BPO- BUSINESS PROCESS OUTSOURCING

A. BPO DEFINITION
While BPO is defined as outsourcing of any process area, the term is often used to also
refer to narrower types of outsourcing. Outsourcing of industrial manufacturing
(essentially a type of BPO) is often broken out into a separate type of manufacturing (or
industrial) outsourcing. BPO is rarely used to describe outsourcing of auxiliary processes
such as facilities cleaning or cafeteria services.
Most often, BPO refers to outsourcing of high-level processes, typically related to
finance, personnel, marketing, or legal support. IT and corporate information systems are
often included as part of business process outsourcing.
B. REASONS TO CHOOSE BPO
Cost Reduction
Businesses that are able to reduce labor costs themselves may not need to consider BPO.
Seeing as this is a very small group, most companies should be considering BPO as a
means of controlling their financial integrity for the future. Cost reduction is the primary
reason many businesses consider and choose BPO for their business. Once upon a time
this meant outsourcing non-core portions of your business to workers overseas. But
today, this is simply not the case. In fact, there are hundreds of companies located within
the U.S. who concentrate on offering BPO services to U.S-based businesses as well. Top
business process outsourcing companies strive to continually improve processes by
removing wasteful steps and over-spending. A quality BPO partner is able to provide
non-core business processing services efficiently, resulting in lower costs for your
organization. Business process outsourcing companies can leverage lower-cost labor
markets in order to deliver even more cost savings to your organization.
Focus on Your Business
BPO allows a business to hand over non-core business processes, such as check writing
and check printing services, EDI, rebate fulfillment, third party billing, barcode labels,
etc. to an outside provider. In doing so, this allows you to focus on your organization’s
core competencies. Additionally, business process outsourcing has the ability to help
your business avoid expensive investments in equipment or facilities for supporting
business processes or functions. These costs can be potentially overwhelming for a
business to take on and maintain over long periods of time. Instead of being faced with a
high amount of fixed costs for handling a process in-house, companies can benefit from
the variable-cost business process outsourcing provides. In the end, using BPO can help
your business free up capital for investment in your core business.
 Improved Productivity
Because business process outsourcing companies have chosen to make your non-core
business processes their primary focus, they are able to invest in the technology, process-
improvements, staff training and other resources necessary to achieve a much higher
level of process expertise and success. Improved quality, efficiency and turnaround time
results in better service for your customers and high levels of customer satisfaction.
Using a BPO expert also allows your organization the ability to reassign employees
previously processing non-core functions, to other areas of the business.
Access to State-of-the-Art Process and Technology Resources
Choosing to work with a BPO company means that your business will remain current in
terms of technology and innovation without taking on the high costs for software
platforms, cutting-edge technology capabilities, staff hiring and training. A strategic
business process outsourcing partner will stay up-to-date on best business practices and
innovations in equipment and software with a goal of continuous improvement of your
processes over the life of your contract. In the end, the BPO business invests in these
cutting-edge capabilities while your business reaps the rewards of such innovation
without needing to invest in such capabilities yourself.
Ability to Reassign Resources
Think of all the office and warehouse space you have dedicated to mail center activities,
check writing and check printing services, rebate fulfillment, third party billing, etc., and
the storage space required for paper records. Now think about how your business would
function and the cost-savings it would incur should you shift that over to an outsourcing
provider. Reassigning resources has the potential to boost our core, profit-producing
business exponentially.
C. ADVANTAGES AND DISADVANTAGE OF A BPO
Advantages
1. Flexibility
Outsourcing non-core activities to a BPO allows a company to be far more flexible.
Firstly, the company does not have to invest in additionally fixed assets and can convert
them to variable costs. It also increases flexibility in resource management of the client
company and helps in adapting to changes in the environment much faster.
2. Cost Effective
Outsourcing some of the business processes and activities can be very cost effective for
the client company. They save on investing in fixed assets and fixed costs. And they can
redirect these funds for their core activities.
Also outsourcing to developing countries proves to be very cost saving for these
companies. For example, if any large MNC was to outsource their IT services to India,
they would save an average of 30% of the company’s expenses. This is quite a significant
difference.
3. Speed
One of the biggest advantages of BPOs is that they increase the speed of the business
processes outsourced to them. They have a very good response time and the clients can
focus on the core activities. This fragmentation of activities speeds up the whole process
and is very important in cases like customer service.
4. Skilled Manpower
When you outsource one of your business activities to a BPO, you are insured of
exemplary services provided by skilled manpower. So, if you outsource your supply
chain management, rest assured your supply chain will be handled by skilled supply
chain managers who are experts in their field. Same goes for IT services or accounting
etc.
Disadvantages of BPOs
There can also be certain general demerits of using a BPO for your non-core activities.
The company can take steps to eliminate most of these disadvantages. Let us take a look.
1. Communication Problems
There can be communication gaps between the client and vendor companies due to
various reasons. There can be misunderstandings and missed messages. Also, both
companies may adhere to different standards of services and this can also create friction
between the two.
2. Different Time Zones
This is another logistic problem with the Business Process Outsourcing. The client and
the vendor can operate in two different time zones that are far apart. The difference in
