

Location of Service Production
company to handle its

technical support. Call
center is located in
Minnesota.
Company consolidates all Emerson (a US industrial
Foreign Country
HR-related data encoding company) contracts

(Offshore)
functions of affiliates SYKES (a call center firm)

worldwide in the to handle its technical
Philippines. Example, support. Call center is
P&G & Maersk shared based in Pasig City,
service centers in Manila. Philippines.
Fig. 2.3 Off-shoring and outsourcing

What is emerging therefore is a mix of choices open to companies: to outsource or to perform the activities internally
and to either do it in their home countries or locate these activities abroad. The UNCTAD illustrates these options
clearly in Fig. 2.3. The Philippine Government is promoting the country as a destination not just for outsourced or
third-party BPOs, but also for captive shared service companies. Examples of internalised off-shoring in the country
include the shared service centres/regional headquarters of Proctor and Gamble, of Maersk, of Flour Daniels (their
design and engineering centre). On the other hand, the primary example for outsourced off-shore operations are,
in general, the call centres.
2.4 Sustainability of Global Demand for BPO Services

Sustainability of global demand for BPO services are explained with various points below:
2.4.1 General Trends in Tradability of Services
Off-shoring of BPOs is part of the emerging global trend of rapidly increasing cross-border trade in services.
Unlike in the goods sector, the services sector is only recently being globalised. This is mainly due to the very
nature of services and of service transactions: these are “economic output of intangible commodities that may be
produced, transferred and consumed at the same time.” They cover the following major industries: transport, travel,
communications, construction, financial and insurance services. Unlike goods and largely because of their intangible
nature, it is hard to disassociate the production and consumption of services. Thus, most service transactions require
the physical proximity of both the provider and the buyer of services. For example, a patient will have to “see” a
doctor for diagnosis of his/her medical condition (that is, health service).
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Introduction to BPO
However, advances in Information and Communication Technology (ICT) have made it physically possible for
certain service transactions to overcome space and time limitations. Activities and services that can be digitised and
transmitted over the internet became technically feasible to be outsourced. The phenomenon is clearly explained by
UNCTAD: “The use of ICT allows knowledge to be codified, standardised and digitised, which in turn allows the
production of more services to be split up, or “fragmented”, into smaller components that can be located elsewhere
to take advantage of cost, quality and economies of scale or other factors. This makes it possible to produce certain
services in one location and consume them (or use them in further production) in another either simultaneously (for
example, information provided via call centres) or at a different time (for example, data entry, software development).”
The ICT revolution has made it possible for services to be globalised, thus intensifying the competition for markets.
In the same way that intense global competition pushed manufacturing processes to seek least-cost, alternative
production locations for parts and components, service activities are similarly being fragmented and farmed-out in
search of the most cost-effective supply network, that is, within the organisation or to a third-party; and within the
country or to abroad.
Increasing tradability of services

As a result of revolutions in ICT, the services sector has been increasingly globalised. In 1980, the value of globally-
traded service activities stood at US$364B, accounting for 16% of total trade (goods plus services). By 2002, this
amount increased by more than 4.3 times and reached US$1,570B and now accounts for about 20% of total trade.
in US$ B % share
1,800 25
% Share of Services to Total Trade
1,600 (goods + services)
1,400 20
1,200
15
1,000
800 Value of Services Exports, in
$B 10
600
400 5
200
- -
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02
Fig. 2.4 Share of services in global trade

This trend is expected to continue, especially considering that the services sector actually accounts for a much larger
share of global economic activity than manufacturing. While industry and agriculture combined account for only
34% of total Global GDP, the services sector accounts for 66%.
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World High Middle Low US Japan India Nigeria
income income income
Agriculture 4 2 10 25 2 1 25 29
Industry 30 29 35 31 25 32 27 44
Services 66 69 55 44 73 67 48 28
Fig. 2.5 Share of services in global economy (in % share)

Shifts in cross-border service transactions

Moreover, the emerging trend in off-shore services outsourcing resulted in a noticeable shift in the structure of
cross-border services transactions. This shift can be understood more clearly if framed within the context of the
General Agreement on Trade in Services’ (GATS) different modes by which services are supplied in cross-border
transactions. These modes are commonly referred to as:
• Mode 1: Cross-border Supply
• Mode 2: Consumption Abroad
• Mode 3: Commercial Presence
• Mode 4: Movement of Natural Persons
Table 2.1 and Fig. 2.6 provide illustrations on these different modes of supplying services.
Modes of Supply Description Illustration

Digitised and processed information crosses the border through
Mode 1 Cross-border supply telecoms or postal infrastructure (for example, consulting or
market research reports, tele-medicine and distance learning)
Consumption Consumer crosses the border to consume the service (for example,
Mode 2
abroad travel, hotel, health or training services given to non-residents)
Supplier of the service is a locally-established affiliate, subsidiary
Commercial
Mode 3 or representative office of a non-resident supplier (for example,
presence
foreign direct investments)
Supplier of the service is in the country on a temporary basis and
Movement of
Mode 4 remains a non-resident (for example, service suppliers, health
natural persons
workers, consultants)
Table 2.1 Modes of supplying services for cross-border transactions
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Introduction to BPO
In the past, because of physical constraints on the manner by which services can be supplied, trade in services
typically involved the cross-border movement of either the buyer or the provider of the service. For example,
a tourist travels to the country of destination (mode 2) or a professional service organisation (for example, an
accounting firm) establishes an affiliate office in another country (mode 3), or an engineer goes abroad to work on
a construction project (mode 4).
As mentioned earlier, the ICT revolution and declining telecoms costs have drastically improved the viability of
supplying services across borders (mode 1). Thus, whereas trade in services was previously carried-out mostly under
Modes 2, 3 and 4, the ICT revolution had increasingly made. Mode 1 transactions both are more technically feasible
and financially viable. With ICT providing a real-time link, service providers and buyers for certain transaction no
longer needed to be physically proximate to each other.
As a result, the structure of services trade shifted: “Other Commercial Services,” provided mainly under Mode 1,
increased its share of the total value of trade in services. This item increased its share from 38% in 1990 to about
45% a decade later. The extent of off-shore outsourcing can be gleaned more clearly from the large share of “Other
Business Services” in the total value of “Other Commercial Services” exports. The “Other Business Services”
category covers service processes which are typically outsourced, for example, legal services; accounting, auditing;
business and management consulting, etc.
1990 2000
Transport 28 23
Travel 34 32
Other Comm'l. Svcs. 38 45
Source of Basic Data: WTO Website
Fig. 2.6 Shift in services trade structure (in % share)

This trend started with the outsourcing of lower-value adding service activities, such as data encoding and processing,
jumping to marketing support activities (call centres) and at present is evolving to encompass even strategic activities,
such as Research and Development. For instance, in health services, outsourcing began with medical transcription
but now covers routine medical diagnosis for example, analysis of digital X-ray plates.
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Computer & Info.
3%
Financial Svcs.
10%
Insurance Other Business

14% Svcs.
43%
Construction
4%
Royalties &
Licenses
Communications
13%
10%
Personal, Cultural,
Recreational
Source of Basic Data: WTO Website
3%
Fig. 2.7 Structure of other commercial services exports

Trends in foreign investments in services

The same structural shift in services trade can be seen in Foreign Direct Investments (FDI): the share of services in
inward FDI stock increased relative to the share of the primary and manufacturing sectors. From less than half of
inward FDI stock in 1990, the share of Services increased to 60% in 2002. The shift is more pronounced in certain
service sectors, for example, business activities (this category includes: legal services, accounting and auditing,
business and management consulting, etc). In 1990, the share of “Business Activities” in total inward FDI stock
stood only at 13%; by 2002, its share doubled as it increased to 26%. More importantly, the structure of FDI flows
to developing countries shifted inn 1990, “Financial Services” accounted for more than half of total FDIs; by 2002,
“Business Activities” attracted the largest share of FDI inflows (40%).
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Introduction to BPO
1990 2002
Primary 9 6
Manufacturing 42 34
Services 49 60
Fig. 2.8 Shift in structure of inward FDI stock (in % share)

1990 2002
Developed Developing Developed Developing Central and
World World
Countries Economics Countries Economics East. Europe
Elect., Gas,
1 2 1 3 4 6 3
Water
Construction 2 3 2 1 3 5 2
Trade 27 15 25 20 14 21 18
Hotels,
3 2 3 2 2 2 2
Restaurants
Transportation 2 8 3 11 10 24 11
Finance 37 57 40 31 22 29 29
Business
15 5 13 23 40 10 26
Activities
Others 13 8 13 9 5 3 9
Total 100 100 100 100 100 100 100
Table 2.2 Shift in distribution of inward FDI stock in services (in % share)
2.4.2 Growth of BPOs Worldwide

Some of the problems which BPO is facing worldwide are explained in the section below:
Problems with data on BPOs
Data on BPOs and for the service industries in general, are quite problematic. Unlike goods, there is no tangible
reference point for its measure and there is no centrally-available source of information. This is clearly illustrated
in the following example:
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Activity Services Sub-sector
A Customer sits down at computer Computer services
Logs onto Internet Communication services
Orders products Trade and distribution services
Pays for it Financial services
Downloads the product or has it mailed to
Delivery services
home address
Table 2.3 WTO illustration on capturing e-commerce data
As a result, there had been conflicting estimates of the size of the global BPO industry. Fig. 2.9 illustrates these
definitional problems and consequently, data estimation problems. Outsourced activities cover not only services; in
fact, as mentioned earlier, outsourcing started in the manufacturing sector. Moreover, another problem is that not
all service activities are outsourced; as discussed earlier, service activities can be done in-house right in the existing
premises of a particular company or in the facilities of an overseas affiliate (for example, under the captured concept
or shared services concept). To summarise, the difficulty in estimating BPO market size can be accounted by:
• First, service activities being generally intangible products are difficult to track (compared with goods).
• Second, there is still no central source of information.
• Third, especially for global BPOs, services can be delivered through various modes cross-border supply,
consumption abroad, investments, or movement of natural persons.
Outsourced Service
Activities Activities
Outsourced
Services
IT-enabled Outsourced
Services Service
Activities
BPOs
Fig. 2.9 Locating BPOs: A graphical illustration

25/JNU OLE
Introduction to BPO
As result of these definitional problems, it is difficult to pinpoint exactly the size of the global (or even domestic)
BPO market. Moreover, it must be noted that available estimates of BPO market size and growth currently originate
from consultancy firms with specialty IT-related research product offerings. These include Gartner Dataquest,
International Data Corporation (IDC) and McKinsey. IT-related magazines and publications, such as Computer
World, also monitor BPOs. In the absence of centrally-reported secondary information and given the ambiguity
that still surrounds BPO definition; available numbers on BPOs are generated mainly through surveys. Since most
reports of consultancy companies are proprietary in nature, the reports including sections detailing methodology are
not fully available for public scrutiny. Thus, in using currently available estimates, readers should be conscious that
these generally originated from consultancy companies which have products and services that also promote BPOs.
Moreover, these monitoring activities follow a demand-driven calendar. Since there is no source for centrally-collected
data, monitoring BPOs are done mainly through surveys. These are rather expensive exercises and sponsoring
institutions recover their investments by market-based mechanisms.
Market for outsourcing and projected growth

Gartner Dataquest-as cited by the Information Technology and Electronic Commerce Council (ITECC)-estimated the
global market for Outsourcing at around US$495B. This figure includes both manufacturing and service activities
both those that can be IT-enabled and those which cannot. Those that are generally considered as not part of IT-
enabled services are: manufacturing services ($495B) and distribution and logistics ($60B). On the other hand,
service activities that can be fully-enabled by IT total about $200B, including:
• Administration, Finance, Accounting and HR
• Payment Services
• Manufacturing Services
• Distribution and Logistics
• Sales, Marketing and Customer Care
Estimated Market for BPOs

Service Line U S $ Bn
Admin/Finance/Acctg/HR 130
Payment Services 40
Manufacturing Services 235
Distribution/Logistics 60
Sales/Mktg /Customer Care 30
Total 495
Table 2.4 Estimated markets for BPOs
The same report further highlighted the following:

• Demand for outsourced services will have more than doubled, from $208B in 1999 to $543B in 2004
• The biggest markets in 2004 were the US (54%), followed strongly by Europe (31%); the other markets have
substantially smaller shares: the Asia-Pacific region (5%), Canada (4%), Japan (3%) and Latin America (2%)
Market for IT-enabled services

Expectedly, to date, the Indian umbrella organisation of IT and IT-related industries better known by its initials,
NASSCOM has been the most active source of information about IT enabled Services, including BPOs. NASSCOM
has jointly conducted major studies on IT and IT-enabled services with a number of consulting organisations, most
notably McKinsey. Two of these studies are among the most commonly quoted in literatures about BPOs: the 1999
study on “The Indian IT Industry” and the follow-up 2003 “India IT Strategies.” Citing the 1999 NASSCOM-
McKinsey study, the DTI placed the global market for IT-enabled services at around US $141.2 billion. The biggest
segment is Data Search, Integration and Management; followed by Customer Interaction, Remote Education, Network
consulting, and Finance and accounting.
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Market for BPOs
BPOs are, strictly speaking, that subset of IT-enabled services which are outsourced (that is, as compared to captive
IT-enabled services or shared services). McKinsey & Co. projects that the global BPO market will reach US$ 180
billion by 2010.
Global BPO Market by 2010
Eng'g. & Design, 3%

Market Research, 3%
Website Svcs, 4%
Transcription /
Localization, 1% Network Consult & Mgmt,
4%
Remote Educ., 11%
Human Resource Svcs,
28%
Customer Contact Svcs,
24%
Finance & Acctg., 11%

Data Integ'n. & Mgmt.,
11%
Fig. 2.10 Global BPO market by 2010

Summary of Global market sizes

Regardless of how BPOs are defined and on how the market size has been estimated, all the reports consistently
point to a growing market for BPOs. Thus, from a policy perspective, assuming there is are no regulatory changes
in other countries, the Philippines can expect a continually growing global demand for BPOs. This is especially
considering that even at the low-side estimate of a $180B global BPO market by 2010, the country’s present BPO
size of about $1.6B is still less than a percent of this projected market size.
Market for off-shored BPO

It is important to note, however, that while the total global demand for outsourcing, for IT enabled services and for
BPOs is without a doubt large, only a portion of this is currently offshored. As reported by in the 2003 UN EDR
(E-commerce Development Report), the following are some estimates of BPO off-shoring:
• Only 1-2% of all BPOs were off-shored in 2001
• Global service exports totalled $32B in 2001; with Ireland accounting for over ¼
In terms of FDI projects (2002-2003) in export-oriented services, on the other hand, 90% originated from developed
countries. However, most of these investments more than half went also to developed countries, with Ireland and
Canada as foremost destinations. All these indicate that there is still room for growth in international off-shoring
in services, especially to less developed countries. For example, even among the 1,000 largest firms in the world,
only 30% have so far off-shored service activities to low-cost countries. Many of the remaining 70% however have
plans to follow suit. Moreover, although those that took advantage of cost-advantages of off-shoring are mainly
US-based companies, European companies especially those from the United Kingdom are starting to open up to
the idea. In a recent study jointly undertaken by the UNCTAD and by Roland Berger Strategy Consultants, about
83% of large European companies with off-shoring were found to have been satisfied with the experience, only 3%
were dissatisfied and 44% of the companies interviewed planned further off-shoring in the coming years. This will
most likely push other firms to look into off-shoring as a competitive strategy.
27/JNU OLE
Introduction to BPO
Global Commercial Services Importers

2002
Germany, 10% Japan, 7%
US, 13%
United Kingdom, 7%
France, 4%
Italy, 4%
Others, 42%
Netherlands, 4%
China, 3%
Canada, 3%
Ireland, 3%
Fig. 2.11 Global commercial services importers

Off-shoring of service activities from Europe is a very distinct possibility. At present, while the US is the single
biggest country- of services (13% of world total), European countries are not far behind. In fact, the consolidated
imports of Germany (10%), the United Kingdom (7%), France (4%), Italy (4%), Netherlands (4%) and Ireland (3%),
would already account for more than 30% of total global imports of services.
The UNCTAD expects fastest growth to be in the off-shoring of IT-enabled services, which is forecast to expand from
$1 billion in 2002 to $24 billion in 2007. Over-all the general verdict is that off-shoring is still far from maturing;
it’s still too early to predict its pattern of growth and favoured country-locations. One of the earliest studies on the
phenomenon (of off-shoring) was undertaken by the World Bank in mid-1990s. The research suggested that 1% to
5% of total jobs in G-7 countries could be affected by offshoring. There are more recent estimates done by business
research groups, concluding that:
• About 3.4 million service jobs may shift from the United States to low-income countries by 2015
• Another study said that 2 million off-shored jobs could be created in the financial services industry alone and
that the total number of jobs affected for all industries could be in the area of 4 million.
2.4.3 Main Drivers for Growth

Many companies have decided to outsource for a number of reasons, including:
• to improve speed-to-market and competitiveness
• to focus on core competencies
• to access intellectual capital, scarce skills and resources with no long-term investment
• to have more disciplined processes, shared risks and partnerships in the transformation to e-business
However, the main drivers for off-shore outsourcing remain to be cost-related considerations. In a survey done in
the US by Computerworld, companies were asked on why they outsource to non-U.S. locations.
The results were:
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• Reduce/control costs (44%)
• Free up internal resources (20%)
• Gain access to world-class capabilities (13%)
• Increase revenue potential (13%)
• Reduce time to market (11%)
• Increase process efficiencies (11%)
• Follow company philosophy of outsourcing noncore activities (11%)
• Compensate for lack of appropriate skills (8%)
However, not all service activities can be off-shored. There are several reasons cited by the UNEDR for this,
including:
• For certain services, proximity to markets, interaction with customers, trust and confidence outweigh the possible
benefits of an international division of labour.
• Technological limitations cannot be discounted as it is not possible for all service functions to be digitised and/
or separated from related activities.
• Some businesses will continue to need localised services or person-to-person contact for exchanging highly
confidential information or for adapting to rapidly changing customer needs.
• Regulations and legal requirements (e.g. regarding privacy) may also raise transactions costs and limit
international trade in services. Certain services, such as insurance and banking, are required by law in some
countries to be provided by companies established locally.
• The lack of international recognition of professional qualifications is another obstacle, as is the lack of globally
agreed privacy rules.
• Some international locations also lack the capacity to host off-shored service activities. These include the supply
of reliable telecom infrastructure, appropriately educated workers, rising wage costs and high levels of attrition
in the fastest growing destinations, all giving rise to shortage risks, at least in the short run.
• TNCs too have different perceptions of the risks and benefits of off-shoring services and some are reluctant to
do so.
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Introduction to BPO
Summary
• Outsourcing can be defined as “the contracting of a service provider to completely manage, deliver and operate
one or more of a client’s functions”.
• Business Process Outsourcing (BPOs), as defined by the Information Communication and Technology (ICT)
Division of the Board of Investments (BOI) of the Department of Trade and Industry (DTI).
• The delegation of one or more IT-intensive business processes to an external provider that, in turn, owns,
administrates and manages the selected process or processes based on defined and measurable performance
metrics.
• Outsourcing eventually took the path of “off-shoring” or locating to low-wage countries.
• A variety of service products were affected by this trend from simple low value data encoding to high-value
processes such as architectural design, analysis of x-ray films and software development.
• Off-shoring of BPOs is part of the emerging global trend of rapidly increasing cross-border trade in services.
• The extent of off-shore outsourcing can be gleaned more clearly from the large share of “Other Business Services”
in the total value of “Other Commercial Services” exports.
• The UNCTAD expects fastest growth to be in the off-shoring of IT-enabled services, which is forecast to expand
from $1 billion in 2002 to $24 billion in 2007.
• Technological limitations cannot be discounted as it is not possible for all service functions to be digitised and/
or separated from related activities.
• BPOs are, strictly speaking, that subset of IT-enabled services which are outsourced.
• Gartner Dataquest-as cited by the Information Technology and Electronic Commerce Council (ITECC)-estimated
the global market for Outsourcing at around US $495B.
• Outsourced activities cover not only services; in fact, as mentioned earlier, outsourcing started in the
manufacturing sector.
• The extent of off-shore outsourcing can be gleaned more clearly from the large share of “Other Business Services”
in the total value of “Other Commercial Services” exports.
References
• Gao, H., 2008. Business Process Outsourcing Industry: An Innovative Enterprise Perspective, University of
Massachusetts Lowell.
• Saxena, 2009. Business Process Outsourcing for Strategic Advantage, Excel Books India.
• Private services 3 (ICT-based, business and labour services): Shared services, data entry and call centres, [Pdf]
Available at: <http://203.177.6.3/uactphilippines.org/images/stories/uact/publications/pdf/ictbased_businesslabor.
• EXPANDING RP-US LINKAGES IN BUSINESS PROCESS OUTSOURCING, [Pdf] Available at: <http://dirp4.
pids.gov.ph/ris/dps/pidsdps0610.pdf> [Accessed 22 January 2013].
• Introduction to Legal Process Outsourcing - Part I, [Video online] Available at: <http://www.youtube.com/
watch?v=nZ8Tuw8ROws>[Accessed 22 January 2013].
• Introduction to Legal Process Outsourcing - Part II, [Video online] Available at: <http://www.youtube.com/
watch?v=xxkrlN9cKc0>[Accessed 22 January 2013].
Recommended Reading
• Erhardt, G., 2005. The Strategic Contribution of Business Process Outsourcing to Corporate Planning, GRIN
Verlag.
• Hirschheim, R., Heinzl, A. & Dibbern, J., 2009. Information Systems Outsourcing, 3rd ed., Springer.
• Brocke, J., 2010. Handbook on Business Process Management, Springer.
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Self Assessment
1. _____________ is the delegation of service-type business processes to a third party service provider.
a. DTI
b. BOI
c. BPO
d. KPO

A. Includes activities such as customer selection,
1. Supply chain management
acquisition, retention and extension
2. Operations B. Includes activities such as transportation and logistics
3. Business administration C. Include activities such as research and development
4. Sales, marketing and customer care D. Includes activities such as finance and accounting
a. 1-D, 2-C, 3-A, 4-B
b. 1-C, 2-A, 3-D, 4-B
c. 1-A, 2-B, 3-D, 4-C
d. 1-B, 2-C, 3-D, 4-A
3. Which of the following statements is false?

a. BPO is limited to service-type activities, specifically business support services and sales-related
functions.
b. BPO activities should be BPO-intensive only.
c. BPO activities should be outsourced.
d. Business administration includes activities such as claims and policy processing.
4. ____________ of BPOs is part of the emerging global trend of rapidly increasing cross-border trade in
services.
a. Off-shoring
b. Globalisation
c. In-sourcing
d. Outsourcing

1. A Customer sits down at computer A. Communication services
2. Logs onto Internet B. Delivery services
3. Pays for it C. Computer services
4. Downloads the product or has it
D. Financial services
mailed to home address
a. 1-A, 2-C, 3-A, 4-B
b. 1-B, 2-D, 3-C, 4-A
c. 1-D, 2-B, 3-B, 4-A
d. 1-C, 2-A, 3-D, 4-B
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Introduction to BPO
6. ____________ and legal requirements may also raise transactions costs and limit international trade in
services.
a. Regulations
b. Recognition
c. Activities
d. Infrastructure
7. ______________ coupled with efficient and cost-effective telecom infrastructure, were the main value proposition
of lower-income countries.
a. Developments in ICT
b. Near shore
c. Low-wage professionals
d. ICT workers
8. The contracting of a service provider to completely manage, deliver and operate one or more of a client’s
functions is called as _____________.
a. Business Process Outsourcing
b. Outsourcing
c. Board of Investments
d. Department of Trade and Industry
9. The _________ is the lead agency charged with promoting BPOs in the country.
a. BPO
b. ICT
c. BOI
d. DTI
10. __________ include activities such as research and development and contract manufacturing, which accounts
for over 50% of the BPO market today.
a. Marketing
b. Administration
c. Operations
d. Outsourcing
32/JNU OLE
Chapter III
Developing BPO Strategies
Aim
• introduce sourcing strategy
• elucidate fundamental equation of outsourcing
• explain Nelson Hall’s business case methodology
Objectives
• define sourcing and it’s relation to transformation
• enlist benefits of outsourcing
• explicate component of business case methodology
Learning outcome
• understand relationship between the sourcing dimensions
• compare between sourcing strategy and specific sourcing propositions
• define business case
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Introduction to BPO
3.1 Introduction
Business Process Outsourcing (BPO) is, of course, the long-term transfer of responsibility to an external supplier for
activities that were previously carried out by a client-organisation. More relevant to the readership of this chapter
is not the definition of BPO, but a clarification of the scope of the term as we use it. We hold that BPO is limited to
“business support services”, sometimes known as “corporate services” or “support functions”. These are: front-office
(customer management), middle-office (industry-specific operational processes such as claims-processing in an
insurance company) and back office (finance and accounting, HR, procurement, IT, etc.). So, even though they are
frequently outsourced, activities such as manufacturing, logistics, etc., are not included in our definition of BPO.
3.2 Sourcing and How it Relates to Transformation

“Sourcing”, in its widest sense, can refer to mainstream “procurement” or “supply-chain management” in an
organisation, but we use the term specifically to refer to activity around the business support services that are the
focus of BPO. With that scope in mind, we can go on to define the term. There are two main dimensions along which
major organisational change can progress. These are “operational change” and “commercial change”. Operational
change involves modifying the manner in which a service is delivered, in terms sub-dimensions of “process”,
“technology”, “organisation”, “infrastructure” (including “location”) and “people”. Commercial change, on the
other hand, involves changing the responsibilities for service delivery. The graphic below illustrates the relationship
between these two dimensions.
Operational
Change,
“How?”,
Change the service delivery

model, in terms of:
Process
Technology
Organisation
Infrastructure
People
Commercial Change
“Who?”
Change the responsibilities

for service delivery
Fig. 3.1 Relationship between the dimensions

(Source: http://www.bpopronet.com/public/downloads/BPO%20resources/Developingbpostrategies.pdf)
34/JNU OLE
So operational change is about the “how?” and commercial change is about “whom?” This is a theoretically pure
definition that can be helpful to understand and explore various potential change strategies, for example, it can help
an organisation consider questions such as:
• “Does Function X require fundamental change in process, technology, etc.?”
• “Should we design and implement such change ourselves and then operate the changed arrangements ourselves,
or should we use an external partner to work with us in one or more of these activities?”
• “Might we just get an outside partner to operate Function X in its current state would this generate acceptable
benefits?”
However, we need to modify this model slightly, to make it reflect the reality that, when considering improvement
in business support services, one particular element of operational change (that is, change in the location from where
the service is delivered) is especially closely inter-related with commercial change. Nowadays, most significant-scale
that is, “business process outsourcing” which is an example of commercial change will also involve at least the
consideration of “offshoring” (that is, the re-location of the services to a different geography an aspect of operational
change). This is true even when other elements of operational change (for example, process re-engineering, new
technology, etc.) might not be in play, at least in the first instance. Similarly, the establishment of internal (“captive”)
offshored centres will almost always also involve commercial change through the establishment of a pseudo-
commercial environment between delivery-centre and customer.
So,“outsourcing” and “offshoring” are closely connected, notwithstanding the fact that the former is about
commercial change and the latter is about operational change. We recognise this by our use of the term “sourcing”,
which can cover change in one or both dimensions. This certainly does not mean, however, that we agree with the
sometimes-seen practice of treating the terms “outsourcing” and “offshoring” as synonyms they are certainly not.
“Sourcing” can be usefully compared and contrasted with the other aspects of operational change, which we refer
to as “transformation”, as shown in the re-worked graphic below.
“Transformation”
“How?”,
Change the service

delivery model of
Process
Technology
Organisation
Infrastructure
People
Sourcing
“Who?” and “Where?”
Change the responsibilities

for service delivery
Fig. 3.2 Sourcing strategy (and how it relates to specific sourcing propositions)
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Introduction to BPO
Sourcing can be used in a wider sense than we use it. Similarly “sourcing strategy” can refer to an organisations
make/buy strategy in its core operations, but, in line with our usage, “sourcing strategy” is limited in scope to an
organisation’s business support services. A “specific sourcing proposition” means a sourcing hypothesis, idea,
proposal, etc., that could be executed on a stand-alone basis. Some specific sourcing propositions of course become
live sourcing projects and then ongoing sourcing arrangements. “Sourcing strategy”, on the other hand, refers to a
macro-level view of the drivers and guiding principles for specific sourcing activity within an organisation.
Sourcing Strategy therefore operates at a higher level than specific sourcing propositions, setting the context and
parameters for activities to evaluate/justify/implement specific sourcing propositions. The graphic below shows the
relationship between sourcing strategy and specific sourcing propositions.
External environment
Top level strategy

Vision, Mission, Values, Strategic Objectives
Requirements of business support functions
Functional Functional Functional

