Introduction to BPO

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JNU, JaipurFirst 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 ....................................................................................................................................................... 1Overview of BPO Industry .......................................................................................................................... 1Aim ................................................................................................................................................................ 1Objectives ...................................................................................................................................................... 1Learning outcome .......................................................................................................................................... 11.1 Introduction .............................................................................................................................................. 21.2 BPO Explained, Importance and Types of Services ................................................................................ 21.3 Types of Services Rendered by BPOs ...................................................................................................... 21.4 Job Profile in BPOs .................................................................................................................................. 31.5 Other Roles in BPOs ................................................................................................................................ 31.6 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 ....................................................................................... 41.7 Challenges and Threats Facing the BPO Industry ................................................................................... 41.8 Cost/Quality Model Resulting in Outsourcing ........................................................................................ 51.9 Cost/Quality Model .................................................................................................................................. 51.10 Getting Familiar with Non Voice/ TP/ Back Office ............................................................................... 61.11 Familiarisation on High-Volume Data Requiring Processing ................................................................ 61.12 Understanding Conversion of Paper to Images ..................................................................................... 61.13 Concept of Split-Screen ......................................................................................................................... 71.14 Importance of Documentation ............................................................................................................... 71.15 Rule Set Data Entry ............................................................................................................................... 71.16 Latency ................................................................................................................................................... 81.17 Getting Familiar with Voice ................................................................................................................... 81.18 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 .................................................................................................................11Summary ..................................................................................................................................................... 12References .................................................................................................................................................. 12Recommended Reading ............................................................................................................................. 13Self Assessment ........................................................................................................................................... 14

Chapter II ................................................................................................................................................... 16Business Process Outsourcing ................................................................................................................... 16Aim .............................................................................................................................................................. 16Objectives .................................................................................................................................................... 16Learning outcome ........................................................................................................................................ 162.1 Introduction ............................................................................................................................................ 172.2 Typical BPO Services ............................................................................................................................ 182.3 Outsourcing and Off-shoring ................................................................................................................ 182.4 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 ...................................................................................................... 28Summary ..................................................................................................................................................... 30References ................................................................................................................................................... 30Recommended Reading ............................................................................................................................. 30Self Assessment ........................................................................................................................................... 31

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Chapter III .................................................................................................................................................. 33Developing BPO Strategies ....................................................................................................................... 33Aim .............................................................................................................................................................. 33Objectives .................................................................................................................................................... 33Learning outcome ........................................................................................................................................ 333.1 Introduction ............................................................................................................................................ 343.2 Sourcing and How it Relates to Transformation .................................................................................... 343.3 Business Case......................................................................................................................................... 373.4 Introduction to Nelson Hall’s Business Case Methodology .................................................................. 40Summary ..................................................................................................................................................... 43References ................................................................................................................................................... 43Recommended Reading ............................................................................................................................. 43Self Assessment ........................................................................................................................................... 44

Chapter IV .................................................................................................................................................. 46Business Process Modelling and Simulation ............................................................................................ 46Aim .............................................................................................................................................................. 46Objectives .................................................................................................................................................... 46Learning outcome ........................................................................................................................................ 464.1 Introduction ............................................................................................................................................ 474.2 Evaluation Criteria of BPM Tools ......................................................................................................... 474.3 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 ......................................................................................... 504.4 Evaluation Criteria for BPS Tools ......................................................................................................... 51 4.4.1 Modelling Capabilities ........................................................................................................... 51 4.4.2 Emulation Capabilities ........................................................................................................... 52 4.4.3 Output Analysis Capabilities ................................................................................................. 524.5 Comparison of BPS Tools ...................................................................................................................... 53 4.5.1 Modelling Capabilities ........................................................................................................... 53 4.5.2 Simulation Capabilities .......................................................................................................... 54 4.5.3 Output Analysis Capabilities ................................................................................................. 55Summary................................ ..................................................................................................................... 57References ................................................................................................................................................... 57Recommended Reading ............................................................................................................................. 57Self Assessment ........................................................................................................................................... 58