time can create many problems like online meetings, communication etc. It is usually the
vendors that adjust their shifts to match the office hours of the client company.
3. Loss of Control
Due to communication errors, time differences etc. the client company can at times lose
control of the project. They may thus feel that the quality of services has suffered. Thus it
is very important to have effective communication and transparency with a BPO project.
 ITS: IT SERVICE
A. IT OUTSOURCING DEFINITION & MEANING
IT Outsourcing is the strategic use of external IT resources to handle the tasks that are
traditionally handled by internal resources or the staff. In different words “IT
outsourcing” is the use of external service providers (external IT company or a
freelancer) to effectively deliver IT-related business process, application service and
infrastructure solutions for business outcomes. Simple example of IT Outsourcing:
“Company A” orders development of the corporate website or mobile application from
external “Company B” (an IT Outsourcing provider).
B. TYPES OF IT OUTSOURCING
There are multiple types of IT outsourcing, defined by where and how the outsourced
work happens. These include:
 Project based outsourcing (aka: software development outsourcing, Nearshoring,
etc.). In this case company provides all project related information to the external
outsourcing provider and this provider does all the software development, quality
assurance and project management.
 Outstaffing (aka: body leasing). In case of outstaffing model company buys time
of employees from IT outsourcing provider. Usually company pays hourly or
monthly based rates.
 Opening of own R&D Center (aka: offshore office/company). Some companies
open an office in another country (usually under the same brand name) and hire
local people to work for the company in the office.
C. REASONS TO CHOOSE IT OUTSOURCING
For small to medium-sized businesses, assigning a particular project task or services to
the third-party providers is something common. Outsourcing desk works, customer help,
tech support, and on-site maintenance everything falls into this specific category. As per
IT management, there are lots of IT companies that turn to IT outsourcing. It gives them
an access to unavailable resources like infrastructure access, staff capabilities and other
relevant capabilities.
Outsourcing Cut Costs
Costs are more predictable when you outsource. For instance; when you use a hosted
server, it offers you to fix the expenditures at some pre-determined amounts every
month. There are no maintenance costs or equipment expenses apart from fixed
amounts. Here are some of the big reasons that small business enterprises are
outsourcing IT:
 Proficiency
The most popular reasons for outsourcing any project is to have an access to expert
knowledge and experience that present employees may not offer. The best thing is there
is no need to pay for any training of your IT person. It is the outsourcing company that
trains the employees for you about recent techniques and programs.
Access to Global Resources
There are a lot many outsourcing companies that can help businesses without employee
availability, office space, or personal language in order to serve clients in different time
zones throughout the day.
Savings
Savings from outsourcing can be really dramatic. According to researches, more than
80% of the businesses with less number of employees would take in major savings from
outsourcing e-mail management all alone. IT companies have the ability to offer an
access to equipment and services at very lower costs than your business may incur to get
it alone.
D. ADVANTAGES AND DISAVANTAGES OF IT OUTSOURCING
Advantages of IT Outsourcing
1) The ability to focus on Core Competencies
This is especially true if you’re a small or medium-sized enterprise without enough
resources to handle internal IT needs and provide client servicing at the same time. It's
important to remember that if you’re outsourcing to a competent Managed Service
Provider (MSP) their job will be to focus on your IT needs.
2) Access to Skilled Resources
Unless you hire an entire team of IT experts with varying specializations, you may have
to depend on the expertise of one or two individuals internally — who will quickly
become overworked. Service vendors often serve various verticals and maintain a team of
skilled resources across verticals and technologies that you have access to without having
to pay their salaries.
Flexible payment schedules and access to the latest infrastructure without investing in
buying it yourself are amongst the top reasons for partnering with an MSP.
4) Lessen Service Outage Risk
Service outages are a very real problem that most service delivery enterprises face. By
outsourcing your IT needs, you significantly reduce your risk of outages as you have
access to multiple backup servers. Capable MSPs will also provide you with disaster
recovery and business continuity measures to ensure you don’t lose any revenue or data.
Disadvantages of IT Outsourcing
1) Wait Times
If your computer crashes and you have access to an internal IT department, you can call
upon them immediately to resolve the issue, but that might not always be the case with an
outsourced provider. It's a good idea to check for estimated resolution times and wait
times and have them defined before you sign on.
2) Losing Control
If you pair up with the wrong kind of vendor, they may push you to invest in equipment
or software that you don’t need at that stage. This usually happens because vendors may
have more expertise in those particular pieces of equipment or software. Looking for
client testimonials and previous track record is a good idea to gain trust.
3) Unexpected Costs
While it's true that joining forces with a trusted vendor can result in huge savings, the
converse is true when pairing with the wrong partner. Flexible per month modules are
only useful if you’re getting what you need and not spending unnecessarily. As
mentioned before, it's very important to define your goals clearly before pairing up.
4) Security and Trust Issues
When you outsource your IT needs to a third-party, you depend on them to comply with
security and regulatory measures. Checking your SLAs for data security and compliance
with ITIL, along with seeing what previous clients say are a good indicator of
trustworthiness. Sometimes, you can also trust your gut after your initial communication
with the vendor.
As with any decision involving a third-party, it's normal to have reservations about going
through with IT outsourcing. As you can see, most of the advantages and disadvantages
of managed IT services depend on the kind of operator you choose.