Strategy Strategy Strategy
Sourcing Strategy
Specific Sourcing
propositions/projects/
arrangements
Fig. 3.3 Relationship between sourcing strategy and specific sourcing propositions
Sourcing strategy operates “horizontally” across the organisation, setting objectives and policies to optimise the
organisation’s use of the appropriate sourcing models. It is driven by driven by top-level (that is, corporate) strategy
and interacts with “vertical” functional strategy.
A well-thought-out and well-articulated sourcing strategy provides the perfect backcloth for the evaluation/
justification/implementation/operation of specific sourcing propositions/projects/arrangements. The key sourcing
principles, driven ultimately from top-level strategy, will have already been established and validated. More detailed
tools and infrastructure may also be in place, such as standard evaluation criteria, a standard format for business
case presentation, a standing decision-making body and access to experienced sourcing practitioners (internal or
external consultants).
Ideally, the development of sourcing strategy precedes the development of business cases for particular sourcing
propositions, establishing the high-level parameters and stakeholder alignment within which the development of
business case for particular sourcing propositions takes place. However, many organisations do not have a sourcing
strategy prior to investigating their first (or first few) specific sourcing propositions. Although not an ideal state of
affairs, this is a quite natural occurrence. The requirement for having a high-level sourcing strategy at all might
not be obvious before actual sourcing projects have been investigated and/or implemented. Even if the logic is
accepted, this might not prove enough of a justification for making the investment and incurring the elapsed time
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required by the process of developing the sourcing strategy. However, a sourcing strategy will definitely be needed
if anything more than a minimal amount of sourcing activity is anticipated within an organisation. Otherwise, there
will be a real danger of multiple specific sourcing propositions being evaluated or sourcing arrangements being
put in place on a piecemeal basis, which would lead, at best, to the establishment of a management infrastructure
that is more costly than necessary (given different commercial terms, different monitoring mechanisms, etc.) and,
at worst, some decisions/arrangements being out of line with corporate strategy and therefore value-destroying in
a very real sense.
Different organisations will adopt significantly different formats for their sourcing strategies, but, in our view, all
good sourcing strategies will share some common features, in that the sourcing strategy will:
• clearly linked to overall corporate strategy
• have sponsorship at senior level
• take account of external trends and developments (that is, in the “sourcing industry”)
• be based on a valid assessment of current operations within the organisation
• establish guiding principles and parameters for specific sourcing activity
• specify the need for fit-for-purpose processes and supporting mechanisms to evaluate/justify/implement specific
sourcing propositions
We have noticed that, in certain quarters, the evaluation/justification of a specific sourcing proposition is referred
to as “sourcing strategy”. We term this “developing the business case” of course. Referring to a business case for
a specific proposition as “sourcing strategy” is a mistake, in that it risks the need for real sourcing strategy being
overlooked.
3.3 Business Case

As with the other key concepts examined above, there is a great lack of consistency in the use of the term “business
case”. We deal with the main issues below:
• “Developing the business case” means in the first instance the process of evaluating whether a hypothesis, an
idea or a proposed course of action is justified. For those sourcing propositions that are found to be justified, the
business case evolves into a formal justification and, further, into a key mechanism for maintaining momentum,
controlling change and tracking benefits realisation.
• We cover the various stages of evolution of and uses for the business case below. The point here, however, is
that, in the first instance, the emphasis is on testing the feasibility of a particular sourcing proposition. A common
mistake is to jump too quickly to the justification stage, or at least to appear to jump too quickly to that stage.
• In the first scenario (that is, jumping too quickly to the justification stage), it is useful to bear in mind that
sourcing projects are inherently complex and risky – yes, they can generate significant benefits, but they are
not a “cure for all ills”. Even where an organisation has had successful experience with sourcing projects and
even a clear commitment to sourcing principles, enshrined in a formal sourcing strategy, a particular sourcing
proposition should not be somehow deemed a good thing prior to having its feasibility formally tested through
the development of a business case.
• The second scenario (that is, appearing to jump too quickly to the justification stage) risks causing alarm amongst
key stakeholder groups. When implemented, outsourcing and offshoring will usually have profound effects on
significant numbers of an organisation’s employees (the people currently doing the work, their managers, the
customers of the relevant activities, etc.).
In order to accept such change and provide the support that will be essential to the change process, the stakeholders
will have to be supported, both emotionally and rationally. Their feeling “railroaded” will not be helpful, nor will
the absence of a solid rationale for the change. We have witnessed occasions where use of terminology like “we are
building the business case” is used by advocates and/or investigators of a particular sourcing proposition towards
stakeholders of the proposition and where this has caused alarm amongst those stakeholders, as they have assumed
that the sourcing project is a “done deal” and a justification is being constructed (as opposed to an evaluation
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Introduction to BPO
being carried out). So, if the business case is about evaluation, what exactly is being evaluated? And, when people
refer to their “being a business case” for a particular proposition (that is, using the term “business case” to mean
“justification”), on what basis is this belief held? There is a fundamental equation at the heart of every sourcing
business case. This equation examines whether the benefits of the change outweigh the challenges to the extent that
there is a “net prize” of sufficient magnitude to justify the change (taking into account of course, the net benefits
of other possible courses of action that exist in the organisation). Graphically, this equation can be represented as
follows.
Cost
Quality
Risk Management
Downsides
Risks
?
Focus
Other
Fig. 3.4 Fundamental equation of outsourcing

Clearly, this is highly stylised and generalised, but it is a useful way into the thinking from 1000 feet and a much
more detailed methodology is introduced and explored later in the paper. So, let us explore the components of this
equation. Firstly, the generic benefits of outsourcing are represented by the green concentric circles:
• Cost: Cost reduction is the most obvious potential benefit, but cost transparency, cost predictability or the
migration of fixed into variable cost (or vice versa) can be benefits in their own right.
• Quality: This encompasses improvements in “hard” quality (for example, “activity X will be performed to at
least 99% accuracy, within y hours of receipt of Z”), but also in increased transparency and predictability and
improvements in “soft” quality – that is, “customer service”, “helpfulness”, etc.
• Removal of risk: Sourcing may be able to remove risks inherent in an organisation’s operational environment for
instance, over-reliance on key skills resident in a small team vulnerable to staff-loss, lack of adequate disaster-
recovery procedures, etc. Many smaller scale Payroll Outsourcing deals have risk-removal as a key factor – that
is, removing the risk of lack of sustainability of the internal Payroll team.
• Increased focus on value-creating activities: This is the concept that, with the more “routine”, “transactional”,
“administrative”, etc., activities outsourced, the functional staff retained by the client will be able to re-balance
their time to focus on more important activities. This is a key generic driver for HR outsourcing – that is, that
senior and skilled HR people spend too much of their time on non-value-creating activities and, if these activities
were outsourced, the staff could become true “business partners”.
• Other: The above categories represent the main generic sources of benefit, but, from time to time, other potential
and actual benefits occur, for example, “organisational flexibility” – that is, the enhancement of an organisation’s
ability to change its shape (merger, acquisition, divestment, etc.) if support services are not embedded in the
core.
The tangibility of these benefits (as defined by the ability to quantify them) decreases from the centre of the green
concentric circles outwards, but this does not mean that the importance of the benefits necessarily decreases. The
“challenges” are represented by the red concentric circles. There are two categories here:
• Downsides: These can be defined as “negatives that will happen” investment for instance or the displacement of
the incumbent staff (through redundancy, redeployment within the client-organisation or transfer of employment
to the outsourcer).
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• Risks: These can be defined as “negatives that might happen” resistance to change, service disruption, over-run
or over-spend on implementation, failure to realise the projected benefits of change, negative publicity, etc.
Comparing “gross” benefits with challenges allows the “net prize” to be identified. The net prize is evaluated in
terms of whether it is sufficient magnitude to justify the change that is, versus the ever present alternative of “do
nothing”. It also must be compared to the potential net prizes attached to other possible changes in the organisation
(outsourcing or otherwise) that may compete for the associated investment (both monetary and in terms of
organisational attention). Sometimes there are direct competitors to a proposed course of action and a systematic
comparison can be carried out. At other times, pre-prepared, well-grounded criteria can be used to test whether the
net prize is of the magnitude generally acceptable in the organisation.
In purely financial terms, the comparison with the “no-change” option can be codified through the calculation of Net
Present Value (NPV) and the comparison with other possible projects through Internal Rate of Return (IRR). Our
(shorthand) use of terms such as “equation” and “net” may imply financials, or at least quantitative data of some
sort is paramount. However, we are firm believers that a good business case must be holistic in that it covers both
financial and non-financial dimensions and both quantitative and qualitative factors (these two categorisations not
being congruent, as nonfinancial items might still be quantitative – for example, quality or volume metrics). We
mentioned above that although the business case is about evaluation in the first instance, its purpose evolves over
time. It also evolves in terms of level of detail. Let us examine this process of evolution for a few paragraphs.
At the outset, there will probably exist a “prima facie” business case. This might be the result of a semi-formal review
or might be little more than a feeling amongst relevant executives that a particular proposition “might well be worth
doing”. The phrase “high-level business case” is often used to describe the first formal evaluation of a sourcing
proposition. Developing the high-level business case is a project in its own right, requiring investment at least in
terms of the time of internal resources, if not also in terms of external expenditure (on items such as consultancy
support, travel and accommodation in support of data-collection trips, etc.) and the set-up of management oversight
mechanisms (project plan, review group, etc.). If the proposition being evaluated is found to be not justified at the
high-level business case phase, the process of developing the business case ends, with the final report of the business
case project being retained to provide a formal record of why the “no” decision was made.
This applies at whatever stage the “no” decision is made. However, if the proposition is justified, the process of
developing the business case does not stop. The business case is used throughout the course of a project, evolving
in two dimensions:
• It is refined and deepened (in terms of level of detail) as the sourcing project approaches the final “go/no-go”
decision.
• At the high-level business case phase, it is purely about evaluation.
Assuming a positive outcome from high-level business case, two purposes, evaluation and justification, are in play.
This is the case up to the point of the final go/no-no decision. After the go/no-go decision (and the onset of the
implementation phase of the sourcing project), the purposes are justification and benefits-tracking, with the latter
really coming into play once ongoing service delivery commences.
The diagram below describes the evolution of the business case using a generic route map for a sourcing project
as a skeleton:
• “Business case” means more than “financial model”, although these two terms are often used as if they were
synonymous. The financial model is a key component of a business case and, indeed, it is often the most
important, but it is not the only component. A good business case combines qualitative and quantitative elements
to present a holistic view. Moreover, the quantitative element may include quality metrics, volumetric, etc., as
well as the financials.
• Usually, the process of developing a business case is written up into a document of some sort. Usually, the
document is referred to as the “business case”, although, of course, the business case (or lack) of it, is an
intangible product – a business judgment that exists beyond its documentation.
• So, in the light of all the above, our definition for a business case is as follows: A holistic analysis of whether
a particular sourcing proposition is justified.
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Introduction to BPO
Months
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
Understand key sourcing concepts

Develop sourcing strategy
Develop high- level business case
Ev Produce detailed solution design/ detailed business case,

In alu
cr
ea ati Select supplier(s)
sin on
g
de Carry out due diligence
tai Ju
l sti
fic Negotiate contract
ati
on
Be Build operating environment
ne
fit Mitigate work
s-
tra
ck Consolidate service
in
g
Run operations
Transform service
Fig. 3.5 The evolution of the business case using a generic route map
3.4 Introduction to Nelson Hall’s Business Case Methodology

In this section we will introduce our methodology for the development of sourcing business cases and examine this
methodology component by component. Sourcing strategy is dealt with it. Our methodology describes the component
parts (the “anatomy”) of a sourcing business case. Graphically, it is represented as below.
review of
the as-is external world the to- be
process
functional sourcing Operational Commercial
strategy strategy technology model model
need
top level top level
for organisation
strategy strategy
change
infrastructure
Current people Transition

operations approach
Conclusions
qualitative view
quantitative view
implementation route map
Fig. 3.6 The anatomy of a business case methodology

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Let us start our exploration at a summary level. The main components are as shown in the stripped down diagram
below.
the as-is the to-be
Vs.
conclusions
implementation route map
Fig. 3.7 Main component of business case methodology

At this macro level, the methodology:

• compares the current situation relevant to the sourcing proposition being tested (which we call the “as-is”,
represented by the large light grey box on the left)
• with a one or more potential future situations (the “to-be”, represented by the large light grey box on the
right)
• to ascertain whether there is a business case (that is, the “net prize of sufficient magnitude”)
• if there is a business case, the way forward is mapped out, in terms of the “route map” for change (blue arrow
at bottom)
With the anatomy of a business case methodology in mind, we can re-introduce the sub-components. If we summarise
at this “midi” level, then, the methodology will be as follows:
• Clarifies the strategic context for the sourcing proposition by interpreting and identifying the relevant ramifications
of top-level strategy, functional strategy and sourcing strategy.
• Reviews current operations in the light of the strategic context. Once strategic context is clear, a critical assessment
of the effectiveness and efficiency of current operations needs to be undertaken. This is carried out in terms of
the: process, technology, people, organisation and infrastructure.
• Specifies the need for change. This is not the solution at this stage, but a statement of the criteria and parameters
that possible futures will have to adhere to.
• Explores external trends and best practices (“the art of the possible”). Often we do this through interaction with
external suppliers.
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Introduction to BPO
Envisions to-be models, comprising:

• Operational model (“how would the service work?”)
• Commercial model (“who would be responsible for what?”)
• Transition approach (“how would we move from the as-is to the to-be?”)
Identifies the risks associated with the to-be models and develops risk management actions.
Determines whether there is a business case by comparing as-is with to-be.
Lays out the implementation path for the selected option (“how would we make it all happen?”).
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Summary
• Business Process Outsourcing (BPO) is, of course, the long-term transfer of responsibility to an external supplier
for activities that were previously carried out by a client-organisation.
• Sourcing, in its widest sense, can refer to mainstream “procurement” or “supply-chain management” in an
organisation, but we use the term specifically to refer to activity around the business support services that are
the focus of BPO.
• Outsourcing and Offshoring are closely connected, notwithstanding the fact that the former is about commercial
change and the latter is about operational change.
• “Sourcing” can be usefully compared and contrasted with the other aspects of operational change, which we
refer to as “transformation”.
• A “specific sourcing proposition” means a sourcing hypothesis, idea, proposal, etc., that could be executed on
a stand-alone basis.
• Sourcing strategy operates “horizontally” across the organisation, setting objectives and policies to optimise
the organisation’s use of the appropriate sourcing models.
• Developing the business case means in the first instance the process of evaluating whether a hypothesis, an idea
or a proposed course of action is justified.
• Cost reduction is the most obvious potential benefit, but cost transparency, cost predictability or the migration
of fixed into variable cost (or vice versa) can be benefits in their own right.
• The tangibility of benefits (as defined by the ability to quantify them) decreases from the centre of the green
concentric circles outwards, but this does not mean that the importance of the benefits necessarily decreases.
• “Business case” means more than “financial model”, although these two terms are often used as if they were
synonymous.
• Commercial change involves changing the responsibilities for service delivery.
• A well-thought-out and well-articulated sourcing strategy provides the perfect backcloth for the evaluation/
justification/implementation/operation of specific sourcing propositions/projects/arrangements.
• Sourcing may be able to remove risks inherent in an organisation’s operational environment – for instance,
over-reliance on key skills resident in a small team vulnerable to staff-loss, lack of adequate disaster-recovery
procedures, etc.
References
• Mital, 2007. Cases in Strategic Management, Tata McGraw-Hill Education.
• Hall N., Developing BPO Strategies, [Pdf] Available at: <http://www.bpopronet.com/public/downloads/BPO%20
resources/Developingbpostrategies.pdf> [Accessed 22 January 2013].
• Fersht, P., THE EVOLUTION OF GLOBAL BUSINESS SERVICES: ENHANCING THE BENEFITS OF SHARED
SERVICES AND OUTSOURCING, [Pdf] Available at: <http://www.pwc.com/us/en/outsourcing-shared-services-
centres/assets/hfs-report-pwc-developing-framework-global-services.pdf> [Accessed 22 January 2013].
• Building Your Legal Outsourcing Strategy - Video 1, [Video online] Available at: <http://www.youtube.com/
watch?v=SI8MEsoS6zY>[Accessed 22 January 2013].
• Best Outsourcing Strategy: Video , [Video online] Available at: <http://www.youtube.com/watch?
v=UXl2ToaIV9I>[Accessed 22 January 2013].
Recommended Reading
• Barrar, P. & Gervais, R., 2006. Global Outsourcing Strategies: An International Reference on Effective
Outsourcing Relationships, Gower Publishing, Ltd.
• Kang, K. N. S., 2007. Strategic Business Management, Deep and Deep Publications.
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Introduction to BPO
Self Assessment
1. __________ involves modifying the manner in which a service is delivered.
a. Organisational change
b. Operational change
c. Commercial change
d. Supply chain
2. ___________ operates horizontally across the organisation, setting objectives and policies to optimise the
organisation’s use of the appropriate sourcing models.
a. Sourcing strategy
b. Top-level strategy
c. High-level parameters
d. Sponsorship
3. ___________ encompasses improvements in “hard” quality.

a. Value-creating activities
b. Removal of risk
c. Cost
d. Quality
4. A good ___________ combines qualitative and quantitative elements to present a holistic view.
a. key component
b. sourcing proposition
c. business case
d. financial model
5. __________ involves changing the responsibilities for service delivery.

a. Organisational change
b. Operational change
c. Commercial change
d. Supply chain
6. The establishment of internal __________ centres always involve commercial change through the establishment
of a pseudo-commercial environment between delivery-centre and customer.
a. in-sourced
b. offshored
c. outsourced
d. bounded
7. Sourcing can be usefully compared and contrasted with the other aspects of operational change, which we refer
to as ___________.
a. transformation
b. strategy
c. functions
d. strategic objectives
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8. Which of the following refers to a macro-level view of the drivers and guiding principles for specific sourcing
activity within an organisation?
a. Top-level strategy
b. High-level parameters
c. Sponsorship
d. Sourcing strategy
9. Which of the following is the most obvious potential benefit, but cost transparency, cost predictability or the
migration of fixed into variable cost (or vice versa) can be benefits in their own right?
a. Operational change
b. Cost reduction
c. Organisational change
d. Commercial change
10. A holistic analysis of whether a particular sourcing proposition is justified is known as ___________.
a. business case
b. business judgment
c. financial model
d. business phase
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Introduction to BPO
Chapter IV
Business Process Modelling and Simulation
Aim
• introduce business process management
• elucidate advanced BPM tools
• explore evaluation criteria of BPM tools
Objectives
• define modelling tools
• explicate related work on evaluation criteria of BPM tools
• enlist the categories as defined by Bradley et al in the direction of BPS
Learning outcome
• understand the criteria used for the evaluation of BPS tools
• recognise the BPS tools
• describe tools for BPS
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4.1 Introduction
Business Process Management (BPM) is attracting attention more than a decade now and its attention is now shifting
from the enactment of business processes towards improving business processes. The field of BPM now supports
the design, enactment, control and analysis of business processes. Companies are improving their performance
by a constant evaluation of the value added in all parts of their processes. Business processes are in a continuous
improvement cycle in which design and redesign play an important role. Various possibilities to change a process
are present and the best alternative design should replace the current process. Making an intuitive choice may lead
to unpleasant surprises and lower process performance instead of yielding the expected gains. In simulation is
mentioned as one of the techniques suitable for the support of redesign. The simulation of business processes helps
in understanding, analysing and designing processes. With the use of simulation the (re)designed processes can be
evaluated and compared. Simulation provides quantitative estimates of the impact that a process design is likely
to have on process performance and a quantitatively supported choice for the best design can be made. Simulating
business processes is, to a large extent, overlapping with the simulation of other discrete event systems. In an overview
is provided of the steps that are carried out in the context of Business Process Simulation (BPS).
Regarding the simulation of business processes a number of steps can be distinguished. First the business process is
mapped onto a process model, possibly supplemented with process documentation facilities. Then the sub processes
and activities are identified. The control flow definition is created by identifying the entities that flow through the
system and describing the connectors that link the different parts of the process. Lastly, the resources are identified
and assigned to the activities where they are necessary. The process model should be verified to ensure that the
model does not contain errors. Before simulation of a business process, the performance characteristics, such as
throughput time and resource utilisation, need to be included. For statistically valid simulation results a simulation
run should consists of multiple sub runs and each of these sub runs should have a sufficient run length. During the
simulation, the simulation clock advances. The simulation tool may show an animated picture of the process flow
or real-time fluctuations in the key performance measures. When the simulation has been finished, the simulation
results can be analysed. To draw useful and correct conclusions from these results, statistical input and output data
analysis is performed.
Although the steps in BPS will be the same irrespective of the simulation tool used, each simulation tool will have a
different applicability. There is an abundance of simulation tools available of which some are applicable to the BPM
field. In this section we discuss several simulation tools taken from three relevant areas: business process modelling,
business process management and general simulation tools. We evaluate the modelling, simulation and output analysis
capabilities and we aim at providing insights in the advantages and disadvantages of each simulation tool.
4.2 Evaluation Criteria of BPM Tools

In this section, we aim to evaluate several software packages for suitability of BPS. Hardly any package explicitly
advertises as BPS tool, however, many of them provide simulation functionality and may be suitable. Bradley et al
defined seven different categories to evaluate business process re-engineering software tools. The seven categories
are as follows:
• Tool capabilities, including a rough indication of modelling, simulation and analysis capabilities
• Tool hardware and software, including, e.g., the type of platform, languages, external links and system
performance
• Tool documentation, covering the availability of several guides, online-help and information about the learning
curve of the tool
• User features: amongst others user friendliness, level of expertise required and existence of a graphical user
interface
• Modelling capabilities, such as identification of different roles, model integrity analysis, model flexibility and
level of detail
• Simulation capabilities, summarising the nature of simulation (discrete vs. continuous), handling of time and
cost aspects and statistical distributions
• Output analysis capabilities such as output analysis and BPR expertise
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Introduction to BPO
This section elaborates on the categories as defined by Bradley et al in the direction of BPS. Especially the last
three categories are of interest when evaluating BPS. With respect to modelling capabilities, the patterns research
is used to evaluate the possibility to model various control flow patterns, data patterns and resource patterns. The
patterns research is used to evaluate the modelling capabilities of a tool with respect to complexity. The complexity
of modern business processes is increasing. In order to manage this complexity, Becker et al have formulated six
main quality criteria for business process models. These criteria are:
• Correctness, the model needs to be syntactically and semantically correct
• Relevance, the model should not contain irrelevant details
• Economic efficiency, the model should serve a particular purpose that outweighs the cost of modelling.
• Clarity, the model should be (intuitively) understandable by the reader
• Comparability, the models should be based on the same modelling conventions within and between models
• Systematic design, the model should have well-defined interfaces to other types of models such as organisational
charts and data models
Many authors have proposed requirements for business process modelling tools or have tested these requirements
empirically. Although this requirement building frequently took place in the context of BPS only one explicit list
with evaluation criteria for simulation or output analysis capabilities is present. Law and Kelton describe desirable
software features for the selection of general purpose simulation software. They identify the following groups of
features:
• General capabilities, including modelling flexibility and ease of use
• Hardware and software considerations
• Animation, including default animation, library of standard icons, controllable speed of animation and zoom
in and out
• Statistical capabilities, including random number generator, probability distributions, independent runs (or
replications), determination of warm up period and specification of performance measures
• Customer support and documentation
• Output reports and plots, including standard reports for the estimated performance measures, customisation of
reports, presentation of average, minimum and maximum values and standard deviation, storage and export of
the results and a variety of (static) graphics like histograms, time plots and pie charts.
4.3 Tools for Business Process Simulation

Many software tools exist to simulate processes. When simulating business processes, some specific requirements
are applicable. The nature of the business process requires sufficient modelling power of the tool. When particular
choices or synchronisation cannot be implemented, the simulation result loosens its strengths. On the other hand,
simulation of business processes aims to support process owners or process managers. When the tool or the simulation
output can hardly be understood by the client, the tool overreaches itself. In this section, we describe three different
categories of software tools that may be applicable for BPS:
• Business process modelling tools
• Business process management tools
• General purpose simulation tools
For each type a general introduction and the description of two specific tools are given.
4.3.1 Business Process Modelling Tools

Business Process Modelling tools are developed to describe and analyse business processes. The analysis part may
provide data useful for the management of these processes. The tool supports the process to establish the control
flow of business processes, the resource roles involved, documents being used and it documents instructions for the
execution of steps in the business process. As a result, reports can be generated for process documentation, manuals,
instructions, functional specifications, etc. For the evaluation of the simulation functionality we consider two different
tools, one based on Petri Nets (Protos) and one based on Event-driven Process Chains (ARIS Toolset).
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Protos
Protos is a modelling and analysis tool developed by Pallas Athena and it is mainly applied for the specification
of in-house business processes. Protos is suitable to model well-defined Petri Net structures. Nevertheless, it also
permits free hand specifications of business processes without formal semantics, for example, to support initial and
conceptual modelling. When formal Petri Net semantics have been applied, translation to various other process-based
systems is feasible as well, for example, to the workflow management system COSA and the workflow analyser
Woflan.
The main use of Protos is to define models of business processes as a step towards either the implementation of
quality management systems, the redesign of a business process, communication enhancement between process
stake holders or the implementation of workflow management systems. The process can be analysed with respect
to data, user and control logic perspective and by making use of simulation.
The simulation engine is implemented in Protos version 7.0. The existing engine of the Petri Net based tool ExSpect
has been integrated in the Protos environment and it facilitates the simulation of the business process as has been
specified in the Protos model before. In addition to the standard process specification, simulation data can be added for
tasks, connections and resources such as the (stochastic) processing time and the number of resources required.
Furthermore, process characteristics are added such as the arrival pattern for cases and the number and length of
simulation runs. The simulation result can be obtained from an Excel spreadsheet and includes mean and 90% and
99% confidence interval of utilisation rates, waiting times, service times, throughput times and costs.
ARIS
ARIS simulation is a professional tool for the dynamic analysis of business processes. It is an integral part of the
ARIS Toolset; processes recorded in the ARIS Toolset are used as the data basis for business process simulation.
ARIS Toolset is developed by IDS Scheer AG and can be classified as an enterprise modelling tool with a strong
emphasis on business processes. Enterprise modelling is supported by a number of different views (process, function,
data, organisation and product) and the modelling approach called ARIS House.
The process modelling part supports the definition of business processes represented in Event-driven Process Chains
(EPCs). Other modelling techniques supported in the ARIS House are, for example, value chains (also to model
the control flow), organisation charts (to model relationships between resources), EPCs and function allocation
diagrams (for supplementary information such as data and systems). The simulation functionality shows whether
the specified processes are executable at all and it answers questions about throughput times and utilisation levels
of the resources, etc. When starting a simulation, the simulation module of the tool is started and the model is
transferred. The simulation toolbar shows buttons for start and stop, one time step and simulation steps and options
for animations. The simulation results are available in Excel spreadsheets and include statistics on events, functions,
resources, processes and costs. Only raw data is available.
4.3.2 Business Process Management Tools

Business process management (BPM) systems can be seen as successors of Work- flow Management (WFM) systems.
The core functionality of a WFM system is automating the “flow of work”. With the introduction of BPM the
functionality is broadened to support the whole process life-cycle. BPM is defined as supporting business processes
using methods, techniques and software to design, enact, control and analyse operational processes involving humans,
organisations, applications, documents and other sources of information. Some BPM tools offer a simulation tool
to support the design phase. Most BPM tools, however, do not provide simulation facilities and we use FLOWer
as a representative of this group of BPM tools. Further, we will evaluate FileNet, one of the most advanced BPM
tools. FileNet is evaluated to show what most likely will be the best simulation functionality provided by a BPM
tool. The FLOWer tool is evaluated, regardless his lack of simulation facilities, to illustrate the other end of the
simulation spectrum of BPM tools.
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Introduction to BPO
FLOWer
FLOWer is a flexible, case-based BPM system. When handling cases the system only prevents actions for which it
is specified that these are not allowed. This results in a flexible process where activities for a case can be executed,
skipped or redone. The FLOWer systems consists of a FLOWer Studio, FLOWer Case Guide, FLOWer CFM
(Configuration Management), FLOWer Integration Facility and FLOWer Management Information and Case History
Logging. The graphical design environment, Studio, is used to define processes, activities, precedence, data objects
and forms. Work queues are used to provide work to users (defined with CFM) and to find cases satisfying specified
search criteria. Case Guide is the client application which is used to handle individual cases.
FLOWer Integration Facility provides the functionality to interface with other applications. FLOWer Management
Information and Case History Logging can be used to store and retrieve management information at various levels
of detail. BPM systems, like FLOWer, focus on the configuration of the system and the execution and control of
the workflow. Additional features like the FLOWer Management Information and the FLOWer Integration Facility
are provided. However, FLOWer does not provide explicit simulation or output analysis functionality. We will not
be able to evaluate the simulation and output analysis capabilities of FLOWer, but we can evaluate the modelling
capabilities.
FileNet
FileNet is considered to be one of the leading commercial BPM systems. We have evaluated the strengths and
weaknesses of the FileNet P8 BPM Suite and its ability to support the various parts of the process life-cycle. The
FileNet system includes a FileNet Process Designer, a FileNet Process Simulator, a FileNet Process Engine, a FileNet
Process Administrator and a FileNet Analysis Engine.
First, a process structure is modelled graphically with the Process Designer and tasks are assigned to work queues.
These work queues and the associated users are created outside the Process Designer. Then, the created process
definition is feeded to the Process Engine to start the execution of the workflow. The execution data for individual
cases is logged by the Process Engine and can be accessed with the Process Administrator. Further, execution data is
aggregated and parsed to the Analysis Engine. Reporting and analysis of the aggregated data is facilitated by twenty
out-of-the-box reports; each graphically presenting the data related to one performance indicator.
The Process Simulator in FileNet can be used to evaluate the performance of a created design. The Process Simulator
is a separate tool, which can partly import the created process definition. Other parts of the process definition have to
be re-entered. Simple arrival patterns of cases are defined, that is, a fixed number of cases arrive at fixed time points.
Also historic, execution arrival data can be used. Other performance characteristics should be added manually and
can only have constant values. After simulation an animation and a summary of the simulation results are provided.
Simulation data can also be presented in Excel reports. However, performing what-if analysis (comparing scenarios)
is not possible.
4.3.3 General Purpose Simulation Tools