Chapter V .................................................................................................................................................... 60Outsourcing ................................................................................................................................................ 60Aim .............................................................................................................................................................. 60Objectives .................................................................................................................................................... 60Learning outcome ........................................................................................................................................ 605.1 Outsourcing ............................................................................................................................................ 615.2 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? .................................................................................. 635.3 Benefits of Outsourcing ......................................................................................................................... 635.4 Disadvantages of Outsourcing ............................................................................................................... 645.5 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 ............................................................................................... 655.6 Sales Outsourcing:How is it Done? ....................................................................................................... 665.7 Benefits of Sales Outsourcing ................................................................................................................ 665.8 Marketing Outsourcing .......................................................................................................................... 665.9 Marketing Outsourcing as a Business Model ........................................................................................ 675.10 Different Types of Marketing Outsourcing .......................................................................................... 675.11 Ten Precautions while Outsourcing ..................................................................................................... 68Summary ..................................................................................................................................................... 69References ................................................................................................................................................... 69Recommended Reading ............................................................................................................................. 69Self Assessment ........................................................................................................................................... 70

Chapter VI .................................................................................................................................................. 72Challenges in the BPO Industry ............................................................................................................... 72Aim .............................................................................................................................................................. 72Objectives .................................................................................................................................................... 72Learning outcome ........................................................................................................................................ 726.1 Challenges in the BPO industry ............................................................................................................. 736.2 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 .............................................................................................................. 79Summary ..................................................................................................................................................... 81References ................................................................................................................................................... 81Recommended Reading ............................................................................................................................. 81Self Assessment ........................................................................................................................................... 82

Chapter VII ................................................................................................................................................ 84Scope and Need of BPO ............................................................................................................................. 84Aim .............................................................................................................................................................. 84Objectives .................................................................................................................................................... 84Learning outcome ........................................................................................................................................ 847.1 Need of the BPO Industry ...................................................................................................................... 85 7.1.1 Customer Relations ................................................................................................................ 85 7.1.2 Getting your Money’s Worth ................................................................................................. 857.2 Scope of BPO ......................................................................................................................................... 857.3 Current Scenario .................................................................................................................................... 87 7.3.1 Why People Join BPOs? ........................................................................................................ 87 7.3.2 Why People Leave BPOs? ..................................................................................................... 877.4 Future Scenario ...................................................................................................................................... 877.5 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 ............................................................................................... 897.6 Key Growth Drivers of Indian ITES-BPO Exports ............................................................................... 907.7 BPO: Three Rules to Live By ................................................................................................................ 917.8 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 ................................................................................................. 927.9 Area of Concern in BPO ........................................................................................................................ 93Summary ..................................................................................................................................................... 94References ................................................................................................................................................... 94Recommended Reading ............................................................................................................................. 94Self Assessment ........................................................................................................................................... 95

Chapter VIII ............................................................................................................................................... 97BPO and KPO ............................................................................................................................................ 97Aim .............................................................................................................................................................. 97Objectives .................................................................................................................................................... 97Learning outcome ........................................................................................................................................ 978.1 Difference between BPO and KPO ........................................................................................................ 988.2 KPO........................................................................................................................................................ 988.3 KPO: A Step Ahead of BPO................................................................................................................... 998.4 Demand Side Perspective of KPO: Well Beyond Cost Arbitrage ........................................................ 1008.5 Supply Side Perspective of KPO: People, Quality, Differentiation and Marketing ............................ 1008.6 Why KPO?..... ...................................................................................................................................... 1018.7 Benefits of KPO ................................................................................................................................... 1028.8 What KPO can Deliver to You? ........................................................................................................... 1028.9 Scope and Research of KPO ................................................................................................................ 1038.10 Bottlenecks in Future Growth ............................................................................................................ 1048.11 Why India to be preferred to other Countries? ................................................................................... 1058.12 Why is India the preferred KPO Destination? ................................................................................... 107Summary ................................................................................................................................................... 108References ................................................................................................................................................. 108Recommended Reading ........................................................................................................................... 109Self Assessment ..........................................................................................................................................110