ADM: APPLICATION DEVELOP & MAINTENACE

A. DEFINITION:

In outsourcing, “application development and maintenance” means the process of

managing the design, coding, testing and ongoing improvements and debugging of
software.
 B. REASON TO CHOOSE ADM:

Enterprises today allocate significant IT budgets to build applications, enhance existing

application code and maintain or support them over their lifetimes. As a part of this
effort, enterprises outsource a large volume of ADM work to IT providers as a way to
save money. Cost savings can come through a provider’s optimal delivery model by
taking advantage of specialized capabilities or by securing provider skills to support an
application portfolio or address fluctuations in workloads.

C. ADVANTAGES AND DISADVANTANGES:

Advantages

Large global organizations can establish captive software development centers in any
location. Smaller organizations can outsource their ADM to developers with particular
talents in software development languages, industry verticals or functionality.
Outsourced ADM enables cost efficiencies, speed to market and ongoing support.

Organizations can now achieve a more cost-efficient way of having the software
maintained by outsourcing it to companies who specialize in this area. It allows for
greater efficiency and focus on the organization’s goals because it eliminates the trivial
tasks it takes for maintenance and training of the new software being used. Using
software for services also allows an organization to get tasks done faster and with
uniformity. Software has a lot of benefits because it allows for uniformity throughout the
organization by allowing information to become more organized and easier to access.

Disadvantages

Meanwhile, many enterprises face the following challenges:

Lack of detail: ADM contracts often lack adequate detail about the extent of work
providers will perform to execute the desired application development, changes,
enhancements or bug fixes. Even when enterprise clients provide the requirements for the
work, providers often lack the time they need to provide adequate detail and the
motivation to elaborate on the requirements. Most often, high-level “rules of thumb” are
applied to create estimates and obtain approval to proceed.

Lack of time: Enterprises may require time to validate and confirm time-and-cost
estimates proposed by the provider, but taking this time often is seen as delaying the
process. As a result, enterprise clients may grant hasty approval, relying largely on inputs
provided only by the vendor.
Lack of context: Enterprises often lack an estimating framework to compare the vendor’s
proposed efforts with the best in industry.

Lack of data: Enterprises often lack standardized data sets to benchmark provider
submissions against the worst and best scenarios among their peers.