Simulation tools may be tailored towards a specific domain, such as logistics (for example, Enterprise Dynamics)
or SPEEDES in the military domain. In this section we consider simulation tools that are not tailored towards a
particular domain and we evaluate their suitability for the domain of business processes. The first tool, Arena, has
an industrial background and shows industry successes in manufacturing, supply chain management, military/
defence, health care, contact centres and process reengineering. The second tool, CPN Tools, has been developed
in a university environment and has been applied in more technical engineering domains.
Arena
Arena is a general purpose simulation tool developed by Rockwell Automation. The Arena product family consists
of a Basic Edition for uncomplicated processes and a Professional Edition for more complex large scale projects in
manufacturing, distribution, processes, logistics, etc. The Professional Edition also provides (and allows definition
of) templates for complex repetitive logic, for example, for packaging and contact centres.
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When opening the tool, a number of process panels are available, for example, for basic and advanced processes and
for reporting. The model can be created by drag and drop from the process panel to the model window. By double-
clicking on the icons, options for the different building blocks can be set such as delay types, time units and the
possibility to report statistics. Many more building blocks are available and can be attached when necessary. When a
model has been created and is completely specified (from the Arena viewpoint) and it is syntactically correct, it can
be simulated. Warm-up and cool down periods can be specified, as well as run length and confidence intervals.
Several statistics are provided by default, but the larger part needs to be added manually by adding record building
blocks where necessary. In a previous study, de Vreede et al., considered the suitability of Arena to simulate business
processes. They stated that a weak point in simulating business processes is the time consuming and complicated
process to create simulation models. They took advantage of the possibility to develop their own template with pre-
defined building blocks, which they considered to be successful in several simulation studies they carried out.
CPN tools
CPN Tools is developed by the computing science group of Aarhus University in Denmark. CPN Tools is a tool for
editing, simulating and analysing Coloured Petri Nets. The tool attracts attention with respect to its user interface
which has been designed in cooperation with leading HCI experts and includes a number of novel interaction
mechanisms such as the use of two-handed input by means of a mouse and a trackball. During editing a net (a
process model), feedback facilities provide contextual error messages and indicate dependency relationships between
net elements. The tool features incremental syntax checking and code generation which take place while a net is
being constructed. A fast simulator efficiently handles both untimed and timed nets. Untimed nets are generally not
applicable for modelling and simulation of (realistic) business processes, but several earlier projects already showed
that timed CP-nets can model business processes. Correctness of the developed model can be researched by existing
Petri Net techniques such as the generation of state spaces and the analysis of boundedness and liveness properties,
which are all implemented in CPN Tools. Design CPN is the most widespread software package for modelling and
analysis by means of Coloured Petri Nets. The overview shows a wide variety of mainly technical domain areas
such as protocols and networks, hardware and control systems. Also some projects are listed with a more business
oriented focus, though these are exceptions.
4.4 Evaluation Criteria for BPS Tools

When evaluating BPS tools, the modelling, simulation and output analysis capabilities of the tool are important. In
this section we present our view on these capabilities and specify criteria to evaluate each capability in detail.
4.4.1 Modelling Capabilities

The purpose of the modelling capabilities criteria is to evaluate how well and how precise a business process can
be represented. The modelling evaluation criteria are:
• Ease of model building: Model building should be easy to allow users to be involved in the modelling of their
processes. A graphical user interface with predefined business objects which can be dragged and dropped
facilitates the model building. The hard coding of process parts is hard to perform or understand for users and
should be avoided.
• Formal semantics and verification of correctness: Formal semantics provide a precise and unambiguous
description of the behaviour of the modelled process. Van der Aalst concludes that many modelling techniques
lack formal semantics and thus powerful analysis methods and tools. It summarises three good reasons for
using a Petrinet based workflow management system which appear to be critical in large BPM projects. These
reasons are:
the existence of formal semantics despite the graphical nature
the state based diagrams instead of event based diagrams (as can be encountered in many workflow
products)
the abundance of analysis techniques
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Introduction to BPO
• Workflow patterns: The workflow patterns, or control flow patterns, are used to evaluate then expressive power
of modelling languages. The patterns identify both basic and complex modelling constructs. The number of
supported patterns indicates how well a modelling language can give a good representation of the actual business
process.
• Resource and data perspective: The process model should include the resource and data perspective and not just
the process structure to provide a good representation of the real world situation. Resource and data patterns
capture the various ways in which respectively resources and data are represented and utilised in processes.
• Level of detail, transparency and suitability for communication: Both senior management as well as end users
need to be informed about the process (alternatives), they should be able to validate the model and should be
able to make decisions based on these models. These stake holders have a different need for information; senior
management wants a high level overview, while the end users need detailed work descriptions. Through the use
of, for instance, hierarchical layers processes are be modelled in detail, but without loosing overview.
4.4.2 Emulation Capabilities

The purpose of the simulation capabilities is to evaluate in which way a simulation can be carried out and which
parameter settings can be made. The simulation evaluation criteria are:
Performance dimensions
A simulation model should incorporate the performance dimensions one is interested in. In most cases it should be
possible to simulate several different time and/or costs aspects. Other relevant performance dimensions are quality
and flexibility.
Distributions
The average performance of a simulated process may seem fine while in real life many problems would occur because
of its variability. Queues may be empty at some moments and overloaded at other moments, creating employee and
customer dissatisfaction. Taking into account the distributions of performance characteristics will not only show
the average behaviour of the process, but also its extremities.
Animation
With simulation not only the final simulation results but also the simulation itself can give useful insights in the
simulated process. A replay or animation of the simulation will show the states the simulation model has been in
during simulation. This visualisation might reveal bottlenecks and other problems in the execution of the process.
Scenarios
With the use of scenarios the consequences of changes can be investigated. While the process stays the same, different
configurations of the simulation model reflect potential changes in, i.e., the arrival pattern or resource availability.
With the use of scenarios the effects of changes can be predicted and counter measures can be taken to avoid bad
performance once the change occurs in reality.
4.4.3 Output Analysis Capabilities

The output analysis capabilities aim to evaluate the outcome of a simulation, which data can be analysed and which
representation styles are provided. The output analysis evaluation criteria are:
Statistics
Simulation should provide statistically proper results and it should be clear how these results are calculated. Simulation
settings (e.g., simulation length, number of replications, start and stop conditions) should be indicated to or even
better be set by the user. A random generator should be used for the generation of cases. For each performance
measure not only the mean, but also the standard deviation and confidence intervals should be presented.
Format
The tool should have an easy to read format for the presentation of the results and possibilities for animation, storing
and reuse of results.
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What-if analysis
Before a process design is chosen what-if analysis is performed. In this analysis different scenarios (of the same
simulation model) are compared. The comparison of confidence intervals of a performance measure shows which
scenarios perform significantly better than others on this measure. It also indicates under which conditions a certain
process design will perform within its requirements and under which conditions a performance level can not be
reached.
Conclusion-making support
Conclusion-making support facilitates the interpretation of the simulation results. Useful support is the identification
of trends, the slicing and dicing of data and the tracking of the cause of specific outcomes.
4.5 Comparison of BPS Tools

In the above section we have described six different tools which may be applicable for BPS and which have been
developed from various viewpoints: process modelling, process execution and simulation. In this section we
developed a framework with a set of evaluation criteria to find strengths and weaknesses of these tools. In this
section, we report our findings. We will score the BPS tools for each of the evaluation criteria ranging from good
(++) and neutral (+/–) to bad (– –).
4.5.1 Modelling Capabilities

In this section we evaluate how well and how precise a business process can be modelled in the tools. We provide
a short overview per tool and at the end of the section we summarise the findings in Table 4.1.
Protos
The control flow of a business process and the resources can very easily be specified in Protos, as may be expected from
a process modelling tool. Also the data perspective and instructions for the execution of tasks can be specified. The
tool allows freehand specifications, however it also allows well-defined Petri Net structures, thus opening possibilities
for further verification (for example, in Woflan) and analysis (based on the ExSpect tool). The application of sub
models allows for a transparent process model and handling of resources which can very well be communicated
with process owners. Points for improvement are the possibility to assign different roles to one task and to specify
part time work and overtime. This could be specified, for example, in histograms (which can already be handled by
the simulation engine but is not (yet) allowed in the Protos interface).
ARIS
The control flow part is being modelled in EPCs. This is an informal modelling language and the simulation relies
on the given semantics when the EPC language has been implemented in the ARIS Toolset. It appears that these
semantics are not completely clear, which may result in unforeseen behaviour when using (X) OR connectors.
The models can be conveniently arranged, has functional use of colours for different model elements and supports
hierarchy. Due to the informal language, several workflow patterns cannot be modelled conveniently. Model
verification is not supported by the tool.
FLOWer
With FLOWer it is, on the one hand, possible to handle exceptions and on the other hand, to force a sequential order
handling. Due to this flexibility FLOWer supports most of the workflow patterns. FLOWer is data driven; giving it
a strong data perspective and also the resource perspective is taken into account. Both the process and role graph
can be modelled in several layers of detail.
FileNet
Most BPM tools, including FileNet, use a simple graphical representation of process models without formal semantics
and verification of correctness. With this, users can create and discuss process models without difficulties. More
advanced workflow patterns and also the resource and the data perspective need to be hard coded in FileNet.
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Introduction to BPO
Arena
Arena models can be created very easily, though to specify exactly those things you would like to model is more
difficult. When browsing through a model, the level of detail is very convenient, due to the use of sub models and the
fact that many details are hidden in the icon properties. When creating models, good knowledge about all necessary
building blocks and their exact specification is required. Frequently used control flow patterns are supported, but
some more advanced patterns require a bit more indirect modelling.
CPN Tools
The tool is based on Petri Net modelling techniques and both benefits and suffers from this property: it has formal
semantics, allows for most control flow patterns and can be verified, but the price to be paid is that the models may
be quite detailed and technical. This level of detail is required to model resource handling and corresponding timing
aspects, which is crucial in most business process models. Also, some constructs can only be modelled indirectly,
thus resulting in model parts that can hardly be understood by business process owners. As a result, models cannot be
built easily. Though very powerful, the Petri Net formalism appears to be more difficult to understand than informal
modelling languages. In Table 4.1 our score for the modelling capability criteria for each of the tools is presented.
Feature Protos ARIS FLOWer FileNet Arena CPN Tools

Ease of model building ++ + + + + --
Formal semantics/verif. + - -- -- +/- ++
Workflow patterns + - + +/- + +
Resources and data + ++ ++ +/- + +/-
Level of detail ++ ++ ++ + ++ --
Table 4.1 Modelling capabilities
4.5.2 Simulation Capabilities

In this section, we evaluate in which way a simulation can be carried out and which parameter settings can be made.
We provide a short overview per tool and at the end of the section we summarise the findings in Table 4.2.
Protos
The simulation engine in Protos seems to be working fine. A more detailed look, however, reveals some weaknesses
of the simulation. Apparently, these weaknesses seem to be introduced by the interface between Protos and ExSpect
as the simulation engine of ExSpect itself does not suffer from this. The suggestion of the Protos / ExSpect simulation
tool is that all data specified in the process, task and resource properties are taken into account in the simulation. It
appeared that this is not the case for the number of resources and the data required for a task. As a result, decisions
in the process cannot be made based on data (but instead a probability is calculated based on the weight of outgoing
arcs or follow-up tasks). In addition, problems may occur when using sub-process; in some cases an OR-split can
be changed into an AND-split (though this seems to be a bug instead of a design issue).
All important (standard) performance dimensions are predefined, but it is not possible to add any other dimension.
The same holds true for the possible distributions. The most well-known distributions are available but these cannot
be extended. In the future, distributions based on histograms may be provided to be more flexible in this aspect.
Facilities for animation and scenarios are not available.
ARIS
Before running a simulation, several simulation parameters need to be set: average processing times and distributions,
number of cases being generated, case arrival distribution and probabilities of outgoing arcs from XOR-split
connectors. It is possible to use animation during the simulation and an animation icon can be selected. ARIS is
based on an informal process modelling language. Since the simulation models can be executed, a semantic is
chosen for constructs which leave room for interpretation, that is, (X)OR splits and joins. An example of this is the
choice for a waiting time for incoming branches: if the waiting time has been exceeded, it is assumed that the data
that has arrived already will be processed and that no other data will reach the connector for this particular case. It
is unclear what exactly happens beneath the surface.
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FLOWer
Most BPM tools, including FLOWer, only provide the possibility to test or play with the workflow by launching
some cases and execute them manually. In this sense the workflow engine is used as a runtime simulation engine.
This, however, does not provide explicit simulation functionality.
FileNet
After simulation with FileNet the flow of cases can be replayed in an animation. Both time and costs aspects are
taken into account but without fluctuations because only constant performance measures are used in the simulation.
It is possible to create scenarios of a simulation model, but it is not possible to change the process structure in the
process simulator itself.
Arena
In Arena a model can be simulated by pressing the go-button in the toolbar. The model then enters the simulation
mode and cannot be edited anymore. The simulation can be done step-by-step and in normal and fast-forward
modes. All performance dimensions and frequently used distributions can be added on those places necessary in the
model. Animations are obtained by icons flowing through the model or 3D animations (in a post-processing tool).
Alternative models can be defined and evaluated in the Process Analyser.
CPN Tools
CPN Tools has been developed for simulation purposes and this shows in the simulation capabilities. When a model
(part) has been created, it can be simulated directly, making use of a step-by-step simulation, or a chosen number of
steps. All performance dimensions can be measured in the monitoring part of the tool. A number of standard monitors
are pre-programmed, but most monitors need to be programmed manually. Animation facilities are not available in
the standard tool, but an additional tool (BRITNeY) aims at building and deploying visualisations of Colored Petri
Net Models. Scenarios can be implemented quite easily by creating model versions with adapted model parameters.
In Table 4.2 our score for the simulation capability criteria for each of the tools is presented.

Performance
-- ++ -- + ++ ++
dimensions
Distributions + + -- -- ++ ++
Animation -- + -- + ++ +
Scenarios -- - -- +/- + +
Table 4.2 Simulation capabilities
4.5.3 Output Analysis Capabilities

In this section, we evaluate how well the simulations statistically can be carried out, how well they match the situation
in real life and how the user is supported in the evaluation of the simulation results. We provide a short overview
per tool and at the end of the section we summarise the findings in Table 4.3.
Protos
The simulation results are made available in a very basic spreadsheet, but all important performance dimensions
are listed and supplemented with means and 90% and 99% confidence intervals. However, depending on the data
specified in the process model, the simulation results may be incorrect.
ARIS
The output format is (a set of) Excel spreadsheets, with raw detailed and/or cumulative data. Statistics need to
be calculated manually and support for what-if analysis and scenarios is not directly available in the tool. ARIS
Toolset however has a good interface with other ARIS tools which can provide these, for example, ARIS Process
Performance Manager or ARIS Business Optimiser.
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Introduction to BPO
FLOWer
Most BPM tools, including FLOWer, do not provided simulation functionality and output analysis functionality.
FileNet
The first impression of the performance reports provided by FileNet is a good one. Nice graphics are shown for
different performance indicators and more detailed views are easy to realise. However, a closer look shows that it is
unclear what is presented and how the performance indicator should be interpreted. It is hard to come to conclusions
and there are only averages presented. It is impossible to view the results of one scenario or to compare scenarios,
because the results for all scenarios for a certain simulation model are aggregated.
Arena
Arena provides standard statistics for all performance indicators specified. For each statistic, the minimum and
maximum value is given, as well as mean and half length of the 95% confidence interval. When a simulation has
run to completion, we can see the results in a standard report, it can be analysed later in the output analyser (in
the advanced process panel) or it can be written to an Excel file (by inserting the read-write module). Conclusion
making support is provided in the process analyser.
CPN Tools
Strong point of the tool is the statistically correct output of the simulation. All aspects specified in the process model
are taken into account, thus resulting in good simulation results. The standard output format gives 90, 95 and 99%
confidence intervals. In addition other confidence intervals can be calculated making use of the raw simulation data.
Weak point of the tool is the lack of support when drawing conclusions on the simulations. The output is provided on
a html page and any further processing should be done manually, for example, when comparing different scenarios.
In Table 4.3 our score for the output analysis capability criteria for each of the tools is presented.

Statistics - -- -- - ++ ++
Format - +/- -- +/- + +/-
What-if analysis -- + -- -- - -
Conclusion-making support -- + -- -- + --
Table 4.3 Output analysis capabilities
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Summary
• Business Process Management (BPM) is attracting attention more than a decade now and its attention is now
shifting from the enactment of business processes towards improving business processes.
• Business processes are in a continuous improvement cycle in which design and redesign play an important
role.
• The simulation of business processes helps in understanding, analysing and designing processes.
• Bradley et al defined seven different categories to evaluate business process re-engineering software tools.
• Business Process Modelling tools are developed to describe and analyse business processes.
• Protos is a modelling and analysis tool developed by Pallas Athena and it is mainly applied for the specification
of in-house business processes.
• ARIS simulation is a professional tool for the dynamic analysis of business processes.
• The process modelling part supports the definition of business processes represented in Event-driven Process
Chains (EPCs).
• The simulation toolbar shows buttons for start and stop, one time step and simulation steps and options for
animations.
• Business process management (BPM) systems can be seen as successors of Work- flow Management (WFM)
systems.
• FLOWer Integration Facility provides the functionality to interface with other applications.
• FileNet is considered to be one of the leading commercial BPM systems.
• CPN Tools is developed by the computing science group of Aarhus University in Denmark.
• Model building should be easy to allow users to be involved in the modelling of their processes.
• The output analysis capabilities aim to evaluate the outcome of a simulation, which data can be analysed and
which representation styles are provided.
• Simulation should provide statistically proper results and it should be clear how these results are calculated.
References
• Laguna, M. & Marklund, J., 2005. Business Process Modeling, Simulation and Design, Pearson/Prentice
Hall.
• Manuel, L., Laguna, M. & Marklund, J., Business Process Modeling, Simulation and Design, Pearson Education
India.
• Vullers, J. H. M. & Netjes, M., Business Process Simulation - A Tool Survey, [Pdf] Available at: <http://www.
daimi.au.dk/CPnets/workshop06/cpn/papers/Paper05.pdf> [Accessed 22 January 2013].
• Koubarakis, M. & Plexousakis, D., Business Process Modelling and Design: A Formal Model and Methodology,
[Pdf] Available at: <citeseerx.ist.psu.edu/viewdoc/download?doi...pdf - United States> [Accessed 22 January
2013].
• Pros and Cons of Outsourcing, [Video online] Available at: <http://www.youtube.com/watch?v=90a2qHYqMoU>
[Accessed 22 January 2013].
• Legal Process Outsourcing - How To Do It - Part 1, [Video online] Available at: <http://www.youtube.com/
watch?v=jF6OItE8_Ik> [Accessed 22 January 2013].
Recommended Reading
• Barjis, J., Eldabi, T. & Gupta, A., 2011. Enterprise and Organisational Modeling and Simulation: 7th International
Workshop, Springer.
• Zeigler, P. B., Praehofer, H. & Kim, G. T., 2000. Theory of Modeling and Simulation: Integrating Discrete Event
and Continuous Complex Dynamic Systems, 2nd ed., Academic Press.
• Greasley, A., 2004. Simulation Modelling for Business, Ashgate Publishing, Ltd.
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Introduction to BPO
Self Assessment
1. The field of ______ supports the design, enactment, control and analysis of business processes.
a. BPM
b. BPS
c. BPR
d. EPC
2. ___________ tools are developed to describe and analyse business processes.

a. Business Process Management
b. General Purpose Simulation
c. Business Process Modelling
d. Business Software
3. _________ is a modelling and analysis tool developed by Pallas Athena and it is mainly applied for the
specification of in-house business processes.
a. Woflan
b. ARIS
c. Protos
d. ExSpect
4. _________ simulation is a professional tool for the dynamic analysis of business processes.
a. Woflan
b. ARIS
c. Protos
d. ExSpect
5. Net based tool _________ has been integrated in the Protos environment and it facilitates the simulation of the
business process as has been specified in the Protos model before.
a. FileNet
b. FLOWer
c. ARIS
d. ExSpect
6. _________ integration facility provides the functionality to interface with other applications.
a. FileNet
b. FLOWer
c. ARIS
d. ExSpect
7. ________ is a general purpose simulation tool developed by Rockwell Automation.

a. Arena
b. FLOWer
c. FileNet
d. FLOWer
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8. ________ tools is a tool for editing, simulating and analysing Coloured Petri Nets.
a. BPS
b. Simulation
c. CPN
d. FileNet
9. When evaluating _______ tools, the modelling, simulation and output analysis capabilities of the tool are
important.
a. BPS
b. Simulation
c. CPN
d. FileNet

1. Formal semantics A. Flexible, case-based BPM system
2. The workflow patterns B. Used to evaluate the expressive power of modelling languages
C. Provide a precise and unambiguous description of the behaviour
3. CPN Tools
of the modelled process
4. FLOWer D. Based on Petri Net modelling techniques
a. 1-D, 2-B, 3-A, 4-C
b. 1-B, 2-D, 3-C, 4-A
c. 1-A, 2-C, 3-B, 4-D
d. 1-C, 2-B, 3-D, 4-A
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Introduction to BPO
Chapter V
Outsourcing
Aim
• explicate importance of outsourcing
• explain types of outsourcing
• elucidate the 5 W’s of outsourcing
Objectives
• examine the sales outsourcing
• enlist marketing outsourcing
• describe the precautions to be taken before outsourcing
Learning outcome
• define outsourcing
• understand the advantages of outsourcing
• identify the needs of outsourcing
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5.1 Outsourcing
Outsourcing is contracting with another company or person to do a particular function. Almost every organisation
outsources in some way. Typically, the function being outsourced is considered non-core to the business. The outside
firms that are providing the outsourcing services are third-party providers, or as they are more commonly called,
service providers. Although outsourcing has been around as long as work specialisation has existed, in recent history,
companies began employing the outsourcing model to carry out narrow functions, such as payroll, billing and data
entry. Those processes could be done more efficiently and therefore more cost- effectively, by other companies with
specialised tools and facilities and specially trained personnel.
Currently, outsourcing takes many forms. Organisations still hire service providers to handle distinct business
processes, such as benefits management. But some organisations outsource whole operations. The most common
forms are Information Technology Outsourcing (ITO) and Business Process Outsourcing (BPO). Business process
outsourcing encompasses call center outsourcing, Human Resources Outsourcing (HRO), finance and accounting
outsourcing, and claims processing outsourcing. These outsourcing deals involve multi-year contracts that can run
into hundreds of millions of dollars. Frequently, the people performing the work internally for the client firm are
transferred and become employees for the service provider.
The process of outsourcing generally encompasses four stages:

• Strategic thinking, to develop the organisation’s philosophy about the role of outsourcing in its activities
• Evaluation and selection, to decide on the appropriate outsourcing projects and potential locations for the work
to be done and service providers to do it
• Contract development, to work out the legal, pricing and Service Level Agreement (SLA) terms
• Outsourcing management or governance, to refine the ongoing working relationship between the client and
outsourcing service providers.
In all cases, outsourcing success depends on three factors: executive-level support in the client organisation for
the outsourcing mission; ample communication to affected employees; and the client’s ability to manage its
service providers. The outsourcing professionals in charge of the work on both the client and provider sides need a
combination of skills in such areas as negotiation, communication, project management, the ability to understand
the terms and conditions of the contracts and Service Level Agreements(SLAs), and, above all, the willingness to
be flexible as business needs change.
The challenges of outsourcing become especially acute when the work is being done in a different country (offshored),
since that involves language, cultural and time zone differences.
5.2 The 5 W’s of Outsourcing

The 5 main questions related to outsourcing are given below that would provide you the base for outsourcing:
5.2.1 Who Should Outsource?
Every company can reap big benefits through outsourcing. Outsourcing can change the way companies do business-
through people, processes and technology. Whether B2B or B2C, whether SMEs or large diversified companies or
small home offices, every company can leverage the power of outsourcing for business transformation.
Technology is the key to the competitive edge in the marketplace, and outsourcing helps companies to leverage the
latest and most sophisticated workflow technologies- without capital investment- to optimise their business processes
and get “more bang for the buck.” Outsourcing opens the door to a global talent pool of human resources with the
qualifications and skill sets to harness this technology effectively. The internet along with workflow technology has
streamlined the processing, transfer and delivery of data so that large volumes of work can be quickly and efficiently
completed and delivered.
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Introduction to BPO
Process maturity in the outsourcing arena has revolutionised the way the world conducts business, and radically
improved business processes to make them faster, cheaper and better. Outsourcing has been proven to reduce capital
costs, increase efficiency, speed up time-to-market, reduce labor costs, and enable core business focus. Outsourcing
has actually helped companies find newer and better ways to do things, thus adding value to their products and
services.
5.2.2 Why Should a Company Outsource?

Outsourcing to India appears to be the biggest trend during the recent past. It has several reasons why more and
more companies are looking forward to outsourcing to India. If we put other reasons apart the strongest reason
for outsourcing to India is the human talent this country has and that too at very low costs. In March 2006, India’s
economic growth exceeded 8 per cent and its equity market touched 12000 marks and its foreign exchange reserves
crossed US$100 billion, which was truly unbelievable.
Well that is in reality the performance the Indian economy has just turned in. Along the way, it had shattered a many
a myths which India-watchers (especially sceptics) have long believed. The first myth while outsourcing to India is
that coalition governments in a noisy democracy like India will fail to deliver high growth. Despite their rivalries and
their bickering, all of India’s main political parties primarily agree on most structural reforms the need for a stronger
and greater emphasis on growth rather than redistribution; clearer policy frameworks in infrastructural areas like
telecom and roads; power, more open policies on external trade and foreign investment; faster fiscal and financial
reforms and more aggressive slashing of red tape. Though, in labor reforms and privatisation, there are significant
differences of view, yet when it comes to Outsourcing to India the companies are getting what they want.
The second myth of outsourcing to India is that high growth is not possible without equal high- quality infrastructure.
India’s infrastructure remains inadequate (leaving perhaps, the telecom sector), yet, growth has been satisfactory and
more and more companies are outsourcing to India. It is true however, that this is unlikely to be sustained without
infrastructure development. But this is now happening in India:
• the country’s construction industry as well as capital goods industries like cement and steel is in overdrive,
• feeding a frenzy of nationwide road-building program,
• the building of hundreds of malls, a housing boom, multiplexes, office complexes and industrial parks in cities
across the country.
Another myth while outsourcing to India is that the country is strong in services rather than manufacturing. This
is not true today than it was a couple of years ago. After having incorporated new technologies, bagging hundreds
of OEM contracts and focusing on export markets India’s manufacturers have grown up and are now globally
competitive in many areas, including autos and auto-parts, pharmaceuticals, chemicals and an array of engineering
and capital goods. India’s economy is no longer just an IT- service, outsourcing-driven story, back- office, as is widely
perceived. The new emerging areas are in the technology related and engineering services area and outsourcing in
these areas is projected to grow to $ 40 billion by 2020.
Outsourcing gives:
• the competitive edge- through sophisticated technology and people
• support to do tasks faster, better and cheaper
• operational efficiencies without capital investment
• leading-edge e-business infrastructural support and facilities
• management
• better performance
• lower cost
• security
• process maturity
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5.2.3 What Should a Company Outsource?
Outsourcing is a technology- driven, process- centric service business. Business process outsourcing (BPO) refers
to definable, repeatable business processes that involve scale and volume. Research and Analysis outsourcing
is the higher end of the BPO spectrum, involving advanced analytical skills, domain knowledge, expertise and
judgment.
5.2.4 When Should a Company Outsource?

• When you want to focus on your core business and leave tasks that are not mission-critical to those expert in
doing them
• When you want it fast, you want it now, you want it cheaper and better- and you don’t have the time, money
and people to do it all yourself
• When you need specialised skills which are which aren’t readily available in your market- or cost the earth
• When you want to gain the competitive edge
5.2.5 Where Should a Company Outsource?