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List of Figures

Fig. 2.1 Gartner’s BPO model ..................................................................................................................... 17Fig. 2.2 Limiting BPO definition: IT-enabled services ................................................................................ 18Fig. 2.3 Off-shoring and outsourcing ........................................................................................................... 19Fig. 2.4 Share of services in global trade ..................................................................................................... 20Fig. 2.5 Share of services in global economy (in % share) .......................................................................... 21Fig. 2.6 Shift in services trade structure (in % share) .................................................................................. 22Fig. 2.7 Structure of other commercial services exports ............................................................................. 23Fig. 2.8 Shift in structure of inward FDI stock (in % share) ....................................................................... 24Fig. 2.9 Locating BPOs: A graphical illustration ......................................................................................... 25Fig. 2.10 Global BPO market by 2010 ........................................................................................................ 27Fig. 2.11 Global commercial services importers ......................................................................................... 28Fig. 3.1 Relationship between the dimensions ............................................................................................. 34Fig. 3.2 Sourcing strategy (and how it relates to specific sourcing propositions) ....................................... 35Fig. 3.3 Relationship between sourcing strategy and specific sourcing propositions ................................. 36Fig. 3.4 Fundamental equation of outsourcing ............................................................................................ 38Fig. 3.5 The evolution of the business case using a generic route map ...................................................... 40Fig. 3.6 The anatomy of a business case methodology ................................................................................ 40Fig. 3.7 Main component of business case methodology ............................................................................ 41Fig. 6.1 Employees ...................................................................................................................................... 80Fig. 7.1 Employees ITES-BPO .................................................................................................................... 88Fig. 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 ......................................................... 21Table 2.2 Shift in distribution of inward FDI stock in services (in % share)............................................... 24Table 2.3 WTO illustration on capturing e-commerce data ......................................................................... 25Table 2.4 Estimated markets for BPOs ........................................................................................................ 26Table 4.1 Modelling capabilities .................................................................................................................. 54Table 4.2 Simulation capabilities ................................................................................................................. 55Table 4.3 Output analysis capabilities ......................................................................................................... 56Table 7.1 Export figures of ITES-BPO ........................................................................................................ 87Table 7.2 Destination of BPOs in India ....................................................................................................... 88

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Abbreviations

AICTE - All India Council Technical EducationAPO - Analysis Proves OutsourcingB2B - Business to BusinessB2C - Business to ConsumerBOI - Board of InvestmentsBPM - Business Process ManagementBPO - Business Process OutsourcingBPR - Business Process ReengineeringBPS - Business Process SimulationCAGR - Cumulative Annual Growth RateCCNA - CiscoCertifiedNetworkAssociateCEO - ChiefExecutiveOfficerCFO - ChiefFinancialOfficerCIO - ChiefInformationOfficerCIS - Customer Interaction ServicesCMM - Capability Maturity ModelCPN - Coloured Petri NetsDTI - Department of Trade and IndustryEPCs - Event-driven Process ChainsERP - Enterprise Resource PlanningF&A - Finance and AccountingFDI - Foreign Direct InvestmentsGATS - General Agreement on Trade in ServicesGDP - Gross Domestic ProductHRO - Human Resources OutsourcingICT - Information and Communications TechnologyID - Instructional DesigningIDC - International Data CorporationINR - Indian RupeeISO - International Standards OrganisationITECC - Information Technology and Electronic Commerce CouncilITES - Information Technology Enabled ServicesITO - Information Technology OutsourcingKPO - Knowledge Process OutsourcingLPO - Legal Process OutsourcingMHRD - Ministry of Human Resource DevelopmentMIS - Management Information SystemMTI - MotherTongueInfluenceNAC - Nasscom Assessment of CompetenceNAFTA - North American Free Trade AgreementNASSCOM - National Association of Software and Service CompaniesNSR - National Skills RegistryRA - Regional AccentROI - Return On InvestmentRPO - Research Process OutsourcingSLAs - Service Level AgreementsSME - Small and Medium EnterprisesUGC - University Grants CommissionUK - United KingdomUNCTAD - United Nations Conference on Trade and DevelopmentUS - United StatesUSD - US DollarWFM - Work-flowManagement