Lack of skills: Providers often lack the skills they need to validate the proposed ADM
efforts.

D. STRATEGIES

Here are five key strategies to ensuring that a ADM model is implemented with optimal
efficiency:

 Separate and manage service categories:

Delineation of the major categories of ADM is essential to efficient management. As the

old adage goes, you can’t manage what you can’t measure -- it is imperative for
organizations to understand their application support costs. Specifically, you need to
define three main categories – Maintenance, Minor Enhancement, and Project-Based
Work – and manage costs of each of those categories separately. The reason is that cost
drivers and performance indicators vary by category, so different actions and priorities
may be required for each.

 Align the retained organization with the strategy:

Many ADM organizations fall into the trap of focusing on what they can do, rather than
what the business needs. For a CtB strategy, that’s a recipe for disaster. Key roles and
attributes to help ensure that ADM activity stays on track include liaisons whose specific
role is to coordinate between business and IT leaders; program/project managers to
oversee large programs; client-driven architecture; ongoing business analysis to
understand and communicate business needs; service delivery managers; and business
subject matter experts to work with developers and testers.

 Define end-to-end Service Level Agreements:

Multi-supplier environments are the norm in today’s outsourcing environment. The

multi-supplier environment provides significant advantages to clients, but also introduces
complexities when trying to govern a large outsourcing arrangement or manage a large
software development program. Service Level Agreements are an effective way to incent
the right behaviors in a multi-supplier environment, but they must be built to address the
entire project lifecycle and clearly aligned with the responsibilities of the suppliers.

 Embrace process excellence:

Service Levels and quality goals are often aligned with process maturity – and more
mature organizations can be contractually obligated to deliver higher quality code. Since
process adherence drives repeatability and productivity improvements, service providers
should be incented to operate at CMMi Level 3 or higher, and to commit to productivity
improvements. Conduct on-going operational assessments to ensure process adherence.

 Use Key Performance Indicators (KPIs) and dashboards:

Gauge performance on an ongoing basis with tools such as an Earned Value Analysis
(EVA) that includes a schedule and cost performance index.

ASP: APPLICATION SERVICE PROVIDER

A. DEFINITION:

An application service provider (ASP) is a business providing computer-based services to

customers over a network; such as access to a particular software application using a
standard protocol (such as HTTP).

B. TYPES OF ASP

There are typically four types of businesses ASP:

 The ASP or functional specialist: Provides an application alone, as the process of

payment by credit card;
 The ASP Vertical: provides a solution as a package for a specific customer type
such as dentists;
 The ASP Business: Provides a full spectrum of solutions;
 The ASP Local: provides services to SMEs in a limited geographical area;
C. REASON TO CHOOSE:

ASP services have become an important alternative to owning software, especially for
small and medium sized businesses with limited information technology budgets. In
contrast, larger companies are using ASP services as a form of outsourcing. Application
service provider advantages include reduced IT capital expenditure, easier software and
hardware maintenance and better collaboration with mobile users. Moreover, the ASP
model also works well for specialized applications that would be too expensive to install
and maintain on company computers.

D. ADVANTAGES AND DISADVANTAGES:

Advantages
 Costs

The initial fees required for subscribing to ASPs are significantly lower compared to the
financial slice required for acquiring third-party premise-based software. The client is
tasked with much lower periodic payments within the limits of their operating budgets.
This proves to be an extremely cost-effective solution, particularly for small- to medium-
sized businesses.

 Quick Setup and Startup

Software implementation always takes some amount of feasibility studies, consultant

recommendations, contract reviews, demos, implementation and testing. With ASPs, the
startup and setup times are significantly shorter. Clients are tapping into an already
established application.

 Implementation and Use

The application being widely used by other entities means it has been tried and tested.
The client is relieved of the responsibilities of system installation, setup and maintenance.
That is the vendor's sole responsibility. As a hosted application, this makes
implementation and start-up quick and hassle-free with full application features.

Disadvantages:

Some ASPs are built on a single tenant architecture, which usually translates to higher
costs for end users, who will then encounter many of the same problems experienced
with traditional software.

If a company’s network or Internet service is down, then its employees lose access to the
ASP.

ASP changes may adversely change the service provided to a business’s clients.

ASP control over corporate data and the corporate image may compromise corporate
control and security.