Firms are considering outsourcing more than ever before- and their choices are growing by the minute. The company
should outsource keeping in mind costs, geographical locations, cheap labor, and high quality service and price
competitiveness.
5.3 Benefits of Outsourcing

The following are some of the benefits of outsourcing:
• Cost savings: The lowering of the overall cost of the service to the business. This will involve reducing the
scope, defining quality levels, re-pricing, re-negotiation, cost re-structuring.
• Improve quality: Achieve a step change in quality through contracting out the service with a new Service Level
Agreement.
• Knowledge: Access to intellectual property and wider experience and knowledge.
• Contract: Services will be provided to a legally binding contract with financial penalties and legal redress.
• Operational expertise: Access to operational best practice that would be too difficult or time consuming to
develop in-house.
• Staffing issues: Access to a larger talent pool and a sustainable source of skills.
• Time zone: A sequential task can be done during normal day shift indifferent time zones- to make it seamlessly
available 24x7. Similar can be done on a longer term between earth’s hemispheres of summer/winter.
• Increase in business: Benefit of outsourcing is seeing a big increase in your profits, productivity, level of quality,
business value, business performance and much more.
• Concentrate more on your core business: One of the benefits of outsourcing is that your organisation will be
free to concentrate on your core business. By outsourcing all your non-core functions, your employees can be
put to better use and you will be able to see a huge growth in your core business.
• Make faster deliveries to customers: Another benefit of outsourcing is that you can make quicker deliveries to
customers. Your outsourcing partner will be able to provide faster deliverables and you in turn will be able to
make quick deliveries to your customer. Faster deliveries can also help you save on time.
• Improved customer satisfaction: With timely deliveries and high-quality services you can impress your customers.
Outsourcing can help you benefit from increased customer satisfaction and your customers will remain loyal
to your organisation.
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Introduction to BPO
5.4 Disadvantages of Outsourcing

The disadvantages of outsourcing are as follows:
• Loss of control
• Quality problems
• Slow response time
• Can’t understand foreign accents
• Slow resolution times
• Can’t produce desired results
• Reduced sales
• Irritated customers
• Irritated employees, unions, people within community
5.5 Types of Outsourcing

Given below are the types of outsourcing:
5.5.1 Nearshoring
Nearshoring is one of the forms of outsourcing, where an organisation outsourcers its business processes to an
outsourcing partner who provides cheaper services. The main differentiator between offshore outsourcing and
nearshore outsourcing is that the outsourcing partner in nearshore outsourcing is located geographically closer than
the outsourcing partner in offshore outsourcing. The term “Nearshore” has been taken from the fishing industry and
now it is used widely in the world of outsourcing.
Advantages of nearshore outsourcing are as follows:

• Closer proximity
• Both the outsourcer and the vendor are in the same time zone
• Better coordination and communication
• Similar culture, mindset and language
• Frequent visits to the outsourcing partner is possible
• Greater efficiency
5.5.2 Offshoring
Offshoring simply means having the outsourced business functions done in another country. Frequently, work is
offshored in order to reduce labor expenses. Other times, the reasons for offshoring are strategic- to enter new
markets, to tap talent currently unavailable domestically or to overcome regulations that prevent specific activities
domestically.
5.5.3 Onshoring
Onshore outsourcing (also called domestic outsourcing) is the obtaining of services from someone outside a company
but within the same country. It is the process of engaging another company within your own country for BPO or
ITO services.
Advantages of offshoring and onshoring are as follows:

• Reduce and control operating costs
• Improve company focus on its core competencies and strategic imperatives
• Access to world-class capabilities and best of breed technology
• Re-allocate internal resources to higher-value purposes
• Address the issue of limited internal resources
• Accelerate re-engineering/transformation efforts
• Manage more effectively a difficult or problematic function.
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5.5.4 Information Technology Outsourcing
IT outsourcing occurs when an organisation contracts a service provider to perform an IT function instead of
performing the function itself. The service provider could be a third party or another division or subsidiary of a
single corporate entity. Increasingly, organisations are looking offshore for the means to minimise IT service costs
and related taxes. Many times, the outsourcing decision results in a transfer or sale of the information processing
assets and the people who performed the in-house function to the service provider.
Outsourcing is also a common option for start-up operations and for organisations entering new business lines.
Rather than devoting time, energy and capital to the creation of IT processing services, organisations feel they
can minimise the start-up time required to enter new markets by contracting a third party to provide those services
immediately. IT outsourcing is an attractive option for many organisations. IT outsourcing should be an integral
part of an organisation’s overall business strategy, involving senior executives and key IT staff. The rationale for
pursuing outsourcing options involves the strategic, financial and technological benefits to be gained.
5.5.5 Knowledge Process Outsourcing

Knowledge process can be defined as high added value processes chain where the achievement of objectives is
highly dependent on the skills, domain knowledge and experience of the people carrying out the activity. And when
this activity gets outsourced a new business activity emerges, which is generally known as Knowledge Process
Outsourcing. Knowledge Processing Outsourcing (popularly known as a KPO), calls for the application of specialised
domain pertinent knowledge of a high level. In fact, it is the evolution and maturity of the Indian BPO sector that
has given rise to yet another wave in the global outsourcing scenario: KPO or Knowledge Process Outsourcing. The
success achieved by many overseas companies in outsourcing business process operations to India has encouraged
many of the said companies to start outsourcing their high-end knowledge work as well. Cost savings, operational
efficiencies, availability of and access to a highly skilled and talented workforce and improved quality are all
underlying expectations in outsourcing high-end processes to India.
5.5.6 Business Process Outsourcing

Business process outsourcing (BPO) is the contracting of a specific business task, such as payroll, to a third-party
service provider. Usually, BPO is implemented as a cost-saving measure for tasks that a company requires but does
not depend upon to maintain its position in the marketplace. BPO is the process of hiring another company to handle
business activities for you. Business process outsourcing is the latest thing to affect all the industries in a positive
way. (BPO) Business Process Outsourcing has a common thing for every business. It helps the businesses take care
of certain tasks, which, if done in house, will prove to be nothing but a waste of time, and both financial and human
resources. Every business has various tasks to be taken care of, both internal and external. These tasks also involve
some, not worthy of the time, money, and manpower, which could be spent on something better and more productive.
But still, these tasks have to be finished. This is where BPO business process outsourcing comes in handy.
A company can acquire business process outsourcing service for many types of work. But, the services provided
are broadly divided into two groups. The first one is for the internal operations or tasks, and is called the back office
outsourcing. It tackles various operations within the organisation. For instance, a company may hire a business process
outsourcing company for the purpose of hiring or payroll. The other type of business process outsourcing services deal
with the external operations of a company. These could be anything such as providing customer services, providing
technical support to the customers, or anything similar. Such services are called front office outsourcing.
Benefits derived from BPO can be summarised as follows:

• Productivity improvements
• Access to expertise
• Operational cost control
• Cost savings
• Improved accountability
• Improved HR
• Opportunity to focus on core business
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Introduction to BPO
5.6 Sales Outsourcing: How is it Done?

Well within subject marketing, they are usually involved in sampling and other in retailer activation campaigns.
Outsourcing income could carry about a substantial uplift in income figures, and this is simple to examine- basically
allocate a nearby, small- expression deal for sales operate to the subject marketing and advertising agency of your
choice and analyse their overall performance on your own.
Revenue outsourcing can outcome in each improved product sales and diminished advertising expenses. This is since
outsourcing can diversify your company’s income initiatives and increase your listing of consumers. Businesses
that utilise exterior revenue associates accelerate their business success by improving the amount and good quality
of their income.
Product sales outsourcing makes it possible for all enterprise partners to share both risks and benefits. Total,
marketing and advertising ROI is first-class due to the fact of higher closing ratio and decreased bills associated
with every sale.
Need for income outsourcing

• When your business has a modern, groundbreaking solution to bring to the market place.
• When your enterprise is experiencing an incredible turnover rate.
• When producing an immediate revenue method can be expensive and when replacing below- carrying out
income people can boost your fees.
• When outsourcing solutions will introduce refreshing tips and enhance your enterprise technique.
• When you want to get the upcoming level of organisation growth swiftly and efficiently and want exterior
income and promoting and advertising experts to assist you remain ambitious in your sector.
• When you discover that attaining your gross sales amount and income objectives is turning into more and more
time consuming and complex.
• When you require blending your outsourced sales remedies with your promoting and advertising methods.
• When you demand revenue companions to develop a revenue- producing and expense- cutting solution.
5.7 Benefits of Sales Outsourcing

In essence, then, your enterprise demands to outsource to obtain a proficient group of men and women who will
function for an acceptable compensation. Outsourcing will reduce your expenses and lower down on your taxes.
In addition, outsourcing will improve the performance of your enterprise, consequence in an increased amount of
consumer pleasure, enable you to speedily reposition your income teams to consider edge of a new industry possibility,
and free of charge up you are to look into developing new earnings streams to boost profitability.
Any one of these enhancements will accelerate your enterprise achievement and all of them mixed will get your
organisation to an entire new degree. Like an electric powered change, your enterprise will be in a position to switch
the revenue outsourcing services on and off as essential.
Right after you have discovered the appropriate outsourcing organisation for your company wants, dependent on
analysis and trustworthy referral, you should make it extremely very clear to the outsourcing firm exactly what you
need to have, when you need it, and how you need to have it. Once you are new product sales staff understands
your enterprise and how they can aid it develop, they will be ready to boost your revenue. Be very clear about time
limits, sales quotas, and everything else you think about vital to the good results of your sales.
5.8 Marketing Outsourcing

Marketing outsourcing is not a very new concept as has been talked about. It has been around on a small scale basis for
ages. In comparison to IT, marketing outsourcing is a weathered fellow, but with bigger processes and opportunities
today. With businesses booming and sales orders touching billions of dollars, the capabilities and resources of
companies are under severe stress. This is where outsourcing steps in. Many large scale companies are able to cope
with massive projects because they outsource crucial functions to experts. Considering the rise of content, email
marketing and more recently, social media marketing, outsourcing these have become an important factor.
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5.9 Marketing Outsourcing as a Business Model
Marketing outsourcing revenues grew by a steady 8% in the year 2011. This is a positive sign in times of economic
turmoil and upheaval. This statistic gives us an in depth understanding of the reach and power of marketing
outsourcing and why it has become so popular and wildly successful. Various avenues have opened up for the
discerning marketer. Be it advertising, sales, content, websites, you name it and there is an opportunity waiting to
be capitalised on. Marketing outsourcing as a whole is a huge concept and it encompasses the entire spectrum of
marketing ranging from advertising the product to after sales support. Marketing gurus have been quick to point
out that this is the new order of the millennium.
Over the years, marketing has evolved, from rudimentary times of sales person’s knocking on your door, regaling
you with benefits of the product umpteen numbers of times. Television brought advertising into the drawing room.
Millions were spent of 10 second adverts using every trick in the book to make the product, however poorly incapable,
look phenomenal. As time passed, people became aware of the massive misrepresentation of information and how
unidirectional it had become. And round about the same time, the internet emerged. With its set of interactive
features, reach and growth potential, the printed word was going online, being read and acted upon. This threw
open a whole bag of opportunities, businesses woke up to its power and everything went viral. Marketing divisions
in many businesses are big; teeming with ideas and yes, the money is good. But with the marketing scene changing
dramatically, selling a product has become a chore and not a joy.
The initial reason for the outsourcing phenomenon to work is as follows:

• Lower cost per project
• Higher ROI
• Faster deliverability
• Availability of specialised talent
These are fantastic benefits to say the least, and the smart marketing CEO latched onto it. When it was in its nascent
stage, marketing outsourcing was not streamlined as it is now. A business process and flow were created to manage
the huge inflow of projects.
5.10 Different Types of Marketing Outsourcing

There are three different core types of marketing outsourcing companies. They are classified according to the way
in which they operate:
Project based
Project based outsourcing companies are small scale, working on independent needs of larger companies. These
companies have very focused teams driving the projects and are able to provide better results than larger corporations.
On the downside, they are low on resources and may not be able to gain bigger contracts due to constraints
within.
Customer based
Customer based outsourcing companies take up complete marketing duties for the customer. This is typically seen
with larger corporations who outsource their entire marketing operations to a vendor. There are advantages such as
cost effectiveness and marketing worries being transferred out of the company corridors. It adds a lot of value to
the customer because they can dedicate their energies towards core functions of the company. Disadvantages are
that ideas can clash and the customer may not be fully satisfied with the endeavours of the vendor. Responsibilities
are tremendously huge and hence they need to be taken care of in a very professional manner.
Project and customer based

Project and customer based companies are doing the best business now. They have a good mix of complete marketing
outsourcing for products and also take independent projects. For a marketing outsourcing company to become a
project and customer based provider is not an easy task and requires a lot of effort and streamlined processes.
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Introduction to BPO
5.11 Ten Precautions while Outsourcing

Precautions need to be taken while outsourcing work due to various reasons like money, time, availability of
manpower and many more. There are many risks involved during process of outsourcing and thus it is imperative
to choose the right service provider. The outsourcer should be honest and efficient with good communication skills.
This is not a big and difficult task and all one has to do is ask the right questions.
Below are some of the pointers that one should keep in mind while choosing an outsourcing company:
• Do your homework properly. Find out for how many years the company has been outsourcing. Get adequate
information on the company as to the strength of the company and their financial situation.
• Find out about the quality of the services provided by them, for example, whether they have an ISO and CMM
certifications. Customer reference and recommendation are the best way to figure out a company’s services.
• Before you finalise the outsourcing company it is pertinent for you to take into consideration all the hidden costs
from maintenance, training, connectivity/infrastructure, transition and many more, instead of just the obvious
costs such as licensing and consulting costs.
• Ensure that the company does not make unrealistic promises and keeps them.
• The outsourcing company should meet requirements in respect to data privacy including infrastructure security
(firewalls, access controls, data encryption, and many more) and human resource related like pre-recruitment
precautions and checks, non-disclosure agreements, and many more.
• Ensure that the company offers business continuity and disaster mitigation plans as a means of reducing your
business related risks.
• Companies have to be honest when dealing with invoicing and material type of contract. Always check for
referrals of customer for ensuring that the company is honest in financial dealings.
• Ensure that the company chosen for outsource work is compliant with statutory laws.
• The company chosen should match work culture and ethics. This will help offshore in carrying out smooth
communication with the company.
• Ensure that the chosen company has well trained professionals on their staff and good capacity to handle the
work.
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Summary
• The outside firms that are providing the outsourcing services are third-party providers, or as they are more
commonly called, service providers.
• Organisations still hire service providers to handle distinct business processes, such as benefits management.
• Outsourcing success depends on three factors: executive-level support in the client organisation for the outsourcing
mission; ample communication to affected employees; and the client’s ability to manage its service providers.
• The process of outsourcing generally encompasses four stages namely, strategic thinking, evaluation and
selection, contract development and outsourcing management or governance.
• Technology is the key to the competitive edge in the marketplace.
• The internet along with workflow technology has streamlined the processing, transfer and delivery of data.
• Process maturity in the outsourcing arena has revolutionised the way the world conducts business, and radically
improved business processes to make them faster, cheaper and better.
• Business Process Outsourcing (BPO) refers to definable, repeatable business processes that involve scale and
volume.
• The company should outsource keeping in mind costs, geographical locations, cheap labor, and high quality
service and price competitiveness.
• Knowledge process can be defined as high added value processes chain where the achievement of objectives is
highly dependent on the skills, domain knowledge and experience of the people carrying out the activity.
• BPO is the process of hiring another company to handle business activities for you.
• Businesses that utilise exterior revenue associates accelerate their business success by improving the amount
and good quality of their income.
• Outsourcing will reduce your expenses and lower down on your taxes.
• For a marketing outsourcing company to become a project and customer based provider is not an easy task and
requires a lot of effort and streamlined processes.
References
• Burkholder, C. N., 2006. Outsourcing: The Definitive View, Applications, and Implications, John Wiley &
Sons.
• Greaver, F. M., 1999. Strategic Outsourcing: A Structured Approach to Outsourcing Decisions and Initiatives,
AMACOM Div American Mgmt Assn.
• Why Outsource? [Online] Available at: <http://www.kpoexperts.com/outsourcing/why-outsource.htm> [Accessed
23 January 2013].
• Outsourcing, [Online] Available at: <http://www.scribd.com/doc/9760596/Outsourcing> [Accessed 23 January
2013].
• Sales Outsourcing Advice, [Video online] Available at: <http://www.youtube.com/watch?v=f7D9D7dshPc>
• Outsourcing Marketing Tasks for Your Business [Video online] Available at: <http://www.youtube.com/
watch?v=G3WFvnz8khU> [Accessed 23 January 2013].
Recommended Reading
• Brown, D. & Wilson, S., 2005. The Black Book of Outsourcing: How to Manage the Changes, Challenges, and
Opportunities, 1st ed., Wiley edition.
• Ducker, C. C., 2012. The Definitive Guide to Outsourcing to the Philippines, Amazon Digital Services, Inc.
• Power, M., Desouza, C. K. & Bonifazi, C., 2006. The Outsourcing Handbook: How to Implement a Successful
Outsourcing Process, Kogan Page.
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Introduction to BPO
Self Assessment
1. Outsourcing is a technology- driven, ___________ service business.
a. customer-centric
b. processing
c. product-centric
d. process-centric
2. The Business Process Outsourcing deals involve _________ contracts that can run into hundreds of millions
of dollars.
a. multi-year
b. single-year
c. priority
d. good
3. _________________ outsourcing is the higher end of the BPO spectrum, involving advanced analytical skills,
domain knowledge, expertise and judgment.
a. Information Technology
b. Research and Analysis
c. Knowledge Process
d. HR
4. Outsourcing opens the door to a ______________ of human resources with the qualifications and skill sets to
harness this technology effectively.
a. customer relationships
b. technology
c. global talent pool
d. process maturity
5. Customer reference and _____________ are the best way to figure out a company’s services.
a. trust
b. satisfaction
c. recommendation
d. feedback
6. Which of the following statements is true?

a. Business Process Outsourcing (BPO) refers to definable, repeatable business processes that involve scale
and volume.
b. Offshore outsourcing is the obtaining of services from someone outside a company but within the same
country.
c. Nearshoring is known as domestic outsourcing.
d. Customer based outsourcing companies are small scale, working on independent needs of larger
companies.
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7. ____________ is one of the forms of outsourcing, where an organisation outsourcers its business processes to
an outsourcing partner who provides cheaper services.
a. Offshoring
b. KPO
c. BPO
d. Nearshoring

A. Pricing and Service Level Agreement(SLA)
1. Front office outsourcing
terms
B. Providing technical support to the
2. Payroll
customers
3. Customer- based marketing outsourcing C. Function of outsourcing model
4. Contract development D. Adds a lot of value to the customer

a. 1-B, 2-D, 3-A, 4-C
b. 1-B, 2-C, 3-D, 4-A
c. 1-D, 2-A, 3-B, 4-C
d. 1-A, 2-D, 3-C, 4-B
9. _______________________ is the contracting of a specific business task, such as payroll, to a third-party

service provider.
a. Information technology outsourcing
b. Offshoring
c. Business process outsourcing
d. Knowledge process outsourcing
10. Business process outsourcing encompasses which of the following?

a. Information technology outsourcing
b. Finance and accounting outsourcing
c. Legal process outsourcing
d. Overall outsourcing
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Introduction to BPO
Chapter VI
Challenges in the BPO Industry
Aim
• explicate importance of challenges in the BPO industry
• explain the challenging factors of BPO
• elucidate the importance of selecting the right service provider
Objectives
• examine what attrition is
• explicate the attrition rates
• describe the effects of attrition
Learning outcome
• recognise the multilevel approach for attrition
• understand the win-win model
• identify the needs of the employee and the employer
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6.1 Challenges in the BPO industry
The major challenges to the BPO companies in present scenario are as follows:
No clear strategy
There are numerous good reasons to outsource, but the worst is not to have a reason. Some companies suffer with the
“us too” complex. This arises when a competitor is successfully outsourcing, so it must be good for your company
too. BPO should create added value for the company and shareholders by releasing resources from spending
time on accounts payable, invoicing and general ledger processing to focus on strategic analysis, finance mission
development and policy setting and approval. BPO can also add value by integrating different functions within
your organisation that otherwise could not be cost-justified, and, at the same time, provide the necessary resources
to maintain the integration. Some companies even take it a step further and partner up with the service provider to
develop new tools and processes. The risk and rewards are then shared between the two, including revenue created
from offering the tools and processes to other organisations.
Selecting the right service provider

When evaluating a BPO service provider, the three key criteria to look for are: a proven track record, technical
excellence and the ability to deliver improvement. When evaluating any potential service provider, these are some
of the essential questions to ask:
• is the supplier aligned to the strategic goals of the business?
• does the supplier understand the business today and will they have the ability to in the future?
• is the supplier being innovative in solving long-term business issues?
• does the relationship add any value to core business operations?
The most effective method of answering these questions is to talk to existing clients, preferably within the same
industry as your organisation. Learn from their experience- identify the issues they encountered and their method
of resolution.
Contract negotiation
Service level agreements (SLAs) lie at the core of the BPO contract. These identify the service deliverables
and expectations of your service provider. Good contracts will also describe the reporting methods for service
levels measurement, how, when and the level of attainment required. This will include any potential penalties or
benefits.
An important issue that is often missed from the contract is the termination or the strategy. Legally, both the parties
should have an agreement for how to terminate the contract at any point in time, should it be necessary.
Creating a successful relationship

On this point, traditional IT outsourcing and BP are no different. It is essential that you have a good relationship
with your service provider to achieve a successful outsourcing contract. IT service providers do not yet appreciate
the importance of this. It is imperative that the client and service provider trust each other. If there is no trust, there
will be mistrust. This will create issues for each party. The relationship will become intellectual, the service will
suffer and communication will break down.
Recession/slow-down
A recession is a decline in a country’s gross domestic product (GDP) growth for two or more consecutive quarters
of a year. A recession is also preceded by several quarters of slowing down. A recession normally takes place when
consumers lose confidence in the growth of the economy and spend less. This leads to a decreased demand for goods
and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment. Investor’s
spend less as they fear stocks values will fall and thus stock markets fall on negative sentiment.
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Introduction to BPO
The defaults on sub-prime mortgages (home loan defaults) have led to a major crisis in the US. Sub-prime is a high
risk debt offered to people with poor creditworthiness or unstable incomes. Major Banks have landed in trouble
after people could not pay back loans. The housing market soared on the back of easy availability of loans. The
realty sector boomed but could not sustain the momentum for long, and it collapsed under the gargantuan weight of
crippling loan defaults. Foreclosures spread like wildfire putting the US economy on shaky ground. This, coupled
with rising oil prices at $100 a barrel, slowed down the growth of the economy.
US economy is facing a downturn period. The economy that has been the driving force for the economies of other
developing nations is in its slump time. The calculations say that this downfall of US will affect the IT industries
and other sectors of the most nations. The analysts are calculating the effect of US recession on Indian Economy
and its various sectors. They are reckoning the effects of this downfall period on Indian Exports, IT developments,
growth in Software sector and BPO sector.
The fear of a recession looms over the United States. And as the cliché goes, whenever the US sneezes, the world
catches a cold. This is evident from the way the Indian markets crashed taking a cue from a probable recession in
the US and a global economic slowdown. Weakening of the American economy is bad news, not just for India, but
for the rest of the world too. There is news that expose US call centers are not much involved in proactive customer
service.
The experts are foreseeing these factors as the opportunities for Indian BPO industry. They are advising that Indian
BPO sector should place itself in the USBPO shoes to reinvent the services of the customers that otherwise use the
US services. The BPO sector will keep on booming as it is an essential service. The fact that besides many promises,
Indian IT industry is slowing down and the effects could be seen in its current policies. There have been shrinking
absorption of labor and decline of many other services cannot be argued. But the reports clarify that this will not
be same for the BPO sector.
The reports state that Indian BPO sector has the potential of reaching US $1.6 billion by 2008 and US $50 billion by
2012, with this recession continuing. This sector will add 2.5% to India’s GDP growth. It will provide employment
to about two million people. But achieving all the success depends on the way BPO players will take the change.
They have to remain focused to grab the opportunities that US recession has offered them. This growth factor is
dedicated to the arising prospects in domestic sector. The BPO industry can turn to the evolving break in domestic
market.
The current economic meltdown in the United States and other developed countries is likely to benefit the Indian
BPO industry as it would compel more companies in these markets to look at outsourcing as a way to cut costs and
enhance efficiencies.
While it is true that the INR has appreciated against the dollar to record levels over, hence, the real issue is not
that the INR is appreciating, but that the USD is depreciating .To track the dollar that has been falling against all
currencies. Thus, to be quite honest, it certainly is not strengthening of the rupee, but rather the weakening of the
dollar. The world adopted dollar as the reserve currency because of its ability to withstand any kind of onslaught.
The main reason behind falling of dollar against rupee and various other currencies is that’s because the US is
running a historically high trade deficit (it imports more than what it exports). It is simple- bigger the trade deficit
faster will be the dollar’s decline. The average US consumer has become a buyer instead of a seller. This acted as
a double-whammy. While, on the one hand, the US wealth was getting transferred to other countries in the form of
imports (when the US imports, exporting countries earn foreign exchange), financial speculation was slowly giving
way to bubbles in the stock markets and the reality sector.
There is rising concern over the steep appreciation in the rupee, was putting a strain on BPOs. The impact is more
severe in the case of BPOs as most of their expenses are in rupee. The Information Technology (IT) and Business
Process Outsourcing (BPO) companies in India felt the pinch as 70 percent of the payment by the clients was done
in dollars resulting in losses for companies in this sector. In this connection, Nasscom President Kiran Karnik said,
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There will be no impact of the rupee appreciation on the top lines of companies. As far as profitability goes, the
impact will be less on the bottom lines of big (top-tier IT Companies) companies and for small IT companies, the
impact will be big as they have little lever to safeguard their earnings due to rupee appreciation through hedging,
moving more work onsite.
The rupee’s strong performance is expected to force the pace of consolidation among these but a shift to lower cost
destination is also likely. On the positive side, marketing and other promotional costs will come down. The bigger
companies, some of them with iconic status, have a special responsibility in continuing to boost productivity, innovate
and improve on their already successful global delivery model. For the top companies, a rising rupee need not be a
threat; it could spur a move towards greater innovation and efficiency.
This time is the major sustainability test or BPO sector. Indian BPO sector will continue to boom in the adverse
conditions also. It will have the significant growth in coming years and will bring large revenues for Indian economy.
It will polish the shine that India is having in BPO sector.
Attrition
The single largest worry of the BPO industry is attrition. In the outsourcing context, attrition means a gradual
reduction in the number of people working in a company due to retirement, resignation or death. The rate of attrition
in the BPO industry in India is currently nearly 50%. Attrition in individual firms varies from 15% in the larger
firms to up to 40% in the smaller ones. Analysts believed that if this left unchecked, there would be a shortage of
professionals.
Attrition Rates (%):

US - 42%
Australia - 29%
Europe - 24%
India - 18%
Global average- 24%
• US economy slowing down- particularly the Banking and Insurance segments

• Lack of incentives from the Government- sunset chase for STPI units
• Failure to attract and retain top talent at all levels- Executive, Middle and Senior management
• Bad media publicity- always showing the ill effects of working
• Failure by the companies to project ‘careers’ instead of ‘jobs’
• Poor perception by job seekers
6.2 Attrition
Attrition in the BPO industry is one of the biggest issues which the growing ITES industry in India is facing. The
effects of attrition are wide varying and impacts the firms in terms of losses (due to training and administration
cost, high recruitment cost), incompetent processes, inability to offer services for highly technical process Attrition
though a nuisance also has some associated benefits along with such as low cost of operation, knowledge sharing
amongst the firms benefiting the overall industry in increasing its competencies.
Attrition usually occurs on two fronts- people leaving the industry and people shifting jobs inside the industry. Both
of them have separate causes. The Maslow’s framework helps in giving a better perception about the motivation
of the employees in the BPO industry and identifying gaps in their expectations which needs to be filled up. The
Win-Win Model, highly recommended by the analysts, endeavours to satisfy the needs of both the employer and
employee. The model encloses the employee by 4 levels of strategies thus reducing the attrition rate as well as
minimising the impact whenever it occurs. It is a 4 stage framework consisting of:
• Short term mitigation plan
• Short term contingency plan
• Long term mitigation plan
• Long term contingency plan
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Introduction to BPO
Various measures have been identified within each level of strategy to help in managing attrition creating a win-win
situation for the industry as well as its stakeholders.
6.2.1 About the Industry

Business Process Outsourcing (BPO) is the delegation of one or more IT-intensive business processes to an external
provider that in turn owns administers and manages the selected process based on defined and measurable performance
criteria. Business Process Outsourcing (BPO) is one of the fastest growing segments of the Information Technology
Enabled Services (ITES) industry. The Indian business process outsourcing industry, roughly around 4-5 years old,
is growing at a phenomenal pace. The number of BPO companies in Indian cities has mushroomed from a handful
a few years ago to about 500 in 2004. The size of the Indian BPO market is likely to be around $9-12 billion by
2006 and will employ around 400,000 people (ICRA, Indian BPO industry report).
For a fresh college graduate, a call centre job pays about 2.5 times as much as other job openings. And the boom
shows all signs of continuing considering that the cost per transaction in India are estimated to be the lowest at
29 cents compared to 52 cents in China. Even after displaying impressive statistics about the growth and future,
the BPO industry in India is bleeding with heavy attrition. According to several recruitment firms in the country,
attrition in the ITES (IT enabled services)-BPO industry is close to 35-40 %. The worse news is that, this is only
the reported figures and the actual figures are much higher and can be as high as 80%annually. Nasscom in a report
said the outsourcing industry was expected to face a shortage of 262,000 professionals by 2012. This impediment
is likely to affect the industry severely in the long run by creating a man power shortage as well as bringing up the
cost arbitrage on which the Indian industry is playing at the moment.
Attrition cannot be blindly classified with a negative connotation. A healthy attrition rate in any industry is necessary
for new ideas and innovation to flow in as well as to facilitate the overall growth of the industry in terms of knowledge
sharing. But after a particular level the same boon becomes a bane. Recruiters explain that the high attrition rates
significantly increase the investments that are made on the employees. The problem of losing funds in employee
acquisition is more prominent in the high-end BPO segment. Companies invest a lot of time and money in training
a candidate for the first four months. But these investments do not always get converted into actual profits. In case
of the BPO industry, each agent level recruitment roughly costs the company Rs. 5000/-. This is the amount which
a company needs to pay the job recruitment agency. Other than the direct cost, an associated cost of training and
administrative service is also involved. Each agent works is non-productive or partly productive in the organisation
for nearly the first 2-3 months. Hence an employee leaving the organisation within the first 6 months is a bad
investment for the company.
Also, as stated earlier the cost of attrition in the industry is 1.5 times the annual salary. However, there is another
perspective for attrition which is specific to the BPO industry in India. India at the moment is working on low end
Business Processes which do not require quite a lot of amount of high skills. The reason for India’s success has been
primarily the low cost, high quality labor which India provides. Compared to other competitors such as Philippines,
South Africa, Ireland; India is the only country where we have a balance between the cost involved and the quality
provided till now.
For Indian companies to remain successful in future they would have to keep the cost low. Since the tasks performed
by an agent are pretty standard and does not require added skills, there is no benefit in retaining a highly experienced
employee. At the floor level operation, a non-experienced candidate could work with the same efficiency of a 2-3
year experienced employee after minimal training. Hence the industry players consider the present attrition as a
positive attrition which is serving the industry by keeping the cost low.
6.2.2 Causes
Attrition in the BPO industry is twofold. One part of the attrition is where the employee leaves the industry entirely.
The other section of attrition is where the employee joins another firm in the industry. Both the sections have separate
reasons which need to be identified. The primary reason for people leaving the industry is due to the cause that the
industry is viewed as a gap filler occupation. There seems to be a flaw in the way the industry is structured. The
industry has been mainly dependent on youngsters who are taking out time to work, making money in the process
also while thinking of career alternatives. Hence for this group BPO is never a long term career but only as a part
time job.
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The easy availability of BPO jobs is only a source of easy money till the time there is no other source of funding.
Also the unfriendly working conditions, late night work shifts, high tension jobs acts as a deterrent for people to stick
to this industry for long time. In addition, the BPO jobs are not being taken with a positive spirit by the society on
a large. Research says that nearly 50 per cent of those who quit leave the industry. Regarding the attrition between
firms, the chief cause is the unavailability of resources in the job market causing a great demand compared to the
supply available. Presently there is no certified institute providing BPO specific training and education.
The scarce resource in the market leads to wide scale poaching and head hunting amongst the competitors for the
common pool. Due to the immaturity prevalent in the industry, the industry also has not witnessed mature HR
processes such as work force planning being implemented by the firms. Usually new projects in the BPO industry,
requires a transition stage to be implemented within a short time. The lack of pre- planned recruitment leaves the
firms with no option but to fulfil their immediate requirement by poaching resources working on similar projects
in other firms.
6.2.3 Analysing Causes of Attrition using a Multilevel Approach