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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:

definelatency•

explicate concept of split screen•

enlistjobprofileandrolesinBPO•

Learning outcome

At the end of this chapter, you will be able to:

understand future potential in the BPO industry•

identify importance of documentation•

recogniseregionalaccentandgrammarmodification•

Introduction to BPO

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1.1 IntroductionBPO stands for Business Process Outsourcing. It means outsourcing of business processes from developed countries tothedevelopingorthird-worldcountriestogetfasterresultsandbiggerprofitmargins.TheBPObuzzstartedinIndiainthemidnineties.Veryfewpeopleexploredthisfieldinthebeginningandeversinceithasundergoneaseachange.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 consideritapreferredoptiontoday.Manyqualifieddoctors,lawyers,engineers,teachersandbusinessprofessionalsaresteadilyjoiningBPOsandKPOsduetoflexiwork-hoursandoptionstobeabletoworkfromhome.

1.2 BPO Explained, Importance and Types of ServicesOutsourcingisusuallydefinedas“anorganisationenteringintoacontractwithanotherorganisationtooperateandmanage 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 BPOsBPO 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.Accountingservices:Thisincludesservicesrelatedtomaintaininggeneralledger,financialstatements,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 BPOsIt 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 BPOslookalikewithafewessentialdifferencesthatgiveeachadistinctprofile.Thestructuremoreorlesslookslike 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 thefaceofthecompanytointernationalandotherclients.Theyhavethemostcriticalandvitaljobprofile.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.Networksupport:Itisanotherspecialisedfield.Peoplesupportingserversarereferredtoasnetworkengineers.•CCNAisagoodcoursetobeginwithacareerinnetworkingfield.

1.5 Other Roles in BPOsSome of the other roles which BPO plays are listed below:

Businessanalyst:Professionalsworkinginthisfieldarenecessarilypostgraduatedegreeholdersinfinance,•statistics, economics ormathematics. It includesmarket predictions and business or financial analysis ofcompanies.ThisprofileisusuallyrelatedtoKPOs(KnowledgeProcessOutsourcing).Medicaltranscription:ProfessionalsworkinginthisfieldareknownasMedicalTranscriptionists.Oneusually•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.TheselanguageshelponefindasuitableplacementwiththeleadingBPOs.

1.6 Key Skills Required for BPOsTo 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 VoiceVoice 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.

Introduction to BPO

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1.6.2 The Thought ProcessLogical thinking is an asset if you aim to crack a BPO interview. The subsets here are listening, organised thinking, fluencyandknowledge.Theearslistentotheinformationandthebrainprocessesittoformulateanimpression.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 byusingshortandsimplesentences.Avoidfoghornsandfillerslike‘hmm’‘uuh’Imean’‘it’slike’,etc.Alsokeepyourself abreast with the latest developments and updates in your area of operation. Try to follow at least one news channelasawarenessalonegivesyoutheflexibilityandconfidencetospeakonconnectedtopicsandyoudon’tfallshort of words during the interview or discussion.

1.6.3 Future Potential in the BPO IndustryThe 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 likehumanresources,financeandaccounting.ThefollowingfactorshavehelpedIndiaemergeasaglobalhubforoff-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 IndustryWe 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 •aflourishingBPOindustryorseekstoholdbackitsencouragingdevelopmentorgrowth.Theattitudeoftheunions 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-•shorelocationsastheircustomersdonotapprovetheinitiativeofoutsourcingprocessestofar-flungareas.Theyperceivetheseinitiativesasarisktotheirdatasecurity.Itisoftendifficultforthecompaniestomonitorbusinessprocessesoutsourcedotherlocationsoutsidetheircountriesasbothprofitmarginsandcustomer-satisfactiontendstoringalarms.Thus,withthe‘demand’slowing,the‘market’isinclinedtoshrinkforIndia.

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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,HyderabadandVizagandsooninIndia.However,expertsfinditiseasiertomouldorneutralizetheaccentofaspirantsinnorthernIndia.ThatisamajorreasonwhyDELLdecidedtosetupit’sfacility in Chandigarh. Despite the fact that companies have invested a lot in southern India, they have failed totapthetalentpoolavailabledownsouthduetoacomparativelyinflexibleaccent.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 perpetualflux.Thesefactorsleadtoemployeedissatisfactionandhenceattrition.Cultural differences: There is a marked difference between the culture that we experience in India as compared •totheonethatexistsintheUSandtheUK.Mostofusfindittrickytorelatetothewaytheyinteractwiththecustomers 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,donotfindmanyeagerfemaleaspirants.Thus,becauseofourconservativewayoflifemanyofusinIndiaremainrestlesstofindourwards,especiallygirls,optingforjobswithcall-centres.Thoughthisperceptionis evolving, it remains a major challenge for the BPO-industry.

1.8 Cost/Quality Model Resulting in OutsourcingOutsourcing 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 madeitfinanciallypossibletocarryoutbusinessactivitiesfromnotjustIndiabutanypartoftheglobe.Emergenceofa‘ServiceDrivenEconomy’:Today,customeristheKing.Thesuccessofanybusinessdepends•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 ModelThe decision to outsource is often made to lower costs, redirect or conserve energy directed at the competencies ofaparticularbusiness,ortomakemoreefficientuseoflabour,capital,technologyandresources.Theconceptof‘outsourcing’hasitsgenesisinthetheoryof‘competitiveadvantage’inbasiceconomics.Accordingtotheprincipleofcompetitiveadvantage,itisbeneficialfortwocountriestotradeifonehasalowerrelativecostofproducingsome 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.Intheprocessbothcountriesbenefitfromsuchatradingpractice.Indiaisoneoftheyoungestnationsinthe 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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1.10 Getting Familiar with Non Voice/ TP/ Back OfficeTheBPOindustryoperatesintwodomains.Thefirstisthevoice-basedprocessandtheotherisnon-voicebasedordata 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/orotherconfidentialinformation.Italsoinvolvesdataconversion.Insimpletermsdata-processingisconvertingdata into information. Hence it is also referred to as information services. Unlike traditional data-entry jobs that weremoreclericalinnatureandinvolvedlessofattention,out-sourcingdata-processingorbackofficesupportjobsenables 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 oftheprocessandadheretoservicelevelagreementsthusdecreasingcostandimprovingefficiency.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 ProcessingOutsourcing 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 andeconomiseiftheyoutsourcethesejobs.Inthepast,theseoffices,factories,companies,etc.,hadtomaintainalotoffliesasmostofthedatawerestoredinblackandwhiteorhard-copies.Itneededmorespacetostoreandprotectthosefiles.Creatingback-upswasalsodifficultasphotocopiesofthedocumentsorrecordswereasfragileastheoriginals 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 ImagesInsimpleterms,conversionofpaperfilesintocomputerfilesisreferredtoaspapertoimages.Therearevariouslevelsof such a conversion. According to Advanced Computer Innovations, Inc, there are four levels of this conversion sequence.

Level 1 (Viewable)-Convert as images onlyIfyouneedtotransferpaperdocumentstocomputerfilesforarchivalstorageandoccasionalviewing,simplyscanningthemasimagesisusuallysufficient.Thisistheleastexpensiveoption,buttheconvertedfliesarenotsearchablefortext and can neither be updated nor edited.

Level 2 (Searchable)-Convert as images and add text content for searchesThisisasuitableoptionfortransferringpaperdocumentstocomputerfilesforarchivalstorageandviewingandalsotoenableasearchforanytextcontent.Thepaperdocumentsaresavedasimagefiles,whichiswhatyouseewhen 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 convertedfiles.

Level 3 (Web Publishing)-Convert to web pages for internet publishingThisoptionisforconvertingpaper-basedinformationtocomputerfilesforpublishingontheinternetortheweb.Thepaperdocumentsarefirstscannedtoimages.Then,usingOCRandlayoutextractionsoftware,thetextandlayoutofthescannedimagesisinterpretedtoproduceHTMLfilesforwebpublishing.Thisinvolvesseveralconsiderations,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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TheconvertedHTMLfilesmaythenbeadditionallyorganisedorencapsulatedintoanintegratede-book,e-learningapplication 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 documentsThis, 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•correctentryofequations,formulasandscientific/technicalmaterial•

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-ScreenGone 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 DocumentationDocumentation 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.,forverificationtoensurethesafetyandsecurityofouraccounts.Thisverificationisbasedsolelyon 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 EntryThere 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 searchSpelling must be correct•