Attrition in the BPO industry needs to be tackled using a multi-level approach.
Maslow’s hierarchy of needs

It is a multilevel model which primarily identifies the needs which are likely to act as factors of motivation for any
human behavior. We now analyse the current circumstances in BPO using Maslow’s Hierarchy of Needs to develop
a better understanding of what are the expectations of any person from the industry at each level and how is it being
fulfilled presently. During this process the framework would also be used to identify gaps which when handled
appropriately can act as motivators for a person to carry on in this industry, thus bringing the present attrition rate
under control. Maslow’s basic needs are as follows:
Physiological needs
These are biological needs. They are the strongest needs because if a person were deprived of all needs, the
physiological ones would come first in the person’s search for satisfaction. For any person in the BPO industry, this
basic need is satisfied by the compensation provided. Hence he looks forward to a sufficient compensation structure
which would take care of all of his basic physiological needs. This needs to be continuously updated with time such
that it fulfils all the physiological need of the person and his family at every stage of his life. Presently the BPO
industry has been providing a better than average salary in the entry level but there is a general perception that it
does not provide a proportionate rise in salary as the experience increases.
The boom in the BPO sector has lead to exorbitant rise in salaries. Hence even after the high entry salary, the industry
workforce look forward to opportunities for making easy money. An absence in such arbitrage opportunities leads
to dissatisfaction of the physiological need.
Safety needs
When all physiological needs are satisfied and are no longer controlling thoughts and behaviors, the needs for
security becomes active. Adults have little awareness of their security needs except in times of emergency or
periods of disorganisation in the social structure (such as widespread rioting). Children often display the signs of
insecurity and the need to be safe. There are two aspects of the security which would concern a person in the BPO
business. One is the physical security of the employee and their family. This need becomes particularly important
for the weaker gender who sometimes avoids BPO jobs because of the late night timings. The other aspect is the
psychological fear of job security. At the moment since the industry is growing and there is ample abundance of
jobs, this is not an issue. Also the Indian laws are not favourable to retrenchment. Hence the later is not an issue
although physical security is.
The companies presently provide the best of available security but with the industry growing rapidly there is a need
to maintain the same standards if we don’t want this need to be a cause of attrition.
Needs of love, affection and belonging

The next higher class of needs which emerge is the need for love, affection and belongingness. Maslow states that
people seek to overcome feelings of loneliness and alienation. This involves both giving and receiving love, affection
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Introduction to BPO
and the sense of belonging. This need of an individual gets highly affected by the BPO industry predominantly for
people working in the night shift. Night shift causes separation from ones family, friends and relatives. Employees
have been found complaining about not being able to spend ample time with their family after working in night
shift. The BPO companies try to compensate for this by creating a fun-filled working environment and much stress
is laid down on developing friends and relationships inside the company. But there is a huge gap in expectation and
fulfilment which needs to be satisfied.
Lack of family and social interactions is one of the major concerns for the employees which need to be dealt by the
BPO companies. This issue needs to be dealt with the importance and sensitivity which it deserves.
Needs for esteem

As per Maslow, after the first three classes of needs are satisfied, the need for esteem becomes dominant. These
involve needs for both self-esteem and for the esteem a person gets from others. Humans have a need for a stable,
firmly based, high level of self-respect, and respect from others. When these needs are satisfied, the person feels
self-confident and valuable. When these needs are left unfulfilled, the person feels inferior, weak, and helpless and
worthless.BPO industry unfortunately has been regarded by the Indian society as a low value industry with low end
work and which does not need high educational qualification. Hence a person working in this industry is viewed as
a person of less ability compared to others working in any other industry.
This attitude has developed because of the mass recruitment undertaken by BPO firms during the initial days, where
not much focus was laid on selecting highly capable person. This diminution in esteem sometimes leads to reasons
for one to leave the industry. The industry presently requires an image makeover. Some of the present firms are
focusing on creating a positive image of the industry by using the media in a positive manner, though much is yet
to be done. Certain measure such as change in job title is a positive step in this direction. Providing great working
environment in terms of infrastructure and facilities also acts as boost to ones esteem for the employees.
People working in this industry have an unsatisfied esteem need because of the general perception about the industry.
As the industry matures, the industry’s positioning needs to change from being a mere money maker option to an
industry which provides immense learning, high growth prospects and opportunities for foreign experience.
Needs for self-actualisation

When all of the foregoing needs are satisfied, then the need for self-actualisation gets activated. Maslow describes
self-actualisation as a person’s need to be and do what the person was “born to do”. These needs make themselves
felt in signs of restlessness. The person feels on edge, tense, lacking something, in short, restless. The BPO firms
nowadays are trying to provide career growth path and higher educational opportunities for employees as a measure
of retaining them. These steps are strides in fulfilling the discontented self actualisation needs of the employees.
These are one of the few long term motivations provided by companies.
Though recently companies have been trying to cater to the self actualisation needs of their employees, this has
been one of the major reasons for attrition. Industry workers are not able to envision the BPO industry as a long
term career option. They feel that a long term career in the BPO industry is not feasible.
6.2.4 Recommendations
Owning to the nature of the industry we can predict that the attrition problem will remain a hurdle for BPO industry
in foreseeable future. The attrition in the BPO is consistent with what has been witnessed in any industry during
its growth phase. The IT industry and manufacturing industry, for instance, had seen similar high attrition during
their growth stage which later reduces as the industry matures. The need of the hour is not to be bogged down but
to accept the problem and see what we can do best in given scenario to reduce the impact. A win-win model needs
to be devised for this, satisfying the needs of both, the employer and the employee.
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Needs of the employer
• To get maximum returns from each employee
• Recover training and development costs
• Minimise cost in terms of time in training new workforce
• Ensure that adequate no of people are there to carry on the process (proper manpower planning).
Needs of the employee

• Enriched job profile
• Better career path
• Challenging work environment
• Future prospects of the job
In a nut shell, a job that satisfies his overall needs as discussed earlier.
6.2.5 The Win-Win Model

The Win-Win model is conceptualised on the supposition that the employees need to be enclosed from the universe
by strategies at each level such that the attrition and its impact can be reduced to the minimum. Plans differentiate
on the basis of tenure into short and long term as well as on the basis of usage into mitigation and contingency. The
following are the 4 important strategies that constitute this model framework:
Short term mitigation plan

One of the objectives at this level should be on retention for a specified period of time that is the breakeven period
so as to recover the cost incurred on the employee. This should be formally included as a process such that the
organisations include this in consideration while recruiting candidates. Here are few suggested steps to calculate
the minimum time period to recover the cost of employee.
• Small tenure bonds once this period is calculated
• Strict actions can be taken to ensure that employees do not leave the organisation before completion of this
minimum timeframe.
• Getting a bond signed between the employee and the employer.
80- 20 Rule: The firms concentrate on 20% of the roles/ employees who contribute to 80 % of the productivity.
These identified employees/roles need to be retained by special attention from the management’s side.
Short term contingency plan

This plan will focus on the work environment that enhances employee motivation for the job. It includes work
conducive and fun filled environment, informal work culture suiting to the needs of the young employees. This
is essential for compensating the affected social life owning to the nature of the job. Certain measures that can be
included are as follows:
• Having crèche in workplace would also help for the same
• Flexible Salary Structure
• Variable pay package based on performance
• ‘Working from home’ when required for a short term
• Added benefits like sponsored vacations
• Provide job rotation amongst department such as Quality, operation and many more on a periodic basis such
that employees get bored with the same monotonous work.
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Introduction to BPO
Long term mitigation plan

The long term mitigation plans are steps taken by the management to minimise the impact of attrition such that the
firm does not face losses on the long term basis. Defining job roles would help in mitigating the effects of attrition.
Clear documentation of the process and the jobs performed so that the process is not dependent upon an employee.
An assessment and certification can also be helpful in creating an employable talent pool with benchmarked-requisite
skill for frontline management.
Long term contingency plan

The long term contingency plans are attempts by the industry to reduce the attrition as a whole. To minimise the
training costs, the industry needs to work with the government to introduce courses at a school and college level,
which are in line with the requirements of the ITES-BPO industry. To reduce poaching of employees within the
industry bilateral agreements between companies should being signed. Basic norms are being put in place and code
of ethics is being stressed upon by industry.
A common database should be maintained by all the players of the industry to ensure that they are not cannibalising
each other resources. The industry should look at Tier II and Tier III cities, where it can move its operations. These
would increase the resource pool as well as would minimise the attrition. Awareness needs to be spread in these
cities about the industry through advertisements. Focus should be on having education and ongoing learning for the
workforce, sponsoring employees on post-graduate programs and treating applicants and employees in the same
ways one treats customers.
Employees
Environment Short term
mitigation
plan
Short term
contingency
plan
Long term
mitigation
plan
Long term
contingency
plan
Fig. 6.1 Employees

(Source: http://www.scribd.com/doc/14846928/To-study-and-analysis-of-Indian-BPO-Industry-and-to-promote-
corporate-gifts-in-BPOs)
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Summary
• When evaluating a BPO service provider, the three key criteria to look for are: a proven track record, technical
excellence and the ability to deliver improvement.
• Good contracts will also describe the reporting methods for service levels measurement, how, when and the
level of attainment required.
• It is essential that you have a good relationship with your service provider to achieve a successful outsourcing
contract.
• A recession normally takes place when consumers lose confidence in the growth of the economy and spend
less.
• Sub-prime is a high risk debt offered to people with poor creditworthiness or unstable incomes.
• The BPO sector will add 2.5% to India’s GDP growth, which will provide employment to about two million
people.
• The impact is more severe in the case of BPOs as most of their expenses are in rupee.
• BPO will have the significant growth in coming years and will bring large revenues for Indian economy.
• Attrition in individual firms varies from 15% in the larger firms to up to 40% in the smaller ones.
• Attrition usually occurs on two fronts- people leaving the industry and people shifting jobs inside the
industry.
• According to several recruitment firms in the country, attrition in the ITES (IT enabled services)-BPO industry
is close to 35-40 %.
• An absence in such arbitrage opportunities leads to dissatisfaction of the physiological need.
• Lack of family and social interactions is one of the major concerns for the employees which need to be dealt
by the BPO companies.
• BPO industry unfortunately has been regarded by the Indian society as a low value industry with low end work
and which does not need high educational qualification.
• The attrition in the BPO is consistent with what has been witnessed in any industry during its growth phase.
• The firms concentrate on 20 % of the roles/ employees who contribute to 80 % of the productivity.
• The long term mitigation plans are steps taken by the management to minimise the impact of attrition such that
the firm does not face losses on the long term basis.
References
• Sople, V. V., 2009. Business Process Outsourcing: A Supply Chain of Expertises, PHI Learning Pvt. Ltd.
• Mehrotra, N., 2005. Business Process Outsourcing: The Indian Experience, ICFAI Books.
• BPO industry [Online] Available at: <http://www.scribd.com/doc/14846928/To-study-and-analysis-of-Indian-
BPO-Industry-and-to-promote-corporate-gifts-in-BPOs> [Accessed 22 January 2013].
• Challenges Faced by the BPO Industry, [Online] Available at: <http://www.roseindia.net/services/outsourcing/
challenges-faced-bpo-industry.shtml> [Accessed 22 January 2013].
• Call Center Agent Training Videos ,[Video online] Available at: <http://www.youtube.com/watch?v=dOSceytSiOQ>
• 15 tips to improve First Call Resolution in the Call Centre, [Video online] Available at: <http://www.youtube.
com/watch?v=zPBmf3d5tHc> [Accessed 22 January 2013].
Recommended Reading
• Anandkumar, V. & Biswas, S., 2008. Business Process Outsourcing, Sage Publications Pvt. Ltd.
• Hirschheim, R., Heinzl, A. & Dibbern, J., 2009. Information Systems Outsourcing: Enduring Themes, Global
Challenges, and Process Opportunities, 3rd ed., Springer Publication.
• Halvey, J. & Murphy, B., 2007. Business Process Outsourcing: Process, Strategies, and Contracts, 2nd ed.,
Wiley Publications.
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Introduction to BPO
Self Assessment
1. The __________ model encloses the employee by 4 levels of strategies thus reducing the attrition rate as well
as minimising the impact whenever it occurs.
a. Maslow’s
b. Win- Win
c. BPO mode
d. William’s
2. ____________ agreements (SLAs) lie at the core of the BPO contract.

a. Service level
b. Customer level
c. Service provider
d. Finance partner
3. The __________ in the BPO is consistent with what has been witnessed in any industry during its growth
phase.
a. dissatisfaction
b. low cost
c. contract negotiation
d. attrition
4. One of the objectives at the short term mitigation plan level should be on retention for a specified period of time
that is the ___________ so as to recover the cost incurred on the employee.
a. break period
b. breakeven period
c. bond time
d. tenure bond
5. A recession is a decline in a country’s _________________ growth for two or more consecutive quarters of a
year.
a. population
b. services
c. customer satisfaction
d. gross domestic product (GDP)

a. Attrition usually occurs on two fronts- people leaving the industry and people shifting jobs inside the
industry.
b. Physiological needs are the strongest needs.
c. People working in the BPO industry have a satisfied esteem need because of the general perception about
the industry.
d. A common database should be maintained by all the players of the industry to ensure that they are not
cannibalising each other resources.
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7. The rate of attrition in the BPO industry in India is currently nearly ____.
a. 55%
b. 45%
c. 20%
d. 50%

A. Leads to lay-offs and a sharp rise in
1. Evaluating a BPO service provider
unemployment
2. Identify the service deliverables and
B. The ability to deliver improvement
expectations of your service provider
3. Recession C. Biological needs
4. Physiological needs D. Service level agreements

a. 1-B, 2-D, 3-C, 4-A
b. 1-B, 2-D, 3-A, 4-C
c. 1-D, 2-A, 3-C, 4-B
d. 1-D, 2-B, 3-A, 4-C
9. When all physiological needs are satisfied and are no longer controlling thoughts and behaviors, the needs for
_______ becomes active.
a. security
b. affection
c. physiological
d. self-actualisation
10. The ___________ framework helps in giving a better perception about the motivation of the employees in the
BPO industry and identifying gaps in their expectations.
a. Employee
b. Win-Win
c. Maslow’s
d. William
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Introduction to BPO
Chapter VII
Scope and Need of BPO
Aim
• explicate importance of the BPO sector
• explain the areas of concern of BPO
• elucidate the need of the BPO industry
Objectives
• examine the scope of the BPO industry
• explain the current and future scenarios of BPO
• describe the key growth drivers
Learning outcome
• enlist the three main rules for BPO
• understand the key highlights of domestic BPO industry
• identify the future of BPO in various countries
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7.1 Need of the BPO Industry
The relationship between a business and a business process outsourcing services agency is very crucial. Businesses
realise that they save money when they can outsource the tasks that they used to hire staff for. They do not have
to pay them by the hour, and they don’t have to pay outsourcing contractors benefits. On the other hand, agencies
found that there were people that wanted to work on a contract basis, and they don’t mind not having benefits or
vacation time if they could gain other things such as flexibility, and the freedom to work for as many companies as
they wished. So, the relationship between the business owner and the outsourcing agencies works out very well.
Because of the changes that have happened on a global scale in the last couple years, not only is business process
outsourcing services here to stay, it probably will be the way of things more so as time goes on. Businesses have
had to learn how to function without full-time staff and as such, they figured out that hiring outsourcing contractors
saves money. As a matter of fact, there are some businesses, particularly small businesses that rely completely upon
business process outsourcing contracts, and they are in no hurry to hire full-time staff again.
7.1.1 Customer Relations

Customers are the lifeblood of any business. A “do-it-all” handy kitchen tool would be as useless as a freezer in
Alaska if there weren’t any clients to check out what it’s got. A call center can, for instance, help you look for
suppliers, as well as allow customers to inquire about your latest products and services. A lot of BPOs- particularly
customer contact centers that provide a wide variety of call center services can even operate on a shifting, 24/7
schedule, which means that your shop can “stay open” even as you sleep and you can even reach (and be reached
by) clients from around the world.
Beyond accessibility, having a friendly and caring telephone representative from a technical support call center or
telephone answering service can be an excellent customer service tool. Not only do they make clients feel at ease
while doing business, they can even make them come back for more, knowing how friendly and pleasant your
establishment is.
7.1.2 Getting your Money’s Worth

Why hire one guy to answer the phone, when you can hire 10 people to answer more phones- at a fraction of the
cost? With an ever-increasing number of BPOs battling it out for client and market share, the focus is now on offering
packages that not only offer clients more services, but allowing them to pay only for the services they avail.
Moreover, setting up an offshore operation in countries such as the Philippines- with its impeccable English-speaking
workforce and an unparalleled warm and caring demeanour- can even save you as much as 50-80 percent vis-à-vis
an equivalent Western counterpart.
7.2 Scope of BPO

BPO Role in India’s Economic Growth has been tremendous, especially in the last few years, when the demand for
outsourcing work to India has been significant among western companies.
The role played by BPOs in boosting India’s economy shows that the IT and ITeS sector have been contributing
largely to the economic growth of India. The growth in the contribution of BPOs to GDP (Gross Domestic Product)
has shown a steady rise from 1.2% to 6.4%. The growth rate of BPO sector is around 28% in the last 2 years. In fact
this industry has provided job to around 1.6 million people, more over this industry assures an attractive standard
of living. It is hence evident that the BPO industry is making an impact on the Indian economy even in the today’s
scenario of Global Meltdown.
BPOs are aiming at contributing towards bringing in more earnings to the country and IP creation. Currently, BPOs in
India are focused on the domestic segments and off shoring. The benefit to the local economy is subject to judicious
exploitation of resources existing in these areas.
Since BPO is an effective cost cutting measure practiced around Globe and India to be the destination of outsourcing,
BPO’s Role in India’s economic growth is set towards making a significant impact in the time to come as well. The
driving forces that account for the increase in foreign investments through the BPOs in India are:
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Introduction to BPO
• Emphasis on quality services

• Skilled sets and workers
• Cost effectiveness
• Quality products
• English speaking manpower
These features of the Indian BPO industry attract long-term contracts and as a result, there are high earnings which
in turn result in major contribution to economic growth. As a matter of fact, the Indian BPO industry is leading in
the market and is improving in the area of training professionals in learning foreign languages and increasing the
number of skilled workers. This will give India the ability to sustain its global leadership and probably generate
export revenues of USD 10 billion in the future.
The setting up of more BPOs is also bringing in more job opportunities for the Indian youth. BPO role in India’s
economic growth will even facilitate great manoeuvring in the country’s balance of payments. Even Nasscom, the
industry association, points out that the current fiscal crisis in the United States will adversely affect the Indian
BPO/IT sectors as the clients from USA would be very vigilant in their unrestricted spending on outsourcing their
projects.
The advantages of Indian BPO industry in the present scenario are discussed below:
• This global economic recession will force diverse financial organisations to outsource more work to cut costs
to a large extent. This will definitely boost the Business Process Outsourcing (BPO) from the financial services
sectors abroad, with our estimated work inflow increased to 40-45 times the current market size over the next
five years.
• Today the Indian BPO is the most upcoming industry attracting the educated youth all over the country. Indian
BPO workforce offers several advantages over their western counterparts both in terms of cost savings (low-
cost labour) and availability of resourceful manpower.
• The revenue generated by the BPO and KPO industry in India is estimated to Rs.1,160 crores and provides
employment to almost 7-8 lacs people in the year 2007-08. The largest contributor to the Indian BPO-KPO
export market in 2007 is USA with a lion’s share of around 61%. The Everest Research Institute predicts that
for India, being the hub of global outsourcing for financial services, the opportunity for global BPO will mount
to USD145 to 165 billion for India based services, within the next five years. The outsourcing of BPO projects
from the insurance sector will have a steady rise, about 12-15 times simultaneously, according to the report.
• Banking sectors and other financial firms are undergoing significant cost-reduction pressure and are therefore
planning to move jobs offshore.
BPO role in India’s economic growth is definitely at the growth stage but is all set for a major contribution to the
Indian economy. The younger India has to grab every opportunity in this sector. Indian Youth has to upgrade their
skill sets to make themselves eligible to serve this sector.
BPOs have a great scope in India. Around 5 years back, BPOs were just a means by which companies could save
costs. Only a few activities were outsourced. But now BPOs are emerging as a management tool and focus is shifting
from non-core processes to core processes. This is how BPOs gave rise to KPOs and LPOs. In the near future, BPOs
may give rise to some other sectors as well.
Outsourcing involves many risks, too. These risks can be:

• Data security
• Vendor’s financial instability: The buyer will have to search for a new vendor if the vendor becomes financially
unstable.
• Loss of expertise: The knowledge and expertise of carrying out the outsourced processes can be lost with
time.
• Loss of control of one’s own company’s processes
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Let us discuss the current and the future scenario of BPOs in India.
7.3 Current Scenario

Let us compare the export figures of ITES-BPO for the year 2002-03 and 2005-06:
ITES-BPO (USD Billion) 2002-03 2005-06
Exports 2.5 7.3
Domestic 0.2 0.8
Employment (Number of People) 171,000 470,000
Table 7.1 Export figures of ITES-BPO

(Source: http://www.naukrihub.com/india/bpo/scope/current-scenario/)
Within three years, ITES-BPO exports rose from 2.5 billion dollars to 7.3 billion dollars, that is, almost three times.
The number of people employed in BPO industry increased by almost 2.8 times.
7.3.1 Why People Join BPOs?

The educational qualification required to get a job in a BPO is not so high. Any graduate can join a BPO. Other
reasons why people join BPOs are:
• They didn’t get a better job and they didn’t find anything better to do
• Education level doesn’t matter so much
• Good work environment
• Many benefits
• Time flexibility
• Attractive life style
• Transportation facility
7.3.2 Why People Leave BPOs?

In spite of transportation facility, money, benefits, life style associated with the BPOs, attrition rate in BPOs is high.
It is because:
• No growth opportunity/ lack of promotions
• To get more salary
• To gain higher education
• No personal life
• Physical strains
• Uneasy relationship with peers or managers
7.4 Future Scenario

India is the most favored destination for outsourcing. In 2003-2004, ITES-BPO companies were the largest recruiters
in the IT/ITES sector, adding around 70,000 jobs. According to a research conducted by Nasscom, Indian IT/BPO
sector will employ more than 1.1 million Indians by 2008. The future of BPOs in India depends upon the quality of
education imparted to our young generation. In the recent past, there has been a decline in the quality of education in
India, though the number of institutes has gone up. Education is not growing at the same pace as Indian economy.
Indian BPO sector is growing at a tremendous pace. IT/BPO industry has a good future. Some of the most important
destinations for BPOs in India are:
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Serial No. IT- ITES Destinations in India

1. Ahmedabad
2. Nagpur
3. Pune
4. Chennai
5. Hyderabad
6. Kochi
7. Kolkata
8. Manglore
9. Thiruvananthapuram
10. Visakhapatnam
Table 7.2 Destination of BPOs in India

(Source: http://www.naukrihub.com/india/bpo/scope/future-scenario/)
7.5 Indian ITES-BPO Industry: Nasscom Analysis

The following are some of the conclusions by Nasscom regarding the BPO industry in India:
7.5.1 The Indian ITES-BPO Scenario
The Indian ITES-BPO segment has witnessed a steady growth. BPO exports are growing at about 33.5% percent
and have exceeded FY06 expectation at USD 8.4 billion in FY2007.
553
415
315
FY 05 FY 06 FY 07
Fig. 7.1 Employees ITES-BPO

(Source: http://www.scribd.com/doc/6925928/Indian-ITESBPO-IndustryNASSCOM-Analysis-Aug-07)
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10
8.4
4
6.3
4.6
2
0
FY 05 FY 06 FY 07
ITES-BPO Export
Fig. 7.2 Exports ITES-BPO (USD million)

(Source: http://www.scribd.com/doc/6925928/Indian-ITESBPO-IndustryNASSCOM-Analysis-Aug-07)
7.5.2 Key Highlights of Indian ITES-BPO Sector Performance

• Indian ITES-BPO exports grew from USD 6.3 billion in FY 2005-06 to USD 8.4billion in FY 2006-07 expected
to grow to USD 10.5-11bn in FY08.
• ITES-BPO employee base has grown to 553,000 in FY 07 from 415,000 in FY 06.
• Over the past decade, the Indian BPO segment has witnessed significant transformation. Starting with basic
data entry tasks, the industry graduated to a high proportion of voice-based services and a range of back-office
processing activities. The last 3-4 years have seen the scope of services expanding to include increasingly
complex processes involving rule-based decision making and even research services requiring informed
individual judgment.
• The rapid expansion in the scope of BPO has been accompanied by an equally rapid adoption across a range
of vertical industries. This wide range of services may be summarised into four broad categories comprising
Finance and Accounting (F&A), Customer Interaction Services (CIS), Human Resource Administration and
Niche Business Services.
7.5.3 Key Highlights of Domestic BPO Industry

• BPO demand in the domestic market has witnessed noticeable growth over the past few years. The annual revenue
aggregate of the domestic market for ITES-BPO grew to USD 1.2 billion in FY 2006-07 from USD 0.9 billion
in FY 2005-06, illustrating a significant increase in demand. While the high growth rate may be attributed to a
small-base effect, the rapid adoption of BPO in the domestic market is receiving well-deserved attention.
• As the Indian economy becomes more globally integrated, businesses in India are beginning to face increasing
levels of global competition and being pushed to deliver world class levels of product and service quality. BPO
has emerged as an effective means of entrusting specialists with the task of consistently delivering the desired
high-levels of quality leaving the client organisations to focus on their core businesses.
7.5.4 Contrary to Concerns of India

With significant bandwidth capacity lying unutilised and the steady advancement in technology making access
faster and less expensive than before, it is likely that the share of telecommunications in the cost structure of an
IT-BPO firm may further decline. Firms are also managing to lower their facilities costs by expanding into other
tier-II locations.
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Finally, there is scope for further leveraging operational levers to drive efficiencies in the organisation. A detailed
industry benchmarking exercise, underway since 2005,has revealed that there is wide variation in the internal
practices adopted across the industry, and suggests that the adoption of industry best-practices can further enhance
operational excellence in Indian IT-BPO firms.
This is also being evidenced in the performance of some of the best-in-class players. Contrary to concerns of rising
wage inflation eroding the sustainability of India cost-advantage, especially over the past two years, leading players
have managed to grow at an above average rate while sustaining their high levels of profitability.
7.6 Key Growth Drivers of Indian ITES-BPO Exports

The key growth drivers of Indian ITES-BPO exports are:
Abundant talent
India young demographic profile is an inherent advantage complemented by an academic infrastructure that generates
a large pool of English speaking talent. Talent suitability concerns are being addressed through a combination of
government, academia and industry led initiatives. These initiatives include national rollout of skill certification
through NAC (Nasscom Assessment of Competence), setting up finishing schools in association MHRD to supplement
graduate education with training in specific technology areas and soft skills and with education agencies like UGC
and AICTE to facilitate industry inputs on curriculum and teaching and develop faculty development programme.
Sustained cost competitiveness

India has a strong track record of delivering a significant cost advantage, with clients regularly reporting savings
of 25-50percent over the original cost base. The ability to achieve such high levels of cost advantage by sourcing
services from India is driven primarily by the ability to access highly skilled talent at significantly lower wage
costs and the resultant productivity gains derived from having a very competent employee base. This is further
complemented by relative advantages in other elements of the cost structure (for example, telecom) that contribute
to India’s cost competitiveness even when compared to other low-cost destinations.
Continued focus on quality

Demonstrated process quality and expertise in service delivery has been a key factor in driving India in sustained
leadership in global service delivery. Since the inception of the industry in India, players within the country have
been focusing on quality initiatives, to align themselves with international standards. Over the years, the industry
has built robust processes and procedures to offer world class IT software and technology related services.
World class information security environment