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Data must be accurate as accuracy leads to best results•Useuppercaseforthefirstletterofaparagraphandsentence.Whatfollowsinthesentencehastobeinlower•caseRefrainfrompunctuationunlessspecifiedtouse•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 VermaUsesuitableprefixforexample,Mr.formaleandMs.forfemale;periodsareacceptableaftertheuseofa•titleorprefixforexample,Captain.,Mr.Usesuffixifit’sapartofthelegalnameforexample,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 •theinternationalcountrycodefield.DONOTenterthediallingprefixof011.Countrycodeconsistsofonetofourdigits.Citycodeconsistsofonetothreedigits.Citycodeisoftenpresentedwithzeroinfrontofit.DONOTenterthezero.E-mail address: Type addresses using lower/upper case as you see them. Make sure that you don’t leave empty •spaces.

1.16 LatencyFor the transfer of non-voice data, we rely on the internet connection often through emails or by updating web-pages. Ifyouwanttotransferalargefileoveryourmodemitmighttakeseveralseconds,orevenminutes.However,ifyoubreakthesamefilesorfoldersintosmallerones,itmaytakelessertime.Irrespectiveofthesizeofthedata,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 operationsinnon-voiceprocesses;therefore,itisworthpayingattentiontoensuremaximumoutput.

1.17 Getting Familiar with VoiceThe English alphabet has 26 letters. Five out of these 26 letters are vowels and the rest are consonants. The scenario changeswhenweusetheseconsonantandvowelsounds.Forinstance, thewords‘cementandsand’startwithdifferentlettersbutgiveusthesameinitialsound/s/.However,thewords‘cementandcat’thoughstartingwiththesameletter‘C’giveustwodifferentsounds/s/and/k/respectively.Thusthesoundsexceedthenumberoflettersin 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 ModificationOurfirst languageoften influencesoursecondlanguage i.e.,English.Unconsciouslywestartusing thesoundsfrom our regional language when we speak in English. This is referred to as regional accent (RA) or mother tongue influence(MTI).Ourfamily,societyandschoolplayanimportantroleindevelopingthekindofaccentwepossess,forexample,peopledownsouthfinditdifficulttopronouncetheletter“H”,Theypronounceitas‘hech’insteadof‘eich’.Theytendtopronounce‘honest’insteadof‘awnest’as‘h’remainssilentintheword.

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Intheusageof/s/and/sh/soundsinUPandBiharbeltforexample,theword‘Sugar’ispronouncedwitha/s/insteadof /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 PronunciationIn order to understand vowel and consonant sounds, you must know the concept of phonetics. Phonetics is the scientificandsystematicstudyofspeechsounds.Languagesarephoneticornon-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:Nocorrespondencebetweenspellingandpronunciation.Forinstancethewords‘honest’and•‘psychology’inEnglish.OtherexamplescanbefoundinFrenchandGerman.

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- 24Vowels- 17

1.18.2 Differences between Vowels and ConsonantsVowels 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;sometimesthevocalchordsvibrate,producingavoicedconsonantandsometimesthevocalchordsdonot vibrate, resulting in a voiceless consonant sound.

1.18.3 The International Phonetic AssociationThe 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. Thesesymbolsfindplaceinanystandarddictionaryforpronunciation.

1.18.4 The VowelsThere 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 SoundsThe Vowel sounds are:

//-Thisisthesmallestvowelsoundalsocalledthe‘schwa’.Thisisassmallassomeonepunchingyourbelly•andyourinstantaneousverbalreactiontothat‘uh’.Itcouldoccurinthebeginning,middleorendofaword.Examples: about, around, milkman, token, the/^/- This sound occurs in the medial position in words. Examples: brother, hut, mud, supper•/æ/-Thissoundisanelongatedvowelsound.The‘a’isstretchedtosay‘ae’.Itoccursintheinitialandinthe•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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/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:/-Thisvowelisthelongerversionofthevowel/u/.Itusuallyoccursinthemedialandfinalpositioninwords.•Example: fool, moon, few, ado, feudal/Ɔ:/-Thisvowelsoundoccursintheinitialandinthefinalpositioninwords.Examples:organ,ornament,pour,•door, gore/e/-Itoccursinthemedialandfinalpositionsinaword.Example:get,metal,speculate,hesitateandbend•/ɚ/-This is an ‘r shadedvowel that usually occurs in thefinal 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 DiphthongsDiphthongs 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/-Thisdiphthongisacombinationofthe/a:/and/I/soundsanditoccursinwordslikefine,kind,bright,•guide, die/Ɔ• I/- 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 SoundsThe 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.Theairthatrushesoutofthelungsandemergesfromthemouthundergoesvariousmodificationsbeforeit 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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SummaryBPO stands for Business Process Outsourcing. It means outsourcing of business processes from developed •countriestothedevelopingorthird-worldcountriestogetfasterresultsandbiggerprofitmargins.Outsourcingisusuallydefinedas“anorganisationenteringintoacontractwithanotherorganisationtooperate•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.Theconceptof‘outsourcing’hasitsgenesisinthetheoryof‘competitiveadvantage’inbasiceconomics.•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.Insimpleterms,conversionofpaperfilesintocomputerfilesisreferredtoaspapertoimages.•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.pdf> [Accessed 15 January 2013].Premier BPO’s In troduct ion• , [Video onl ine] Avai lable a t : <ht tp : / /www.youtube .com/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 ReadingMehrotra, 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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Self AssessmentAn organisation entering into a contract with another organisation to operate and manage one or more of its 1. business processes is known as ____________.

outsourcinga. accuracyb. organisationc. third-partyd.

Match the following2.

1. Customer support services A. Handles queries such as installation, product support, trouble shooting and usage support.

2. Technical support services B. Assist the internal customers troubleshoot issues related to password reset and other vital functions.

3. IT helpdesk support C. Services are voice, e-mail or chat based.

4. Data-entry services D. Include entering data at a fast pace taking care to maintain a high degree of accuracy.

1-D, 2-B, 3-C, 4-Aa. 1-A, 2-D, 3-B, 4-Cb. 1-C, 2-A, 3-B, 4-Dc. 1-A, 2-B, 3-C, 4-Dd.

___________includesservicesrelatedtomaintaininggeneralledger,financialstatements,balance-sheets,bank3. reconciliation statements, assets and liabilities.

Online servicesa. Accounting servicesb. IT helpdesk supportc. Customer support serviced.

____________ are the fastest modes to reach out to a majority of the customers worldwide in the shortest span 4. of time.

Online servicesa. Accounting servicesb. IT helpdesk supportc. Customer support serviced.

A ___________ call centre usually requires direct interaction with some clients or customers via phone.5. non voice baseda. inbound b. outboundc. voice-basedd.

______________ are primarily the front-line and the most important workers in a BPO.6. Managersa. Customer service representativesb. Call centresc. Network supportsd.

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_______ plays a key role in getting a placement with a voice-based call centre.7. Educationa. Heightb. Experiencec. Voiced.

__________ is an asset if you aim to crack a BPO interview.8. Educationa. Processb. Logical thinkingc. Voiced.

The advent of information technology and its various applications have dramatically lowered the cost of 9. ____________.

communicationa. outsourcingb. offshoringc. cost-cuttingd.

______________ means maintaining records and it assists mandatory legal obligations.10. Communicationa. Documentationb. Data Entryc. Latencyd.

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Chapter II

Business Process Outsourcing

Aim

The aim of this chapter is to:

introduce growth of BPOs worldwide•

elucidate Gartner’s BPO model•

explore problems with data on BPOs•

Objectives

The objectives of this chapter are to:

defineoutsourcing•

explicate trends in foreign investments in services•

explore global commercial services•

Learning outcome

At the end of this chapter, you will be able to:

understand typical BPO services•

differentiate between outsourcing and offshoring •

recognise market for outsourcing and projected growth•

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2.1 IntroductionOutsourcingcanbedefinedas“thecontractingofaserviceprovidertocompletelymanage,deliverandoperateoneormore of a client’s functions (for example, data centres, networks, desktop computing and software applications)”.

BusinessProcessOutsourcing(BPO),asdefinedbytheInformationCommunicationandTechnology(ICT)Divisionof the Board of Investments (BOI) of the Department of Trade and Industry (DTI). The DTI is the lead agency chargedwithpromotingBPOsinthecountry.ItdefinesBPOsas:“thedelegationofservice-typebusinessprocessesto a third party service provider.”