Stakeholders of Indian BPO recognise full proof security as an indispensable element of global service delivery.
Individual firm level efforts are complemented by a comprehensive policy framework established by Indian authorities,
which has built a strong foundation for an ‘info-secure’ environment in the country. These include strengthening the
regulatory framework through proposed amendments to further strengthen the IT Act 2000, scaling up the cyber lab
initiative, scaling up the National Skills Registry (NSR) and establishing a self regulatory organisation.
Rapid growth in key business infrastructure

Rapid growth in key business infrastructure has ensured unhindered growth and expansion of this sector. The BPO
sector has been a key beneficiary with the cost of international connectivity declining rapidly and service level
improving significantly. The growth is taking place not only in existing urban centres but increasingly in satellite
towns and smaller cities. Critical business infrastructure such as telecom and commercial real estate is well in place;
improving other supporting infrastructure a key priority for the government. STPI infrastructure available across
the country and magnitude of investments shows government support to the industry.
Enabling business policy and regulatory environment

The enabling policy environment in India was instrumental in catalysing the early phases of growth in this sector.
Policy makers in India have laid special emphasis on encouraging foreign participation in most sectors of the
economy, recognising its importance not only as a source of financial capital but also as a facilitator of knowledge
and technology transfer. The Indian ITES-BPO sector has benefited from this approach, with participating firms
enjoying minimal regulatory and policy restrictions along with a broad range of fiscal and procedural incentives.
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7.7 BPO: Three Rules to Live By
The BPO industry is getting more interesting than ever. In reality, it is a stodgy old industry. But the last decade
has brought the BPO industry into the limelight and it gets constantly compared to its other famous cousin, the
IT services industry. Once very dissimilar with each other, there is now more similarity than ever. Comprised of a
motley set of horizontal and vertical industry-specific processes or functions, the BPO industry is growing along all
axes (the segments). The vendor landscape is showing great dispersion and yet presents dense clusters of strength,
over-laying all the varied dynamics of business and underlying all the varied forces of economic change. There are
three rules regarding BPO and BPO service providers that organisations should watch out for.
Rule 1: BPO and IT are not two different worlds

The development of specific technologies like document management, information retrievals systems, and such
had speeded up work in many document-intensive processes. But the advent of IT -based solutions that automated
specific parts of the process lent further improvement in efficiency. For example, solutions dedicated to processing
insurance claims or processing mortgage applications, automated the process to deliver better efficiency and required
lesser resources. At one level, this could be called as the integration of process with technology, but at another level,
it could be called as the integration of IT with operations. There is a shift in approach by BPO vendors to having
increased focus on technology development. BPO vendors with the parentage of an IT services company call it
as platform-based BPO, whereas pure play BPO vendors are looking at acquiring technology capabilities. These
involve the client transitioning from its legacy software to adopt a standardised platform used by the vendor. This
could be enterprise resource planning (ERP) or financial management and accounting software, payments, oral
billing system, for example.
Platform-based BPO usually involves the development of IP in the form of a solution that delivers the process. This
is then overlaid on an IT infrastructure and services are delivered using a per transaction-based pricing model (rather
than per FTE-based). Consequently, platform BPO can be thought of having four stages: hosting (involves hardware
and infrastructure set-up, networking, disaster recovery); implementation (covers system design to deployment);
process management (process standardisation, best practices, analytics); and maintenance.
Some examples include TCS’ platform BPO for procurement that handles the source-to-pay cycle; IBM’s Lender
Business Process Services for mortgage processing; and Caliber Point’s (Hexaware) Republic which is a multi-
tenant HR services delivery solution.
Rule 2: Process improvement is reaching its limit. Tie in process to business outcomes and performance
Gains through process improvement have been incremental and may have reached its limit. It is now time to relook
at the process from the point of view of business outcomes and tie it into delivering some of the performance goals.
Check whether your BPO vendor is able to deliver on this front. In a survey of 151 senior finance executives, done
by CFO Research Services and Gen pact, the respondents showed that they take a broad view of the benefits of
process improvement throughout their organisations. Many of them link process improvement to overall company
performance- not just to process efficiency.
They also seek a wide range of secondary benefits that can improve both efficiency and effectiveness, including
standardising and simplifying processes throughout the enterprise and making better connections between different
processes. Finance executives in the survey place equal importance on improving overall company performance
and on improving the efficiency of processes themselves. A majority of respondents (58%) say that efficiency gains
in processes (for example, faster, lower cost, less rework) are a high priority for their improvement initiatives, but
just as many (55%) place a high priority on the ability of process improvements to improve company performance
overall.
Rule 3: Acquire business smarts through analytics and be smart about acquiring analytics
Analytics is about tapping into the embedded intelligence of a system. Analytics helps in identifying patterns in
behavior and performance and is both diagnostic and prescriptive. The application of analytics in other spheres like
marketing and engineering have yielded results that go beyond improving efficiency to delivering better outcomes
and therefore higher performance. The same is true of business processes and how they are handled.
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Smart enterprises derive decision-making power and agility from analytics that run across various business functions,
but it is a very challenging proposition to put into practice. This is because process measurements are oriented towards
efficiency and not effectiveness. Process analytics have to be measured in terms of performance parameters and
thereafter be made part of the managerial decision-making framework. The organisational intelligence is thus derived
from the process level. BPO providers who are able to do this demonstrate higher level of leadership. However,
analytics often does not come as part of the BPO deal unless business outcomes are specified as part of the deal
deliverables. A recent report on analytics offshoring by HfS Research, titled ‘Where Offshore Analytics is heading
in 2011’, states: “Analytics straddles across data management, MIS reporting, predictive model development, and
business consulting. We explored the trend of IT-BPO players pushing these analytics services bundled together
with other ITO-BPO offerings. We recommend that the business need ultimately must determine the nature of
bundling for clients, along with the organisation’s level of experience with analytics. When analytics is proposed
for process optimisation, it makes business sense. However, when business decisions (such as defining marketing
strategy for the next 5 years) are based on high-level analytics, saving a few dollars by bundling in a few processes
is not recommended.
7.8 Future of BPO Industry

From the last two decades Business Process Outsourcing is catering various industries like Retail, Insurance,
Mortgage, Banking and Finance, Healthcare, Telecommunications, Technology, Travel and Hospitality and more.
Companies are consolidating and standardising operating processes by outsourcing the business process to third
parties that offer economies and focused management expertise. In the present scenario many UK and USA based
companies are resorting to Asian countries like India, China, Russia and Philippines to outsource their business
processes. Offshore BPO is predicted to grow at a significant rate per year. BPO within Asia-Pacific market is
expected to display a growth rate of about $14 billion by 2010.
Business Process Outsourcing help companies achieve indomitable position in the service market and generate high
profits by improving their business operations. Business Process Outsourcing is a tool that allows the companies to
survive in the cut throat competition by retaining their customers and providing high rate of customer satisfaction.
The advancements in technology and infrastructure have made it easier to carry out BPO services. Countries offering
cost advantage by way of cheap labor along with skilled workforce are ideal destinations for BPO industry.
7.8.1 Future of BPO in India

Today 55% BPO services are carried out by Indians and the future prospects are even more promising with increasing
number of graduates in the country who are well versed in English language. People in India have now started looking
at BPO jobs as long term career as it offers fast-track career advancement opportunities. Earlier only professional
degree holders used to get hefty salaries but the advent of BPO has made graduates to earn well in the service sector.
Subsequently India’s economy has got a hike since the establishment of BPO firms.
7.8.2 Future of BPO in China

According to some sources, the call centre industry in China is expected to grow by 22% this year and will reach
to 28 billion dollar revenue by 2010. This industry will give employment to around 158,000 people including bank
services and technical support staff for IT companies. Multinational companies are attracted to set up more BPO
firms in China owing to high productivity and cost-effective human resources.
7.8.3 Future of BPO in Russia

In the present scenario many companies are banking upon Russia’s outsourcers wish to have a large number
of BPO firms. Russian outsourcing is known for cost effective quality services which gives the clients all good
reasons to hire Russian BPO firms. Russia is emerging as a skilled back office administration to the world’s leading
corporations.
7.8.4 Future of BPO in Philippines

Business process outsourcing or BPO is an emerging industry in the Philippines. Since 1980s service sector has seen
good growth in Philippines. Employment of labor force has seen a major shift from agriculture to service sector.
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Philippines business process outsourcing (BPO) industry is going strong and it has been estimated that by the year
2010 the BPO industry revenues will be approximately US$12 billion. Also the industry will generate one billion jobs
by 2010. Philippines BPOs are doing greatly in legal and medical transcription, finance, logistics and accounting.
7.9 Area of Concern in BPO

The following are the areas where the BPO industry may face certain problems:
• Working in a BPO, many feel is a job that does not require much skill. Anybody possessing a basic education,
good communication skills is employable after some training. Companies do not mind taking in people who
are middle aged, and homemakers. There is no sense of accomplishment among the employees.
• Financial desperation on the part of some people leads them to take up jobs in BPOs- people out of college
join BPOs to earn money to finance their higher education, some as a way of improving their life styles. Some
others join because they could not find anything else. In short, very few people take up employment in BPOs
for the love of it.
• The tasks that BPOs perform are diverse:
telemarketing
technical support service
customer support service
insurance processing
data entry and conversion services
bookkeeping
accounting
online researching and
form processing.
The problem that this creates is that there can be no standardised training program suitable to all the BPOs that can
be given to the prospective employees before they are actually absorbed into the company.
• High expectations from the outsourcing companies tend to de-motivate the workers. In many cases, the outsourcers
think only of achieving targets. They are obsessed with quality work, business continuity, time frame, security
of information. However, satisfying them is not always possible. The expectations should be realistic taking
into account the work ethics of the region of the service provider, as well as, its culture and polity.
• Attrition in BPOs: The single largest worry of the BPO industry is attrition. In the outsourcing context, attrition
means a gradual reduction in the number of people working in a company due to retirement, resignation or death.
The rate of attrition in the BPO industry in India is currently nearly 50%. Attrition in individual firms varies
from 15% in the larger firms to up to 40% in the smaller ones. Analysts believed that if this is left unchecked,
there would be a shortage of professionals.
• Control: By using BPO services, many firms loosing managerial control because it is not easy to manage outside
service providers than managing one’s own staff working possibly in the same edifice.
• Security: The main disadvantage of BPO or outsourcing is its security and secrecy. In case, in a firm that operates
in services like MT and bank accounts, then the firm must be very careful in selecting which services it wants
to outsource and to which provider.
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Introduction to BPO
Summary
• The role played by BPOs in boosting India’s economy shows that the IT and ITeS sector have been contributing
largely to the economic growth of India.
• In fact this industry has provided job to around 1.6 million people, more over this industry assures an attractive
standard of living.
• Indian BPO workforce offers several advantages over their western counterparts both in terms of cost savings
(low-cost labour) and availability of resourceful manpower.
• The largest contributor to the Indian BPO-KPO export market in 2007 is USA with a lion’s share of around
61%.
• Outsourcing involves many risks including data security, vendor’s financial instability, loss of expertise and
many more.
• Starting with basic data entry tasks, the industry graduated to a high proportion of voice-based services and a
range of back-office processing activities.
• Firms are also managing to lower their facilities costs by expanding into other tier-II locations.
• India young demographic profile is an inherent advantage complemented by an academic infrastructure that
generates a large pool of English speaking talent.
• India has a strong track record of delivering a significant cost advantage, with clients regularly reporting savings
of 25-50percent over the original cost base.
• Stakeholders of Indian BPO recognise full proof security as an indispensable element of global service
delivery.
• The BPO sector has been a key beneficiary with the cost of international connectivity declining rapidly and
service level improving significantly.
• Analytics helps in identifying patterns in behavior and performance and is both diagnostic and prescriptive.
• Smart enterprises derive decision-making power and agility from analytics that run across various business
functions.
• The organisational intelligence is thus derived from the process level.
• Business Process Outsourcing help companies achieve indomitable position in the service market and generate
high profits by improving their business operations.
References
• Nakkiran, S. & Franklin, D. J., 2004. Business Process Outsourcing, (BPO): Concept, Current Trends,
Management, Future Challenges, Deep and Deep Publications
• Bagad, S. V., 2009. Management Information Systems, Technical Publications
• Indian BPO Industry, [Online] Available at: <http://www.scribd.com/doc/6925928/Indian-ITESBPO-
IndustryNASSCOM-Analysis-Aug-07> [Accessed 21 January 2013].
• Scope of Entrepreneurship Development in India, [Online] Available at: <http://www.scribd.com/doc/23865472/
Scope-of-Entrepreneurship-Development-in-India> [Accessed 21 January 2013].
• What is BPO? [Video online] Available at: <http://www.youtube.com/watch?v=N8pKLgs4CaQ> [Accessed
21 January 2013].
• BPO at its Best, [Video online] Available at: <http://www.youtube.com/watch?v=FOSK3dq3D-U> [Accessed
21 January 2013].
Recommended Reading
• Cain, S., 2012. How To Do A BPO-Your Step-By-Step Guide, Kindle Edition
• Boatright, C. 2012. Magic BPO Success Secrets, 1st ed., Cory Boatright.
• Halvey, K. J. & Melby, M. B., 2007. Business Process Outsourcing: Process, Strategies, and Contracts,
2nd ed., Wiley.
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Self Assessment
1. BPOs are aiming at contributing towards bringing in more earnings to the country and ____ creation.
a. business
b. customer
c. IP
d. economy
2. Talent suitability concerns are being addressed through a combination of government, academia and
________________.
a. industry
b. project related
c. customer initiatives
d. industry led initiatives
3. ___________ is about tapping into the embedded intelligence of a system.

a. Analytics
b. Software
c. Programming languages
d. BPO
4. Which of the following is not among the driving forces that account for the increase in foreign investments
through the BPOs in India?
a. Quality products
b. Abundant talent
c. English speaking manpower
d. Emphasis on quality services
5. _____________ on the part of some people leads them to take up jobs in BPOs.
a. Health condition
b. Money
c. Financial desperation
d. Educational qualification
6. Which of the following statements is true?

a. The development of specific technologies like document management, information retrievals systems, and
such had speeded up work in many document-intensive processes.
b. Nasscom points out that the current fiscal crisis in the United States will not adversely affect the Indian
BPO/IT sectors.
c. The buyer will have to search for a new vendor if the vendor becomes financially stable.
d. Process measurements are oriented towards efficiency and effectiveness both.
7. _________ means a gradual reduction in the number of people working in a company due to retirement,
resignation or death.
a. Control
b. Attrition
c. Security
d. High expectations
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Introduction to BPO

1. Data Security A. Process management
2. An indispensable element of
B. Outsourcing risk
global service delivery
3. A stage of platform BPO C. Russia
4. Skilled back office
D. Full proof security
administration
a. 1-B, 2-A, 3-D, 4-C
b. 1-C, 2-D, 3-B, 4-A
c. 1-C, 2-A, 3-D, 4-B
d. 1-B, 2-D, 3-A, 4-C
9. _________ BPO usually involves the development of IP in the form of a solution that delivers the process.
a. Domestic
b. Condition based
c. Platform-based
d. ITes-IT
10. The wide range of services provided by the BPO industry comprises which of the following areas?
a. Customer satisfaction
b. Human Resource Administration
c. Data entry
d. Online researching
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Chapter VIII
BPO and KPO
Aim
• explicate importance of KPO
• explain what KPO is
• elucidate the difference between BPO and KPO
Objectives
• examine the fuelling factors of KPO
• explain the need of KPO
• describe the benefits of KPO
Learning outcome
• define the scope and research of KPO
• understand the bottle necks of KPO
• identify why India is the destination of KPO
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Introduction to BPO
8.1 Difference between BPO and KPO

There are a number of notable differences between KPO and BPO. The six elements that separate these two processes
are focus, process, specialisation, driving force, activities, and client contacts.
BPO has a process which is much simpler than KPO. While BPO places an emphasis on low level processes, KPO
places an emphasis on high level processes such as patent filing, investment research, and legal issues. When it
comes to focus, KPO focuses on the application of knowledge rather than processes. The differences in specialisation
between BPO and KPO are primary connected to their domains.Most BPO workers do not need to have a large
amount of knowledge in any specific areas. The primary requirements for BPO workers are a high command of the
English language and simple computer skills.
In contrast, KPO workers are expected to specialise in specific fields. Some examples of fields where KPO workers
are expected to have specialised knowledge are financial analysis. These professionals are expected to be qualified
as a CA or MBA. When it comes to driving force, again, KPO companies place a greater important on knowledge
rather than business processes. This is the exact opposite of BPO companies. The activities of KPOs are different
from BPOs as well. Any activity that requires specialised knowledge will be connected to KPO, while BPO will
use a rigid structure for handling business procedures.
KPO workers can expect to deal with international clients on a regular basis. They will be responsible for
communication issues, and direct communication will be essential in situations where complicated tasks must be
performed.
A number of people have said that there are few differences between KPOs and BPOs. In reality, KPOs are simply
one end of the spectrum. The KPO is an extension of the BPO, and allows businesses and organisations to carry
out a large number of processes. There are a number of powerful advantages that can be gained from Knowledge
Process Outsourcing.
When work is outsourced to other countries, companies in the developed nations can save large amounts of money
on the cost of manufacture. A number of studies have indicated that these savings are as much as 40% to 70%.
In addition to this, the profits that are created by the use of KPOs are double the revenues that are obtained from
BPOs.
While BPOs have statistically brought in about $11 per hour, KPOs have been shown to bring in as much as $24 per
hour. Perhaps one of the most powerful advantages of Knowledge Process Outsourcing is the advantages it brings
to developing countries. By generating revenues from this industry, a country can become more prosperous.
8.2 KPO
The future of Knowledge Process Outsourcing (KPO) business in India presents an encouraging picture to rejoice
for everybody in the country. Not only the scope of business opportunities shall give endless area for businesses
to explore but also shall create lacs of jobs for the large amount of the talented and skilled workforce of engineers,
MBAs, doctors, lawyers and other professionals having skill in the core areas and computer knowledge.
It is being claimed that KPO is one step extension of Business Processing Outsourcing (BPO) because BPO Industry
is shaping into Knowledge Process Outsourcing because of its favourable advantageous and future scope. In fact,
knowledge process can be defined as high added value processes chain where the achievement of objectives is
highly dependent on the skills, domain knowledge and experience of the people carrying out the activity. And when
this activity gets outsourced a new business activity emerges, which is generally known as Knowledge Process
Outsourcing.
Knowledge Processing Outsourcing (popularly known as a KPO), calls for the application of specialised domain
pertinent knowledge of a high level. The KPO typically involves a component of Business Processing Outsourcing
(BPO), Research Process Outsourcing (RPO) and Analysis Proves Outsourcing (APO). KPO business entities
provide typical domain-based processes, advanced analytical skills and business expertise, rather than just process
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expertise. KPO Industry is handling more amount of high skilled work other than the BPO Industry. While KPO
derives its strength from the depth of knowledge, experience and judgment factor; BPO in contrast is more about
size, volume and efficiency.
In fact, it is the evolution and maturity of the Indian BPO sector that has given rise to yet another wave in the
global outsourcing scenario: KPO or Knowledge Process Outsourcing. The success achieved by many overseas
companies in outsourcing business process operations to India has encouraged many of the said companies to start
outsourcing their high-end knowledge work as well. Cost savings, operational efficiencies, availability of and access
to a highly skilled and talented workforce and improved quality are all underlying expectations in outsourcing high-
end processes to India.
The future of KPO has a high potential as it is not restricted to only Information Technology (IT) or Information
Technology Enabled Services (ITES) sectors and includes other sectors like Legal Processes, Intellectual Property
and Patent related services, Engineering Services, Web Development application, CAD/CAM Applications, Business
Research and Analytics, Legal Research, Clinical Research, Publishing, Market Research (Market research KPO)
and many more.
In today’s competitive environment, focus is to concentrate on core specialisation and core-competency areas and
outsource the rest of the activities. Many companies and organisations have come to realise that by outsourcing non
core activities, not only cost are minimised and efficiencies improved but the total business improves because the
focus shifts to the key growth areas of the business activity.
8.3 KPO: A Step Ahead of BPO

From ‘Make’ to ‘Buy’: With the advent of specialised and high-quality KPO vendors in India, customers will
increasingly go the ‘buy’ route rather than setting up their captive offshore centers. Setting up a captive takes at least
a year to stabilise quality, consumes a very large amount of senior management attention, and often ends up with
higher operating costs and less management control than working with one or two vendors. This effect is particularly
strong in KPO, since most companies do not want to build in-house capabilities in such fields in India due to the
lack of critical mass, which is currently likely to be around 200+ professionals and that too, with an increasing trend.
(For example Business Research).
US/UK biggest markets, but large potential of non-English speaking markets: The US and the UK account for the
largest share of KPO due to English language, the widespread NRI community and their existing comfort levels
with off shoring services to India and similar destinations.
European companies are still far behind in terms of off shoring even BPO processes, but are increasingly opening
up to the idea of off shoring higher end work to countries like India. However, this trend is likely to pick up only
if issues related to language proficiency and cultural context are handled properly. If addressed appropriately, the
non-English segment could become an excellent growth opportunity for Indian companies.
Customers want focus rather than breadth or size: Buyers of off shoring services are increasingly looking for those
KPO players, which have the necessary expertise, depth and experience in focused areas of KPO. KPO players need
to focus on particular market segments, in terms of services provided, industry verticals, functional skills as well
as the type of clients served. Typically, customers look for the skill rather than for the size of a vendor and prefer
focused vendors over vendors offering large varieties of BPO, IT and KPO services. They want vendors who will
totally customise their solutions and offer both project-based delivery models as well as dedicated centers.
Flexibility and speed are critical. For example, in Business Research, customers are asking vendors to run projects
from a few thousand US dollars upwards and expect complex global and multi-lingual research projects to start
after as little as 15 minutes after the requests have been made.
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Introduction to BPO
8.4 Demand Side Perspective of KPO: Well Beyond Cost Arbitrage

The global KPO industry is still in a nascent stage. However, it is growing at a rapid pace. The sectors that are expected
to ‘shine’ within the KPO industry include data search, integration and management services, financial services,
research and analytics, technology research, computer aided simulation and engineering design and professional
services, such as business research and legal services.
Unlike the conventional BPO, where the focus is on process expertise, the focus in KPO, is on knowledge expertise
and requires service providers to possess advanced technical and analytical skills.
Some of the other factors fuelling growth in KPO are:

• Developed economies, such as the US, the UK, and countries in Western Europe are increasingly facing a
shortage of highly trained and specialised professionals in various knowledge-intensive high skill sectors, such
as R and D in VLSI, engineering design, IT, financial risk management, and many more.
• Buyers of off shoring services save more at the high end of the value chain, as compared to the low end on a
per-job basis.
• High-quality specialised vendors and successful captives have emerged as role models and created awareness
for KPO, both in the West as well as in India.
KPO is not just about ‘Cost Arbitrage’

In fact, players solely based on cost differentials will hardly be sustainable in the long run. The central theme of
KPO is to create value for the client by providing the highest-quality business expertise and superior productivity/
effectiveness rather than cost savings based only on geographic cost arbitrage. KPO services help improve the
time-to-market, access to special skills, absorb peak load and enhance organisational effectiveness. Moreover, it
simplifies the process and makes it more flexible. Consistent quality is the key word and primarily drives the buying
decisions. For example, an error made in a corporate finance valuation model can have a huge financial downside,
which is likely to be in factors of 1000+, possibly larger than the savings made by having the spreadsheet produced
in India. Similarly, a patent with badly written claims can damage the protection of multimillion dollar products
in global markets. Finally, the outsourcing solutions for high-end processes are usually highly customised, which
is an important element of value creation for the client, but also requires the vendors to run multiple customised
processes in parallel.
Large potential for SME customers

KPO started initially in captive centers of large companies, moving to specialised vendors, who provide such services
to large companies such as Investment Banks. This sector holds immense potential for the SMEs in the long-term.
There are millions of SMEs, which can benefit from KPO; however, their average volumes are much lower than a
few thousand US dollar projects up to 5-10 full-time employees.
While large companies predominantly use KPO for gaining access to talent and cost reduction, SMEs can further
benefit from buying KPO services from specialised vendors by being able to gain access to very large resource pools
quickly at no upfront costs. Additionally, it allows them to vary their cost base in the face of short-term demand
swings, which creates the possibility of new business models.
8.5 Supply Side Perspective of KPO: People, Quality, Differentiation and Marketing
KPO is centered on professionals possessing the right skill sets. Therefore, access to a large, high-quality skill
pool is a precondition for successful KPO operations, captive or third party. For this reason, KPO operations are
likely to emerge in countries with the highest educational standards, providing a large number of highly qualified
professionals (Engineers, MBAs, PhDs, CFAs, Lawyers, and many more.) such as India, China and Russia. India
is likely to capture about 70% of the market for KPO, but the challenges will be significant.
The ingredients of successful KPO are recruiting and training the right professionals, providing consistent quality
over time, improving productivity to or beyond Western levels and successfully marketing the services to sceptical
customers. Setting up successful KPO companies, captives and third-party vendors, is very difficult and there are
significant barriers to enter have been reflected in the past and the huge list of unsuccessful entries clearly reflect
this.
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People philosophy and development
KPO companies are professional service companies and not white-collar factories. Therefore, world-class people
development processes are at the root of successful KPOs. Developing professionals faster and better than anyone
else will translate directly into better quality, productivity, retention and success in the market place. Meritocracy
and true employee care are only a few elements of such a philosophy.
Recruiting
Recruiting the right people is critical and requires significant hiring, building brand equity at the right schools and
in the open market. Successful players can attract better people. The interview-to-offer ratios of successful players
are about 25:1 and the offer acceptance rates are as high as 80%.
Training
One of the best practices in KPO is the huge investment (about 15% of the total work time) and developing skills
sets such as, functional skills, cross-cultural skills, as well as managerial skills.
Quality and expertise

The objective must be to deliver world-class quality at often even improved service levels. Successful KPOs measure
quality and get feedback for each individual project sometimes as small as a few thousand US dollars. In-depth
expertise is required as well.
Equity research
Analysts to understand the market dynamics in Oncology when creating a valuation model for a pharmaceutical
company active in Oncology. The expertise required can be in industry verticals, functional areas (for example Risk
Management) or in geographic knowledge (for example understanding mid-sized German companies).
Focus
The ‘Jack in all Trades’ approach is not likely to work in KPO. The work at KPO requires domain expertise and
therefore the culture and customer requirement of KPOs and BPOs vary significantly. Hence, it is important that
KPOs develop expertise in few areas and excel in them. There is a reason for why Western Law Firms, for example,
do not offer R and D and Insurance Claims Analytics and Call Center Operations at the same time.
Innovation and differentiation

KPO companies have the unique opportunity to create new markets, since their price points allow them to offer
new types of services simply not available in high-wage countries for cost reasons. However, buyers who offer
Innovative services will differentiate successful KPO companies from players who offer cost arbitrage and will give
them a sustainable place in the world markets.
Marketing, sales and branding

Selling KPO services in the West will require a Western sales force and significant branding efforts in the medium-
term. As of now, tapping the SME potential and selling into Continental Europe requires local support. Successful
branding will be another necessary ingredient to generate a sufficient ‘pull’ in the market.
8.6 Why KPO?

If we look into any financial newspaper, magazine or any literature giving knowledge about the outsourcing business
in India, what is found to be most referred word is KPO meaning thereby knowledge process outsourcing. Many
new business concerns are coming day by day in Knowledge Processing Outsourcing Industry and KPO is emerging
as a new sector that promises to provide long-term jobs for intellectual, analytical and knowledgeable people with
a pay scale much higher than the BPO sector. The following are the few areas which are being associated with the
KPO sector:
• Research and development
• Financial consultancy and services
• Advanced web applications
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Introduction to BPO
• Business and technical analysis

• Learning solutions
• Animation and design
• Business and market research
• Pharmaceuticals and biotechnology
• Medical services
• Writing and content development
• Legal services
• Intellectual Property (IP) research
• Data analytics
• Network management
• Training and consultancy
Now, why should some company invest time and money in knowledge process outsourcing? The basic fundamentals
of outsourcing apply equally to knowledge based services as well. A shortage of skilled professionals and availability
thereof at higher costs increase the cost of maintaining such services in the host country whereas the same job can
be got done with similar precision and quality and at much lesser costs abroad. The major KPO benefits which can
be derived are described below.
8.7 Benefits of KPO

Standardised technical education is widely available to all in the developing countries especially in India. This
skilled and trained manpower is accessible at very low cost as well. It, therefore, is always a wise decision and
makes sense to utilise such services.
Outsourcing of activities to KPO companies can provide the following benefits:

• Valuable cost savings that can be utilised elsewhere
• Trained professionals at work
• Standard operational efficiency
• Increase in profits
• Savings in time and management energy for maintaining in house services
• Option to recruit a larger work force without raising costs
8.8 What KPO can Deliver to You?

Any company involved as service provider in the KPO industry works in close coordination and association with
the client and provides services that are predefined in terms of quality and standard of work.
While working with a KPO firm, the outsourcing company can expect to get the following:
• Good quality work
• Lower costs
• On time delivery of services
• Uninterrupted services
• Adaptability to changes in required quality
Does it imply that with the rise of KPO entities, BPO (Business Process Outsourcing) become extinct? It is undoubtable
that KPO is a step ahead of BPO but this does not mean the end of BPO. The BPO Industry will exist and continue
to be successful in India. BPO has its own strengths and way to solve a particular problem and the BPO market is
long term in nature as compared to the KPO market. With every passing day the BPO market expanding and so is
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the various systems and processes through it. The following are various areas in which the BPO presence shall not
remain in existence but shall also keep growing:
• Data processing
• Basic data entry
• Department Outsourcing
• Provides technical support
• Provides email support to its customers
Even after the entry of KPO in the Indian market, the amount of total revenue earned in the outsourcing industry in
BPO will be higher as compared to the KPO industry. The BPO exports will be as higher as $20 billion by the end
of 2010 in comparison to KPO projections of $12 billion in the same period. As per a recent study done by experts
the BPO industry is expected to grow globally at a CAGR of over 26 percent by 2010.
8.9 Scope and Research of KPO

Below we give data published and prepared by various organisations which give a broad idea about the amount of
the scope of business opportunities and potential likely to be created in the KPO sector in the immediate and long
term future.
National Association of Software and Services Companies Study Report (NASSCOM)

According to a published report of National Association of Software and Services Companies (NASSCOM), the
chamber that serves as an interface to the Indian Software industry, Knowledge Process Outsourcing industry (KPO)
is expected to reach USD 17 billion by 2010, of which USD 12 billion would be outsourced to India. Another report
predicts that India will capture more than 70 percent of the KPO sector by 2010.
Apart from India, countries such as Russia, China, the Czech Republic, Ireland, and Israel are also expected to join
the KPO industry. In its annual publication Strategic Review 2005, Nasscom has said the high-end activity of the
BPO industry the KPO or knowledge process outsourcing could be worth $15.5 billion by 2010.According to earlier
estimates, the BPO industry itself was expected to be about $20bn by 2008, hence a very significant portion of the
sector in excess of 50% is now projected to be knowledge based. This represents significant shift of call center
sector business to different model.
Evalueserve study
According to a recent study by Evalueserve, an outsourcing company having service chart for global world, the
global KPO market is expected to grow at a cumulative annual growth rate (CAGR) of 46 per cent, from $1.2 billion
in 2003 to $17 billion in 2010. Compare this with the prediction for the low-end outsourcing services market. This
is expected to have a CAGR of 26 per cent, from $ 7.7 billion to $39.8 billion in the same period.
Evalueserve says India provided $3.5 billion of BPO and KPO (but non-IT) services in 2003 and is expected to
grow at a CAGR of 36 per cent during 2004 to 2010. Hence, it is likely to earn $30 billion in 2010 by providing
these services. Says country general manager, Kelly Services, Achal Khanna “India still maintains the competitive
advantage for providing, the combination of the most cost-effective and high quality manpower this is India’s strength
in the off-shoring business”. The projections are based on a white paper released by Evalueserve. The paper cites
reasons for a possible KPO boom. It says higher savings by outsourcing knowledge based activities combined with
the scarcity of specialised talent in developed countries could lead to growth in the KPO sector. Billing rates for
KPO are higher at $30-45 per hour compared to just $10-14 in the BPO business. However, the paper also warns
of several challenges like higher quality standards, greater investments and inadequate talent. The study estimates
that while the compounded growth rate of BPO till 2010 would be just 26% KPO is expected to be growing at
almost 46%.
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Introduction to BPO
Rocsearch, a UK-based research services company study

Another study on Knowledge Process Outsourcing (KPO) sector shows a huge supply gap that threatens to cripple
its growth. Rocsearch, a UK-based research services company, has gathered evidence suggesting that the KPO
market may just about reach a size of $5 billion by 2010, manned by 100,000 people instead of projections of a $12
billion market supported by 250,000 employees. This accentuates Nasscom’s projections of a shortfall of 500,000
workers in ITES and BPO sectors by 2010. Assuming average revenue per person of $55,000 over the next four
years 100,000 knowledge workers point to a $5 billion market. This size, though based on a CAGR of 32%, is still
60% less than the $12 billion potential projected by big KPOs, like Evalueserve, last year. Rocsearch COO, Ashish
Sinha says the sector is restricted by low employability despite high graduate turnout, and competing demand from
other sectors as jobs grow faster than the workforce.
For example, all the 2,000-odd IIM and top 10 B-School graduates are employable, while less than half the 84,000
graduates from Tier-II B-Schools would make the grade. The study sees only 500,000 of the over 3 million workers
added to the labour pool in 2005 as employable in global firms and of these, just 2 in every 100 are likely to opt for
work in knowledge space.
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 Processes Outsourcing, Web Development Application,
CAD/CAM, Finance and Accountants Management and Consultancy, Legal Research, Clinical Research, Publishing,
Market Research (Market research KPO), and many more.
Outsource2india findings and report on KPO

“Over the past year or two, the outsourcing industry has been throwing up jobs for Doctors, Engineers, CAs,
Architects,” says Jacob William of the Bangalore-based Outsource2India, which employs 500 people and offers
services in the big-buzz, big-bucks area of knowledge process outsourcing. “Unlike the first wave which was more
about entering data and answering phone calls, these jobs involve skill and expertise.”
The high-end KPO opportunities are immense for Indian firms. For instance, look at some of the figures pertaining
to intellectual property research.
Drafting and filing of patent applications in the US is quite expensive. A typical application costs about $10,000 to
$15,000 to draft and file with the United States Patent and Trademark Office. Cost savings from offshoring even a
portion of the patent drafting process can easily save up to 50 per cent of the cost for the end client, according to Alok
Aggarwal, chairman of Evalueserve. According to Pangea3, the cost of 10 patents in USA is approximately $30000
whereas around 50 patents can be got filed by outsourcing the said activity at a cost of less than $10000.Also, of
course, the talent is much more affordable. “Law firms in the US charge an average of $400-450 per hour, and we
do the same work for $75 to $100 an hour” says Kamlani” who is an outsourcing provider in the same area.
Quite predictably, law business firms such as Patent Metrix, Cantor-Colburn and Schwegman, Lundberg, and
Woessner and Kluth, have already established their offices in India. There are a few others who are associating with
Indian companies to encash the emerging opportunity.
8.10 Bottlenecks in Future Growth

A study on Knowledge Process Outsourcing (KPO) sector shows a huge supply gap that threatens to cripple its
growth. Rocsearch, a UK-based research services company, has gathered evidence suggesting that the KPO market
may just about reach a size of $5 billion by 2010, manned by 100,000 people instead of projections of a $12 billion
market supported by 250,000 employees.
This accentuates Nasscom’s projections of a shortfall of 500,000 workers in ITES and BPO sectors by 2010. Assuming
average revenue per person of $55,000 over the next four years, 100,000 knowledge workers point to a $5 billion
market. This size, though based on a CAGR of 32%, is still 60% less than the $12 billion potential projected by big
KPOs, like Evalueserve, last year. Rocsearch COO, Ashish Sinha says the sector is restricted by low employability
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despite high graduate turnout, and competing demand from other sectors as jobs grow faster than the workforce.
For example, all the 2,000-odd IIM and top 10 B-School graduates are employable, while less than half the 84,000
graduates from Tier-II B-Schools would make the grade.
The study sees only 500,000 of the over 3 million workers added to the labour pool in 2005 as employable in global
firms and of these, just 2 in every 100 are likely to opt for work in knowledge space.
8.11 Why India to be preferred to other Countries?

Due to a large knowledge pool and a significant cost arbitrage, few countries like India, Philippines and China are
front runners in providing outsourced services. After achieving great success in BPO, India is now looking for a big
leap in KPO. India automatically becomes a natural choice if we analyse the comparative costs of various aspects
of KPO for different countries.
Basis of the Comparison of following factors in countries: India, Philippines, Russia, China, Canada, Ireland and
Mexico:
Labour Pool
• India has many prestigious technical universities and the Indian Institute of Technology stands apart as one of
the world’s best. India produces over 75,000 IT graduates and 20 lacs English-speaking graduates annually.
• The Philippines turns out 380,000 graduates annually, but only 15,000 of have core technology knowledge. The
country has cultural affinities with the U.S. and is well-versed in labour
• In US, accounting and customer service standards and has low employee turnover.
• Russia can claim the third largest population of engineers and scientists per capita but the bad news is that not
many of them speak English.
• China’s technical schools turn out 50,000 graduates annually, many of whom migrate west. Those who stay
generally don’t speak English.
• U.S. neighbour Canada to the north has solid educational system, with a qualified labour force of more than
16 million.
• In Ireland, relatively small; 34,000 graduates annually, 5,000 of them technical.
• Mexico provides U.S. companies with millions of Spanish-speaking people to staff call centres.
Labour costs
• In India, labour costs have crept upward over the years but have been offset by falling telecom rates. Typical
salaries range from $5,000 to $12,000 for technical staff, while back-office salaries range from $3,500 to
$7,500.
• In Philippines, higher labour costs than India; technical salaries range from $5,000 to $10,000 annually and
back office from $3,000 to $8,000.
• In Russia, IT salaries range from $6,000 to $10,000. The country hasn’t yet developed back-office competence.
Telecom infrastructure costs are higher than average.
• In China, IT salaries range from $3,000 to $8,000 annually. No real BPO competency.
• In Canada, being a near shore alternative to the U.S. means IT salaries are much higher than most offshore
countries, ranging from $25,000 to $50,000. Being a near shore alternative to the U.S. means IT salaries are
much higher than most offshore countries, ranging from $25,000 to $50,000.
• In Mexico, low labour costs; companies can save up to 50% by outsourcing to Mexico. Costs could be offset
by unreliable infrastructure.
• In Ireland Tech salaries range from $25,000 to $35,000, making Ireland unattractive if primary objective is
cost savings.
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Introduction to BPO
Government Policies
• Outsourcing is so imbibed in the fabric in the country and the Indian government has a national minister
specifically for IT. The government favours IT foreign ownership and imposes no export taxes.
• In Philippines, government exempts companies from export taxes, fees, dues and licenses if they open in one
of the country’s IT parks. Government’s task force charged with development of IT and knowledge process
outsourcing (KPO) services.
• In Russia, government is erratic and, for now, sticking by old tax laws and structures that don’t benefit business.
But a treaty with the U.S. could change things down the road.
• China’s government has hampered growth due to trade policies and over regulation; intellectual property concerns
linger. The hope is that these issues will evaporate as China blends into the World Trade Organisation.
• In Canada, low or no political risk. Government gives tax breaks on IT exports. NAFTA provides free trade
market for IT services.
• In Mexico, NAFTA has opened up free trade markets, but Mexican government does not offer high level of
incentives.
• In Ireland, favourable tax laws and $330 million technology-education fund provide incentives. Low or no
political risk.
Infrastructure
• In India with redundant telecom and utility infrastructure, there is very good reliability within India’s special
IT parks. Reliability can be spotty outside the parks or in more remote areas.
• In Philippines, IT parks that have sprung up over the past 13 years fuel the export industry. Abandoned U.S.
military bases left behind dependable telecom infrastructure.
• In Russia, infrastructure quality and quantity nosedives when outside of Russia’s few IT parks.
• In China, infrastructure can be spotty outside major cities, but China is building networks, particularly
telecommunications, almost as fast as the US.
• In Canada, solid telecom infrastructure.
• In Mexico, solid inside the technology parks.
• In Ireland, solid telecom.
Expertise
• In India, application development, maintenance, financial processing. Experts see India becoming a hotbed for
more critical analytical jobs.
• In Philippines, accounting, finance, animation, human resources.
• In Russia, web design, complex software development, aerospace engineering.
• In China, transaction processing, low-end software development and maintenance.
• In Canada, software development and maintenance, tech support.
• In Mexico, Spanish-language call centers, software development, data center outsourcing.
• In Ireland, European shared-services centers, software development.
Customers
• For India, Citigroup, GE Capital and American Express have a very large presence and have set up their own
centers here
• For Philippines, Procter and gamble, American international group, ContiGroup
• For Russia, Boeing
• For China, HSBC, Microsoft
• For Canada, Allmerica, Agilent
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• For Mexico, AOL time Warner, general motors, IBM
• for Ireland, Intel, Dell, Microsoft
8.12 Why is India the preferred KPO Destination?

The analysis of above data shall reveal that India becomes automatically a preferred choice of the outsourcing
countries. India has a growing population of educated people capable of handling high-end knowledge-based work
and research. With a huge talent pool, India could emerge as a global KPO hub as the sector requires specialised
knowledge in respective verticals. With the mushrooming of engineering and technical institutes in India, there will
be no shortage of skilled manpower in India. A Confederation of Indian Industry study states that India’s transition
from a BPO destination to a KPO destination is imminent.
The cost advantage

India also gets advantage in terms of cost advantage and more and more companies are turning to India for offshoring
KPO work as quality work gets done at cheaper rates. For instance, drafting and filing of patent applications in the
US is very expensive. A typical application costs about $10,000 to $15,000 to draft and file with the United States
Patent and Trademark Office. Companies can save up to 50 per cent of the cost by offshoring the work to India.
More foreign firms head for India

The testimony to the fact that India is being chosen as preferred country becomes evident as many companies such
as Patent Metrix, Cantor-Colburn and Schwegman, Lundberg, and Woessner and Kluth have already set up offices
in India. Offshoring R and D in pharmaceuticals and biotechnology also have enormous potential for KPO. Pharma
majors Astra Zeneca and GlaxoSmithKline have set up drug discovery centres at low-cost destinations to boost
their research and development activities. Even for R and D in software and chip design, major telecom and IT
companies opt for India. Motorola, Intel, IBM, Cisco, Texas Instruments, Nokia and Philips have set up offshore
design centres in India.
Further testimony comes from a report of India Times

“It’s good news for Indian knowledge process outsourcing (KPO) firms. India is the most attractive destination
for KPO activities, says a study by independent research company Asset Management in collaboration with Kelly
Services. The study shows India will have a higher growth rate in KPO segment of 45% compared with 25% in the
BPO segment. The latter will, however, remain the lead revenue earner and job creator due to the volume nature
of this industry.”
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Introduction to BPO
Summary
• The six elements that separate KPO and BPO are focus, process, specialisation, driving force, activities, and
client contacts.
• While BPO places an emphasis on low level processes, KPO places an emphasis on high level processes such
as patent filing, investment research, and legal issues.
• KPO focuses on the application of knowledge rather than processes.
• The primary requirements for BPO workers are a high command of the English language and simple computer
skills.
• The KPO is an extension of the BPO, and allows businesses and organisations to carry out a large number of
processes.
• While BPOs have statistically brought in about $11 per hour, KPOs have been shown to bring in as much as
$24 per hour.
• Knowledge Processing Outsourcing (popularly known as a KPO), calls for the application of specialised domain
pertinent knowledge of a high level.
• The KPO typically involves a component of Business Processing Outsourcing (BPO), Research Process
Outsourcing (RPO) and Analysis Proves Outsourcing (APO).
• Cost savings, operational efficiencies, availability of and access to a highly skilled and talented workforce and
improved quality are all underlying expectations in outsourcing high-end processes to India.
• Buyers of off shoring services are increasingly looking for those KPO players, which have the necessary expertise,
depth and experience in focused areas of KPO.
• The central theme of KPO is to create value for the client by providing the highest-quality business expertise
and superior productivity/effectiveness rather than cost savings.
• Access to a large, high-quality skill pool is a precondition for successful KPO operations, captive or third
party.
• World-class people development processes are at the root of successful KPOs.
• The interview-to-offer ratios of successful players are about 25:1 and the offer acceptance rates are as high as
80%.
• The work at KPO requires domain expertise and therefore the culture and customer requirement of KPOs and
BPOs vary significantly.
• India has a growing population of educated people capable of handling high-end knowledge-based work and
research.
• Even for R and D in software and chip design, major telecom and IT companies opt for India.
References
• Singh, R., 2008. Research in Management and Technology, Deep and Deep Publication
• Bansal, A., Phatak, Y., Gupta, I. & Jain, R., 2009. Transcending Horizons Through Innovative Global Practices,
Excel Books, India
• KPO [Online] Available at: <http://www.kpoexperts.com/precautions/outsourcing-more-advantages-than-
worries.htm> [Accessed 22 January 2013].
• KPO [Pdf] Available at: <http://www.vconnect.in/kpoVsbpo.pdf> [Accessed 22 January 2013].
• CCBAA - KPO in China [Video online] Available at: <http://www.youtube.com/watch?v=XCc33auH5MI>
• After BPOs, it’s KPOs now [Video online] Available at: <http://www.youtube.com/watch?v=lbYWZdS4CsE>
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Recommended Reading
• Gopal, R. & Manjrekar, P., 2008. BPO/KPO Management, Excel Books
• Roebuck, K., BPO- Business Process Outsourcing: High-impact Strategies, Tebbo Publications
• Kobayashi-Hillary, M., 2010. Talking Outsourcing
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Introduction to BPO
Self Assessment
1. KPO places an emphasis on _______ level processes such as patent filing, investment research, and legal
issues.
a. high
b. low
c. service
d. priority
2. Motorola, Intel, IBM, Cisco, Texas Instruments, Nokia and Philips have set up offshore design centres in
___________.
a. Ireland
b. Mexico
c. India
d. China
3. When work is outsourced to other countries, companies in the developed nations can save large amounts of
money on the cost of manufacture which is nearly ____.
a. 50-60%
b. 20-40%
c. 30-70%
d. 40-70%
4. _________ workers can expect to deal with international clients on a regular basis.
a. KPO
b. BPO
c. LPO
d. ALO
5. KPO business entities provide typical ____________ processes, advanced analytical skills and business expertise,
rather than just process expertise.
a. customer-based
b. high-level
c. domain-based
d. low-level

a. KPO workers are expected to specialise in specific field.
b. Companies can save up to 70 per cent of the cost by offshoring the work to India.
c. Buyers of off shoring services save more at the high end of the value chain, as compared to the low end on
a per-job basis.
d. The differences in specialisation between BPO and KPO are primary connected to their domains
7. Which sector holds immense potential for the SMEs in the long-term?
a. BPO
b. KPO
c. ALO
d. LPO
110/JNU OLE
1. Conventional BPO A. Knowledge expertise
2. KPO B. UK-based research services company
3. Rocsearch C. Process expertise
4. Mexico D. NAFTA
a. 1-B, 2-D, 3-A, 4-C
b. 1-C, 2-D, 3-A, 4-B
c. 1-C, 2-A, 3-B, 4-D
d. 1-D, 2-A, 3-B, 4-C
9. Billing rates for KPO are higher at ________ per hour compared to just $10-14 in the BPO business.
a. $20-40
b. $30-45
c. $38-70
d. $67-89
10. In Mexico, low labour costs; companies can save up to ______ by outsourcing to Mexico.
a. 50%
b. 80%
c. 75%
d. 43%
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Introduction to BPO
Case Study I
Call Centre Outsourcing
Introduction
The subject of the case study in this research is an outsourced call centre service. The service is of B2B2C (business-
to-business-to-consumer) nature, where a company outsources its call centre function that caters to its end customers
(the consumers). The focus of the research is on actions by the client company, its outsourcing decisions and how
those decisions affect the relationship with the client. The evaluation of the outsourcing management by the client
company is based on the framework that is summarised in the following figure:
Company requirements
Type of service outsourced, specific

qualities
Supplier capabilities
Improvement target or key capability

assessment for provider selection
Fig. 1 Supplier evaluation and governance framework

(Source: http://epub.lib.aalto.fi/en/ethesis/pdf/12260/hse_ethesis_12260.pdf)
Business case fundamentals

The fundamental parts of the business case are summarised in this section. Learn the information in this section to
understand the discussion about the actual research issues.
• Company A (Service recipient): Company A is the service recipient in the case study. Company A is a part of a
large company that operates on financial sector.
• Company B (Service Provider): Company B is a contact centre service provider that operates multiple contact
centres within Finland. Company B has a wide range of client companies in several different industries.
Purchased service
The service that is provided by Company B is two-fold, outbound sales calls and inbound customer support for
Company A’s B2C (business-to-consumer) customers. Majority of the agents at Company B are utilised in both of
these two tasks by utilising methods such as call blending, where computer assigns a free agent to a certain task
depending on the agent’s availability. Outbound sales service constitutes the majority of the billing revenue, but
the inbound customer service is equally important for Company A due to other business considerations. Company
B also provides some supporting, back-office type services.
Outbound sales
Outbound sales service provided by Company B is a traditional telemarketing operation. Company B is selling
6-10 different sales campaigns simultaneously to various target groups. The outbound sales service consists of
majority of the service provided by Company B to Company A.
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Inbound customer service
Inbound customer service answers to consumer questions, varying from product information, billing issues and claims
processes. The amount of different types of products in inbound support is large due to inbound also catering to those
consumers that are not using a product marketed by Company B. Inbound service creates additional information
needs to the sales agents, the training period of a single agent is higher than on outbound sales. For inbound customer
service a skill based routing service is used, where calls are routed to the agents according to their knowledge on
the product consumer seeks support on.
Support service (back office functions)

Company B also provides varying types of supporting service beyond the traditional contact centre work. Majority
of the support work is related to the paper work that needs to be done after a sale has been made: mailing of the
contracts and various letters to the customers. While mailing service can be seen only as supporting the core services
of outbound and inbound calls, it affects final sales rates directly. If the various contract papers are not sent to the
customer within a certain time, the amount of cancellations will rise rapidly. Company B also provides paper archives
of the various contracts and letters sent to customers.
Development of sales campaigns

Daily and weekly co-operation between the both parties focuses on ongoing and upcoming sales campaigns. This
conducted through daily reports of sales and agent activities and weekly conference calls between the companies.
Training of staff at Company B

Company A is heavily involved in the training of the sales staff at Company B. The training is related to both
inbound customer support and outbound sales calls. The training by Company A focuses on new products, additional
information on old products, answers to frequently asked questions and general sales training.
Product development activities

Co-operation between Company A and Company B is also utilised when developing new products and sales campaign
activities. Information from the sales agents itself is utilised when evaluating the situation in the market and the
market response to a new product or a change in current product.
Process improvement
Company A is also involved in the process development inside Company B. Various projects ranging from IT
integration with Company A systems, development of a new reporting system and knowledge management systems
are promoted by Company A.
Relationship between Company A and Company B

This section gives an overview of the current situation. Focus points here are:
• development during the years of operations
• current communication structures
• co-creation of value in the co-operation and risks in the co-operation
Development during years

Company A has never had the capability to produce the service themselves; its call centre operations in Finland
have always been supplied by outside company. Most significant changes in call centre outsourcing for Company
A have been in the pricing models that are utilised for service provider compensation. In the past Company A has
used output based pricing models for its call centre providers but in the recent years Company A has moved on to
outcome based pricing models, where the service providers are compensated on their actual effect on sales.
Moving to the pure outcome based billing method was successful for both parties in this co-operation. The initial
plan was to have a purely outcome based billing solution, but the nature of some services Company B provides to
Company A limits the applicability of completely outcome based billing. For example, it is much more difficult to
evaluate the outcome of inbound customer service work or the back office type support functions.
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Introduction to BPO
Communication structure in Co-operation

Communication between Companies A and B is conducted on daily basis. Daily communication is conducted through
daily reports from Company B to Company A about sales in currently active campaigns and the volume of customer
service calls. Reporting is done in an ad hoc nature by the Key Account Manager who builds the reports by hand.
We require all our service providers to give daily reports in a certain standardised format. Currently the major issue
with reporting of Company B is the lack of standardised reporting. The project of unifying the reporting has been
a priority over the last year. - Company A. The lack of non-standardised reporting has made daily evaluation of
performance difficult for Company A and it improvement is a key priority in the near future. Ongoing IT efforts are
focused on better integration of Company B systems to Company A’s worldwide standard systems.
Companies A and B have weekly conference calls. These focus on how currently active campaigns are evolving,
current issues regarding the service and upcoming products or changes in current products. These calls are structured
in their nature and are a permanent part in the schedule for both companies. Quarterly and yearly issues ranging from
contract renegotiations and changes in the service itself are managed with face-to-face meetings either at Company
A or Company B. Company A takes a yearly audit of Company B that focuses on both financial and security issues
as well as operational issues such as marketing methods and communications.
The Key Account Manager from Company B is in a key role of communication. Communication from all of the
stakeholders at Company A goes through the position of the key account manager. The Key Account Manager is
present at all weekly conference calls and handles most of the daily communication as well. The role of the Key
Account Manager was commented on by interviewees in both companies: Of course, the information is filtered
through the Key Account Manager.
Company A
I have felt that sometimes I do not have the opportunity to present my ideas about changes to how we market the
products. Of course, we will let the Key Account Manager know what we think, but beyond that, I don’t know what
actually happens.
Company B
There is also non-systematic communication between individuals and from the supervisors and sales agents at
Company B. The current communication structure is summarised in the following figure.
Company A
Stakeholder A
Supervisors
Outsourcing Key Account
Company A
Manager at Manager at
Stakeholder B
Company A Company B
Call center
managers
Company A
Stakeholder C
Fig. 2 Proposed communication structure between Companies A and B

While this proposed change will improve the situation and simplify the communication structure, it does not solve
all of the communication issues. The reliance on the key account manager at company B only increases with this
change. Management was identified as one of the differentiating factors between successful outsourcing ventures
and failures communication structure.
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Co-operation from value Co-creation viewpoint
Key enablers of value co-creation were defined by Prahalad and Ramaswamy to be dialogue between parties, access
to information, sharing of risks and benefits and transparency of information.
Dialogue between the parties is limited by the issues in the communication structure that were discussed earlier.
However, the ongoing business relationship is a working one and dialogue issues are not an obstacle for the co-
creation of value. Mutual access to information is promoted in the co-operation, but it is currently hindered by the
problems with daily reporting. Currently the daily reports are done by hand, delivered irregularly and are not always
comparable.
Company A
Sharing of the risk and the benefits is a key issue in this co-operation. Initial strategy for the co-operation was that
Company B would take the majority of operational risk through the outcome based pricing model. While it has been
majorly a working solution, division of risk is a constant topic in negotiations.
Transparency of operations is one area that the co-operation needs improvements. From Company B perspective,
the intentions of Company A, relating to for example upcoming sales campaigns, are not known well enough
beforehand. From Company A perspective, the transparency on billing of resource based items is weak. There are
multiple elements on the monthly bills that describe various types of supporting office work.
The fact is, when I look at the bills, I often do not know what we are actually buying. Company A. When viewing
the co-operation from value co-creation perspective, it can be deduced that many of the areas need improvements.
This leads to a question that is value co-creation type of partnership even something to be sought for in this type
of business.
Effect of risk in co-operation

Most significant risk due to the nature of co-operation from Company A perspective is of business continuity.
Given disruption in the service production at Company B, Company A would be without an important customer
service provider, which would be a significant issue. Other services provided by Company B, outbound sales calls
and support services could be moved relatively rapidly to another provider. Company A is managing the business
continuity risk in a typical way of identifying, assessing, ranking and then managing the risk. One way that the risk
of business continuity is decreased is through utilisation of multiple call centres within Company B.
One key risk in outsourcing contracts is information security. Information security is also significant is this business
case, since the type of information provided to Company B contains financial records. Company A still has strict
policies in place that are enforced in this business case. Internal risk effects identified by Lonsdale and Cox of losing
core activities, strategic flexibility and internal coherence are not significant. This is mostly due to the history of the
outsourcing contract: the service itself was never performed internally by Company A.
Evaluation of case Company B with vendor evaluation framework

In this section the outsourcing relationship between Company A and Company B is evaluated. First, it will go through
the motivation for the outsourcing from Company A as a background on how it relates to current situation in the
co-operation. Then the performance of Company B in current situation is analysed through five different capability
areas. The five different capability areas consist of smaller areas that are summarised in the figure below.
115/JNU OLE
Introduction to BPO
Resources at BPO
• Behaviour management/Human resources
• Sourcing, Revenue/Demand management
Implementation and operations
• Organisational design
• Governance
• Program/project management
• Leadership
Business sustainability
• Business Management
• Planning and contract management
Process capabilities
• Process awareness
• Re-engineering capabilites
Expertise
• Domain Expertise
• Technology exploitation
Fig. 3 Different capability areas of BPO vendor

Outsourcing strategy of Company A

The analysis of the business case of co-operative between the Companies A and B must begin with the outsourcing
strategy of Company A that was the motivation for starting the co-operation. As was previously discussed the co-
operative with the current provider started with the pressure of difficult situation with the previous provider. The
basis for outsourcing the service was the best practice guidelines used at Company A. It is important to note that
the service has not been internal at Company A at any point.
Service that is outsourced here contributes to the core competitive advantage of Company A, that according to
them is the selling product. Company A itself does not have call centre capacity it can utilise, therefore according
to McIvor’s (2008) four sourcing strategies for services the options Company A has; are limited to investing to
perform internally or outsourcing. The option of performing internally has not been discussed broadly at Company
A, even though there are examples of such operations from within the company.
Actual outsourcing strategy at Company A has not been strictly defined. It can be said as a whole that the outsourcing
management has not been methodological, but more of ad hoc nature. Company A’s outsourcing strategy, at least
regarding the service provided by Company B, has not evolved since the initial decision of choosing Company B
was made.
We have not at any point taken a step and take a step back to the original outsourcing decision and what were the
major reasons for it. This has lead to the situation where the service provided by Company B is something that
was not according to the original intentions. Company A Business strategy of Company B was out of scope for
this study, but their service concept was discussed during the interviews. Opinions about the type of service or the
service concept provided by Company B are very varied among the company; there is not a defined concept that is
known to all managers, supervisors and agents.
There is a visible division of viewpoints regarding the roles of the two companies in the co-operation. This division
is visible in multiple ways, both in operational and strategic level issues. Company B views themselves as a customer
management and marketing service provider, where the risk and results of the sales come from their actions.
Interviewees at Company B were uniform in their response about their core competence: Our core competence is
the sales and customer management. We provide good quality sales to the Company A, whose core competence is
in developing products for us to sell Company B.
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This viewpoint is also visible in operational side, where Company B wishes of more autonomy in their decision-
making, especially regarding the telemarketing issues like the structure of the speeches used for sales arguments.
I have always been a strong supporter for telemarketing that does not utilise prewritten speeches. In any case, the
sales agents do not stick to the speeches during actual sales calls.
Company B
Company A views Company B as a single type of marketing channel, comparable to other channels such as direct
mailing or web based sales. Company A sees the primary drivers for the sales results coming from them. Our core
competence is selling the product. Telemarketing is just another channel among others for selling the products and
we need to have an active role in management of this sales channel. We do not know anything about management
of a call centre and that is the core competence of the Company B.
Company A
Analysing the situation with the four types of vendors detailed by Gewald and Heibig (2006), the situation can be
summarised as Company B viewing themselves as being an advisor or a partner, while Company A viewing them
as provider type of vendor.
(Source: Rantakari, L., Governance in business process outsourcing: case study on call centre outsourcing, [Pdf]
Available at: <http://epub.lib.aalto.fi/en/ethesis/pdf/12260/hse_ethesis_12260.pdf> [Accessed 22 January 2013]).
Questions
1. This case study is based on which service?
Answer
This case study is based on “business-to-business-to-consumer” service.
2. Mention the effect of risk in co-operation.

Answer
Most significant risk due to the nature of co-operation from Company A perspective is of business continuity.
Given disruption in the service production at Company B, Company A would be without an important customer
service provider, which would be a significant issue. Other services provided by Company B, outbound sales calls
and support services could be moved relatively rapidly to another provider. Company A is managing the business
continuity risk in a typical way of identifying, assessing, ranking and then managing the risk. One way that the
risk of business continuity is decreased is through utilisation of multiple call centres within Company B.
One key risk in outsourcing contracts is information security. Information security is also significant is this
business case, since the type of information provided to Company B contains financial records. Company A still
has strict policies in place that are enforced in this business case. Internal risk effects identified by Lonsdale &
Cox of losing core activities, strategic flexibility and internal coherence are not significant. This is mostly due
to the history of the outsourcing contract: the service itself was never performed internally by Company A.
3. Mention the outbound sales idea of company B in this case study.

Answer
Outbound sales service is provided by Company B is a traditional telemarketing operation. Company B is selling
6-10 different sales campaigns simultaneously to various target groups. The outbound sales service consists of
majority of the service provided by Company B to Company A.
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Introduction to BPO
Case Study II
Business Process Outsourcing in the Philippines
Introduction
Focusing on the finance and banking service sector, this case study profiles business-process outsourcing in
the Philippines, including its sub-sectors, contributions to the economy and emerging decent work issues in the
industry.
The competitive advantage

Business-process outsourcing in the Philippines started in 2001 when American Online (AOL) established an in-
house call centre in the Clark Special Economic Zone, in Pampanga. The emergence of the country as an attractive
BPO contender primarily rests on the quality, supply and cost competitiveness of its human resources. In a survey
conducted by McKinsey Global Institute, the country registered a 30 per cent suitability rate for generalist and
finance accounting occupations. This is the highest rate in Asia. Suitability rates determine the percentage share of
qualified candidates that will be employed by HR personnel when they need to meet an appropriate demand. The
cost competitiveness of its talent is another criterion where the country scores well. Using the US labour cost as a
benchmark, the study revealed that labour costs in the Philippines are only 16 per cent of the total cost that will be
incurred if the company decides to stay in the USA and hire there. Costs include wages, bonuses and other worker
benefits.
A premier BPO hub

After seven years, the Philippines has positioned itself as one of the world’s top outsourcing destinations. In 2007,
the Booz Allen Offshoring Research Network Survey placed this country in the number-two position, after India,
as preferred outsourcing location among Fortune 500 companies, particularly in the contact centre and back-office
operations sub-sectors. That same year, the country was awarded Offshoring Destination for 2007 by the National
Outsourcing Association, in the United Kingdom (UK). Several other global surveys affirmed this assessment of
the country’s potential as a premier hub for business-process outsourcing.
The country’s sunshine industry

Over the last seven years, the business process outsourcing industry has become one of the fastest-growing sectors
in the Philippines. Rising from a revenue base of about US$350 million in 2001, BPO revenues reached $2.4 billion
in 2005 and $4.875 billion in 2007, fuelled primarily by strong global demand. Projected 2010 revenues will be
$12.2 billion, showing a 5-year compounded annual growth rate of 38 per cent. Contact centres will account for
the bulk of this.
Today, the BPO industry is the country’s “sunshine industry”, employing close to 100,000 workers and chalking up
earnings of over $1 billion per year. It is growing at about 100 per cent annually and will grow by 50 per cent for the
next several years. Growth potential is enormous. BPO could become a major player, a key pillar of the Philippine
economy, within the next few years.
Globally, the Philippines consistently ranks among the top 5 BPO locations, placing fourth after Australia, India
and the People’s Republic of China. Among its attractions for offshore BPO services are an abundant supply of
English-speaking professionals, low labour costs and good telecommunications infrastructure. Opportunities for the
Philippines remain strong, with offshoring predicted to gain further momentum in the coming years. In 2004, the
Philippines exported about $1.3 billion worth of BPO services. It aims to win 5 per cent of global business process
revenues by 2010, creating an industry worth as much as $12 billion. As of 2004, there were about 100,000 workers
in the BPO industry. The industry was hiring 5-15 per cent of the applicant pool monthly.
In 2005, employment grew by 60 per cent, absorbing 163,000 workers. And this number is expected to grow to
more than 1 million by 2010, employing 1 out of every 100 Filipinos. During that period, the industry will draw
half its workforce from young college graduates. Other sources of workers will be the educated unemployed and
underemployed (15 per cent), returning migrant workers (20 per cent) and career shifters and retirees (15 per cent).
118/JNU OLE
While college graduates will remain the main source of labour, technical and vocational training is forecast to provide
key labour-pool access to career shifters and the under-employed and unemployed.
By 2010, the industry will be absorbing 37 per cent of the graduating class, with the capacity, if development
strategies are implemented, to absorb a total of 62 per cent. Among the service segments, customer care continues
to comprise the largest category in the market, contributing $1.7 billion in 2005, recording a growth of 75 per cent
from $1 billion in 2004. With 70,000 seats, revenue per seat has increased to $24.286 (by 30 per cent) from $18,750
in 2004. An estimated 108 companies comprise this segment; about 50 per cent more than did in 2004.
Despite this impressive performance, the Philippine market share of the global pie was only 3 per cent in 2005, up
from 2.4 per cent in 2004. India, the country’s closest competitor, had a market share of approximately 8 per cent
in 2005. In Asia Pacific, the market share of the Philippines and India are 31 per cent and 68 per cent, respectively.
By 2010, the worldwide contact-centre market is forecasted to grow by a 5-year compound annual growth rate
(CAGR) of 12.4 per cent to $92.2 billion, where the country is expected to double its market share to 6 per cent at
a more robust 5 –year CAGR of 24.2 per cent.
Much room remains for growth, as the US and European markets are still largely untapped. Asia Pacific only drew
on about 11 per cent of the worldwide customer-care market in 2005 and the region is forecast to just maintain
this level in 2010 at a 12.1 per cent 5-year CAGR. The Philippines is in a very good position to match India in
the customer-care segment. From a broader perspective, however, strategies and service capabilities need to be
developed at the national level, if the country’s position as a BPO hub is to be solidified, attracting more business
and increasing market share.
Non-voice BPO
The recent spate of consolidations in the BPO industry is mostly due to call centres acquiring data-processing
companies to maximise their operations during the daytime, taking advantage of the growing interest in finance
and accounting (F&A) BPO. Revenues from back-office operations increased by 50 per cent from $180 million in
2005 to $120 million in 2004. Between now and 2010, the back-office segment is set to grow by a 5-year CAGR
of 67.8 per cent to $2.4 billion.
In the Asia Pacific region, one of the key BPO drivers is the outsourcing of F&A services, since these cover the entire
spectrum of BPO, given the diverse demands from developed and developing economies in the region. According
to the International Data Corporation (IDC), developed economies in Asia Pacific view F&A BPO as an effective
cost-containment tool for domestic companies. Subsequently, this service is leveraged by the banking and financial
sectors in developing economies such as China, India and Malaysia to benchmark against global best practices.
Analysts expect to see a rise in Indian BPO players in the F&A segment, as Indian companies continue to build their
BPO service capabilities and expand their presence inorganically through selective acquisitions. The Philippines has
not yet made its presence felt in the F&A BPO space and is forecasted by IDC to grow by a 5-year CAGR of only
8.7 per cent, compared to the double-digit expansion rates of other BPO players in Asia Pacific. Yet the country is
in a good position to take advantage of this growth area, given that 28 per cent of graduates come from business
administration and related academic programmes each year. Additionally, language proficiency, although this will
remain an important factor, will be less crucial than the customer-care segment.
While the offshore outsourcing industry has flourished by providing well-specified, structured and repeatable tasks,
the ability to perform more value-added, knowledge based activities such as analytics, research and credit analysis
is opening up opportunities in knowledge process outsourcing. This service requires significant area proficiency and
the ultimate goal is to generate value for the client by providing business expertise rather than process expertise.
Currently only inchoate, the global knowledge process outsourcing (KPO) industry is set to grow rapidly in fields
such as biotechnology and pharmaceutical research, intellectual property and financial and data analytics. Knowledge-
based offshoring should continue to surge in India and other parts of Asia.
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Introduction to BPO
The main challenges for the non-voice BPO sector are the security and corporate governance concerns with BPO
deals as companies adopt global best practices and benchmarks. Enterprises are increasingly demanding stricter
security and data privacy measures to ensure that sensitive information such as personal data, bank-account details
and other confidential information are not leaked out once transferred into the hands of a third-party vendor.
Philippine BPO in banking and financial services

The segments of the Philippine BPO industry that cater to the banking and financial services sector are the customer
contact and back office sub-sectors and therefore this section shall focus its discussion on these two segments.
Customer contact
The call-centre industry, the most dynamic BPO segment in the Philippines, experienced a growth rate of 75 per cent
in 2005. MNEs cite several reasons for choosing the Philippines as their contact-centre venue, foremost of which
is the country’s customer oriented and service-driven workforce. Compared to other Asian nationalities, Filipinos
are more receptive and adaptable to Western culture because of their shared history. They also have a higher level
of English proficiency and deliver quality service at lower cost. Eager to strengthen its position as a leading call-
centre destination, the Philippines is also fast upgrading its telecommunications infrastructure to make it easier for
investors to set up their operations.
About 105 major contact centres operate in the Philippines, including Ambergris Solutions, AOL Member Services
Philippines, Inc., APAC Customer Services, Inc., Convergys, Teletech, Clientlogic, ePLDT, e-Telecare International
Inc., ICT Marketing Services of the Philippines, Link2Support, Pacific Internet, People Support International, Inc.
and Sykes Asia. Following are the inbound and outbound services offered by contact centres in the Philippines.
Telemarketing Technical helpdesk

Advisory Payment authorisation
Sales verification Order taking and fulfilment
Credit and collection Complaints
Reactivation/reinstatement Disputes
Loyalty programme Transcription
Financial analysts and auditing Requests
Customer service Electronic eligibility
Order entry Support
Marketing/lead generating Sales
Inquiries Billing
Back-office processing/shared services

Data from the Business Processing Association of the Philippines (BPA/P) showed that back office grew by 50 per
cent in 2005 and, according to forecasts, will be bigger than customer contact beyond 2010.
At present, finance and accounting outsourcing is one of the fastest-growing segments of the BPO market and the
Philippines is taking full advantage of this demand. Finance and accounting cover account receivables, accounts
payable and revenue management for customers, which can be anything from simple bill collection to complete
management of a revenue cycle. The industry players in the country are made up of MNEs that have their back
offices in the Philippines (for example, Citibank, AIG, Accenture and IBM). The demand primarily comes from the
USA and Europe, secondarily from Australia and Canada.
The META Group found Filipino accountants to be “among the best in the world”. Thus, the country’s highly
trainable, English-proficient, IT-enabled quality management manpower is behind the continued success of the back-
office processing and shared services sector. Every year, this pool of efficient workers is replenished with 80,000
to 100,000 fresh graduates from accounting and other business-related courses, plus 2,500 to 3,000 new certified
public accountants. These CPAs are adept in generally accepted accounting principles (GAAP) and international
accounting standards (IAS) for financial reporting, which are used in Europe, Japan and the USA.
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The key players in the first sub-sector include AIG Business Processing Services, Inc., which performs cheque
preparation, accounting and disbursement services for member companies; Caltex Shared Service Centre (CSSC),
which provides accounting and financial services to Caltex business units in Hong Kong (China), Singapore, Thailand,
the UK and the USA; Maersm, Administrative Centre Ltd., which does general accounting documentation for the
company’s 11 branches; and Procter and Gamble Asia Pte. Ltd., which performs a host of accounting and financial
services for P&G affiliates in Australia, Hong Kong (China), India, Japan, the Republic of Korea, New Zealand,
North America, Southeast Asia and Taiwan (China).
The second sub-sector includes such companies as Business Process Outsourcing International, which provides
finance and accounting as well as payroll and benefits administration services; SPI Transact, which provides a
range of processing services to banks, insurance companies and mortgage originators, as well as other transaction-
intensive industry segments; and Summersault, which specialises in claims processing and disbursement, finance
and accounting and sales and marketing services.
Accounting and bookkeeping Transaction processing

Account maintenance Business-data processing
Accounts receivable collection Database management
Accounts payable administration Business intelligence
Payroll processing Network management
Asset management Disaster recovery
Financial analysis and auditing Supply-chain management
Inventory control and purchasing Sourcing and procurement
Expense and revenue reporting Logistics
Financial reporting Warehouse and inventory management
Tax reporting Transaction management
Financial leasing Customer relationships Management
Credit card administration Human Resources Administration
Factoring and stock brokering Sales and marketing
Revenue management
(Source: Satumba, L. C. A., 2008. Business Process Outsourcing in Financial and Banking Services in the Philippines,
[Pdf] Available at: <http://ilsdole.gov.ph/wp-content/uploads/2012/07/Satumba_BPO.pdf> [Accessed 23 January
2013]).
Questions
1. Write a note on back office processing.
2. What are the advantages of business process outsourcing?
3. What are the inbound and outbound services offered by contact centres in the Philippines?
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Introduction to BPO
Case Study III

Applying Business Process Management Systems
Introduction
Business Process Management Systems (BPMS) are sets of tools to support the Business Process Management
(BPM) life-cycle that are either offered by one vendor or multiple vendors offer parts of a BPMS. There is a list of
key advantages in using a modern BPMS:
• it bridges heterogeneous application environments
• it includes human activity by incorporating workflow
• it allows web service orchestration
• it provides the opportunity to customise the whole process for specific customers and partners
• it offers an integrated user interface through a single portal and back-end integration, and monitors process
instances
Rather than introducing new technology or replacing existing business applications, BPMS integrate existing
technologies and existing applications in a process oriented fashion. Based on this notion of BPMS, Smith and
Fingar describe requirements for a BPMS as follows:
• a BPMS should be able to support modelling, deploying, and monitoring business processes, as well as to support
integration of heterogeneous processes, automation, and collaboration
Table 1 depicts which BPMS tools support what step in the BPM life cycle. Business process design includes
process documentation with a process notation, such as Event-driven Process Chain (EPC) notation and Business
Process Modelling Notation (BPMN). Configuration includes the transformation from process models into formal
languages such as the Business Process Execution Language (BPEL). Integration facilitates better reuse of existing
applications. BPMS allows easy deployment of configured.
Evaluation Criteria
The criteria used to evaluate BPMS tools take a holistic view on the entire process. The 23 criteria are clustered
into three layers which are introduced in the points below: questions 1–9 cover the business layer, questions 10–19
address the integration layer, and questions 20–23 address the execution layer. The questions represent real-world
requirements originating from an industry project.
• What kinds of people are involved during design and improvement in the BPM life cycle? These steps need
to be business driven, and flexible, thus, people who manage business processes, need to be in the position to
express their understanding of business, without technically founded limitations.
• Standard or proprietary design notation points out if the process design notation in question was standardised
by a group such as OMG or OASIS, or if it is a vendor specific format. Moreover, does the standard cover the
graphical elements and the persistence of the notation? By using a standard notation, it is easy to switch process
design tools or exchange process diagrams between different process design tools.
• Industry acceptance shows if a process design notation is widely used in industry. Established notations are
more likely to provide supporting technologies and middle-ware. In addition, if a design notation is widespread,
it might undergo further and constant improvements.
• Completeness of process design notations denotes the expressive power of a notation. Business analysts need
elements to express business tasks, business objects, and business partners. Missing elements result in complex
process diagrams emulating missing constructs, which are difficult to maintain.
• Data management indicates the possibility to design business objects with the process design tool. Business
objects make the process diagram semantically richer and better to understand for process stake-holders.
• Is a methodology behind process design notation? A methodology covers the semantics of the notation and
reduces the complexity of business process design via guidelines how to use and how to combine the elements
of the notation.
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• Does the design tool support the full design notation in its recent version? The more a tool supports a design
notation standard, the greater the ability to exchange process diagrams.
• Diagram repository states if the process design tool accesses diagrams from a shared repository or from a local
machine. A process repository has the advantage that more people are allowed to access processes, thus, processes
are viewed and re-viewed by more people, which, to an extend, improve process diagrams.
• Process version control shows if a process design tool contains or has access to version control. Next to a shared
repository, this is a very useful tool for maintaining process diagrams. Business analysts are able to roll back to
a prior version of the process, if necessary, or browse the evolution of a process for a better understanding of
the meaning behind the current version.
• What kinds of people are involved in the configuration and the integration step of the life cycle? Process diagrams
should not be altered much to be executed. No change in business logic should be needed, but a technical mapping
is required. People on this level must not be faced with the complexity of business logic.
• Compatibility of design notation and execution language refers to what extent the design notation is transformable
into the execution language. There are two main reasons for incompatible languages:
languages are either block-oriented or graph oriented
languages may support different concepts and use richer semantics
• Standard or proprietary execution language points out if the execution language in question was standardised, or
if it is vendor specific. This covers the language and the persistence of the language. Using a standard language
eases switching execution engines or exchanging process configurations between different engines.
• Industry acceptance shows if an execution language is widely used in industry. Besides the importance to use
standards, it is necessary to find supporting technologies and middle-ware to support execution languages.
• Message type management. Is it possible to design or even import message types with the configuration tool?
Next to configure the flow of business tasks between applications, departments and companies; it is necessary
to define message types. These types may be imported from service definitions, database table definitions or
class definitions from a programming language. Otherwise, they might be defined with the configuration tool.
• Configuration complexity measures how many tools are needed for a successful process configuration. Besides
an integrated configuration tool, it may necessary to apply configuration to other middle-ware before deployment
is possible. The more tools and middle-ware need to be configured, the higher the complexity.
• Is process configuration part of a shared repository? This criterion points out if the configuration tool accesses
process configurations from a shared repository or from a local machine. The former has the advantage that
more people access the configuration, thus process configuration might be adapted by many people.
• Is the process configuration attached to the process diagram? If there is a well-defined link between a process
diagram and the process configuration, changing the diagram as well as the configuration consistently becomes
much easier.
• Is process configuration bound to one execution platform refers to the vendor lock issue. This is the case, if
process configurations are only be executed on the platform which the process diagram was configured with.
This may happen if execution engines do not support standards or industry accepted execution languages. A
vendor lock makes it difficult to switch between different execution engines.
• Legacy applications integration explains what kind of applications and their services may be integrated. However,
middle-ware technology makes it possible to integrate those applications as services.
• What kinds of people are involved in the deployment step. System analysts should be qualified to accomplish
this task. If other than the system analyst needs to be involved, process deployment is a too complex step.
• Deployment tool integration tells whether a deployment tool is integrated into an IDE or not. Users do not need
different tools, the acceptance of the user is higher and users already know how the tools behave.
• Deployment complexity measures how many tools are needed for a successful process deployment. Next to
an integrated deployment tool, it may be necessary to deploy to more than one execution engine. The more
deployment steps are required, the higher is the complexity for process deployment.
• Process version control. This refers to what will happen if instances of a process are running and a new version
123/JNU OLE
Introduction to BPO
of that process will be deployed. There are four possibilities. Firstly, all instances are stopped and deleted. The
new process will be deployed. Secondly, a deployment of a new version is refused, when instances of that process
are still running. Thirdly, the tool tries to merge running instances with the new process definition.
If a merge is possible, the new version will be deployed, otherwise the deployment will be refused. Running instances
may run until they terminate. New instances are based on the new version of the process. The old version of that
process will be archived when every instance has been terminated. These criteria are used to evaluate the different
tools when realising the example process that is introduced next.
Design Configuration Integration Deployment Execution
IDS SOA Architect

Scheer Business X X X
(ARIS) Architect
Process
Oracle Manager BPEL X X X X
Designer
Process Server
Intalio Process X X X X X
Designer
Table 1 BPM tools used in the process life cycle
Results
Two companies are involved in the case study: Shade Tree Garage (STG), a garage shop in New Jersey, repairs cars
for nearly all makes of cars whereas the SPC Company manufactures car spare parts and distributes them to garage
shops. Prices for spare parts are not fixed and change on a daily basis. Shade Tree Garage wants to minimise its
stocking costs and to maximise planning reliability. SPC identifies this demand as a selling proposition, and intends
to offer a Garage Shop Information System (GSIS) to garage shops. The business process, offers price information
and quantity information for spare parts to garage shops. On the business level, the following business tasks are
identified:
• Request spare part information on the garage shop side
• Receive spare part information request
• Get price information for spare part
• Get quantity information for spare part
• Send spare part information on the SPC side
The business objects include:

• unique ID for spare parts
• price
• quantity
On the service level, two services are needed:

• Price Service
• Quantity Service
124/JNU OLE
Both services are available as web services and provide a WDSL file. The appropriate message exchange pattern
between SPC and garage shops is a Request-Response pattern. To access the GSIS, the GSIS Request Message is
used which contains a placeholder for a spare part ID. Spare part information is received by the GSIS Response
Message which contains a placeholder for price and quantity information. The case study comprises an end-to-end
business process that contains reasonable business logic and has relevance in today’s business. Moreover, it spans
more than one company’s department and more than a single application. Hence, it is suitable to check technical
capabilities and business to business integration issues.
(Source: Scheithauer, G. & Wirtz, G., Case Study: Applying Business Process Management Systems, [Pdf] Available at:
<http://www.joint-research.org/wp-content/uploads/2011/07/Case-Study-Applying-Business-Process-Management-
Systems.ScheithauerWirtz.pdf> [Accessed 23 January 2013]).
Questions
1. Define business process management system.
2. What are the criteria used to evaluate BPMS tools.
3. What is the use of BPMS tool.
125/JNU OLE
Introduction to BPO
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References
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AMACOM Div American Mgmt Assn.
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• Sople, V. V., 2009. Business Process Outsourcing: A Supply Chain of Expertises, PHI Learning Pvt. Ltd.
• UNIT 1Understanding the BPO Sector I Culture, [Pdf] Available at: <http://cbse.nic.in/bpo-12/Bpo-XII-Unit1.
• UNIT 2 Source data for input I processing I voice, [Pdf] Available at: <http://cbse.nic.in/bpo-12/Bpo-XII-Unit2.
• Vullers, J. H. M. & Netjes, M., Business Process Simulation - A Tool Survey, [Pdf] Available at: <http://www.
daimi.au.dk/CPnets/workshop06/cpn/papers/Paper05.pdf> [Accessed 22 January 2013].
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Introduction to BPO
Recommended Reading
• Anandkumar, V. & Biswas, S., 2008. Business Process Outsourcing, Sage Publications Pvt. Ltd.
• Barjis, J., Eldabi, T. & Gupta, A., 2011. Enterprise and Organisational Modeling and Simulation: 7th International
Workshop, Springer.
• Barrar, P. & Gervais, R., 2006. Global Outsourcing Strategies: An International Reference on Effective
Outsourcing Relationships, Gower Publishing, Ltd.
• Boatright, C. 2012. Magic BPO Success Secrets, 1 st ed., Cory Boatright.
• Brocke, J., 2010. Handbook on Business Process Management, Springer.
• Brown, D. & Wilson, S., 2005. The Black Book of Outsourcing: How to Manage the Changes, Challenges, and
Opportunities, Wiley edition; 1st ed
• Cain, S., 2012. How To Do A BPO-Your Step-By-Step Guide, Kindle Edition
• Ducker, C. C., 2012. The Definitive Guide to Outsourcing to the Philippines, Amazon Digital Services, Inc.
• Duening, N. T. & Click, L. R., 2005. Essentials of Business Process Outsourcing, John Wiley & Sons.
• Erhardt, G., 2005. The Strategic Contribution of Business Process Outsourcing to Corporate Planning, GRIN
Verlag.
• Gopal, R. & Manjrekar, P., 2008. BPO/KPO Management, Excel Books
• Greasley, A., 2004. Simulation Modelling for Business, Ashgate Publishing, Ltd.
• Hirschheim, R., Heinzl, A. & Dibbern, J., 2009. Information Systems Outsourcing, 3rd ed., Springer.
• Hirschheim, R., Heinzl, A. & Dibbern, J., 2009. Information Systems Outsourcing: Enduring Themes, Global
Challenges, and Process Opportunities, 3 rd ed., Springer Publication.
• Kang, K. N. S., 2007. Strategic Business Management, Deep and Deep Publications.
• Kobayashi-Hillary, M., 2010. Talking Outsourcing
• Mehrotra, N., Business Process Outsourcing: The Indian Experience, ICFAI Books.
• Power, M., Desouza, C. K. & Bonifazi, C., 2006. The Outsourcing Handbook: How to Implement a Successful
Outsourcing Process, Kogan Page.
• Roebuck, K., BPO- Business Process Outsourcing: High-impact Strategies, Tebbo Publications
• Zeigler, P. B., Praehofer, H. & Kim, G. T., 2000. Theory of Modeling and Simulation: Integrating Discrete Event
and Continuous Complex Dynamic Systems, 2nd ed., Academic Press.
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Self Assessment
Chapter I
1. a
2. c
3. b
4. a
5. d
6. b
7. d
8. c
9. a
10. b
Chapter II
1. c
2. d
3. b
4. a
5. d
6. a
7. c
8. b
9. d
10. c
Chapter III
1. b
2. a
3. d
4. c
5. c
6. b
7. a
8. d
9. b
10. a
Chapter IV
1. a
2. c
3. c
4. b
5. d
6. b
7. a
8. c
9. a
10. d
129/JNU OLE
Introduction to BPO
Chapter V
1. d
2. a
3. b
4. c
5. c
6. a
7. d
8. b
9. c
10. b
Chapter VI
1. b
2. a
3. d
4. b
5. d
6. c
7. d
8. b
9. a
10. c
Chapter VII
1. c
2. d
3. a
4. b
5. c
6. a
7. b
8. d
9. c
10. b
Chapter VIII
1. a
2. c
3. d
4. a
5. c
6. b
7. b
8. c
9. b
10. a
130/JNU OLE

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Introduction to BPO

This book is a part of the course by Jaipur National University, Jaipur.

The content in the book is copyright of JNU. All rights reserved.

II. List of Figures........................................................VI

III. List of Tables...................................................... VII

IV. Abbreviations.................................................... VIII

V. Case Study............................................................ 112

VI. Bibliography....................................................... 126

VII. Self Assessment Answers................................. 129

• introduce business process outsourcing

• elucidate challenges and threats faced by the BPO industry

• explain importance and types of services provided by BPO

• explicate concept of split screen

• enlist job profile and roles in BPO

• understand future potential in the BPO industry

• identify importance of documentation

• recognise regional accent and grammar modification

1.2 BPO Explained, Importance and Types of Services

1.3 Types of Services Rendered by BPOs

1.5 Other Roles in BPOs

1.6 Key Skills Required for BPOs

1.6.1 The Voice

1.6.2 The Thought Process

1.6.3 Future Potential in the BPO Industry

1.7 Challenges and Threats Facing the BPO Industry

1.8 Cost/Quality Model Resulting in Outsourcing

1.9 Cost/Quality Model

1.10 Getting Familiar with Non Voice/ TP/ Back Office

1.11 Familiarisation on High-Volume Data Requiring Processing

1.12 Understanding Conversion of Paper to Images

Level 1 (Viewable)-Convert as images only

Level 2 (Searchable)-Convert as images and add text content for searches

Level 3 (Web Publishing)-Convert to web pages for internet publishing

Level 4 (Revisable)-Convert to fully formatted, revisable and functional documents

1.13 Concept of Split-Screen

1.14 Importance of Documentation

1.15 Rule Set Data Entry

• Data must be accurate as accuracy leads to best results

1.17 Getting Familiar with Voice

1.18 Introduction of Regional Accent and Grammar Modification

1.18.1 Correct Vowel and Consonant Pronunciation

Standard sounds: 41 Consonants- 24

1.18.2 Differences between Vowels and Consonants

1.18.3 The International Phonetic Association

1.18.4 The Vowels

1.18.5 The Vowel Sounds

Alphabet Phoneme Examples

a // about, around, astound, bottle

a /^/ cut, butter, abundance, supper

a /æ/ apple , fascinate , hammer, attitude

a /a:/ father, Last, farmer

a /ɚ/ killer, sister, farmer, wither

a /3:r/ urgency, curd, fern, bird

e /e/ get, metal, speculate, hesitate

i /I/ interest, impede, input, hit,

i /i:/ feel, eat, ego , sea

o /Ɔ:/ oregon, Orange, or, mandatory

u /u/ put, wood, should, full

u /u:/ Fool, school, few, ado

2. Match the following

8. __________ is an asset if you aim to crack a BPO interview.

• introduce growth of BPOs worldwide

• elucidate Gartner’s BPO model