Thiswasderived fromGartnerDataquest’definitionofBPOsas:“Thedelegationofoneormore IT-intensivebusiness processes to an external provider that, in turn, owns, administrates and manages the selected process or processesbasedondefinedandmeasurableperformancemetrics.”

Business Process Outsourcing

R & D

Administration

Payment Services

Customer Selection

Customer Acquisition

Customer Retention

Customer Extension

Contract Manufacturing

Analytics/ Quality Control

Sales, Marketing, Customer Care

Supply Chain management

Operations BusinessAdministration

Finance

HR

Billing

Indirect Procurement

Warehouse/Inventory

DirectProcurement

Transportation/ Logistics

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 managementOperations include activities such as research and development and contract manufacturing, which accounts •for over 50% of the BPO market todayBusinessadministrationincludesactivitiessuchasfinanceandaccounting,humanresource,billingandpayment•services, indirect procurement and administration services such as claims and policy processingSales, 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 closelytheDTI’sdefinitionofBPOactivities.Basedonthisdefinition,therearethreekeyelementsofBPOs:

Itislimitedtoservice-typeactivities,specificallybusinesssupportservicesandsales-relatedfunctions•These activities should be IT-intensive•These activities should be outsourced•

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Specifically, therefore,BPOsasdefinedby theDTI includes theoutsourcingof IT-intensive activities, that is,BusinessAdministration (for example, administration, finance,HR, billing, indirect procurement andpaymentservices) and Sales, Marketing and Customer Care (for example, contact centres, customer selection, acquisition, retention and extension).

Administration

Customer Selection

Customer Acquisition

Customer Acquisition

Customer Extension

Contact Centers

Finance

HR

Billing

Indirect Procurement

Payment Services

Business Administration Sales, Marketing, Customer Care

Business Process Outsourcing

Fig. 2.2 Limiting BPO definition: IT-enabled services(Source: http://dirp4.pids.gov.ph/ris/dps/pidsdps0610.pdf)

2.2 Typical BPO ServicesBPOservesinmanyfields;someoftheareaswhereBPOhascontributedexcellentservicesarelistedbelow:

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 Outsourcingeventuallytookthepathof“off-shoring”orlocatingtolow-wagecountries.Typically,thesecountriesare less developed economies with a large base of educated workforce. Low-wage skilled workers and professionals, coupledwithefficientandcost-effectivetelecomsinfrastructure,werethemainvaluepropositionoflower-incomecountries. 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 madeservicesmoretransportableandfragmentedandsimplifiedthetasksinvolved,therebyallowingthemtoberelocated 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 suchasarchitecturaldesign,analysisofx-rayfilmsandsoftwaredevelopment.Initially,lower-cost“inshore”ordomestic locationswereexplored; followedby“near-shore”countries (forexample, Ireland, in thecaseof theUnited 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.Companiescanchoosetostilldotheseserviceactivitiesinternallythatis,assignittoanaffiliate.Thisisvariouslyreferredtoasoff-shoring,intra-firm(captive)off-shoring,captivesharedservicecentres,etc.

Emerson (a US industrial company) contracts SYKES (a call center firm) to handle its technical support. Call center is based in Pasig City, Philippines.

Company consolidates all HR-related data encoding functions of affiliates worldwide in the Philippines. Example, P&G & Maersk shared service centers in Manila.

Foreign Country

(Offshore)

A computer company contracts a call center company to handle its technical support. Call center is located in Minnesota.

Production kept in-house at home

Hom

e Country

Location of Service Production

Externalized(Outsourced)Internalized

InternalizedorExternalizedService Production

Emerson (a US industrial company) contracts SYKES (a call center firm) to handle its technical support. Call center is based in Pasig City, Philippines.

Company consolidates all HR-related data encoding functions of affiliates worldwide in the Philippines. Example, P&G & Maersk shared service centers in Manila.

Foreign Country

(Offshore)

A computer company contracts a call center company to handle its technical support. Call center is located in Minnesota.

Production kept in-house at home

Hom

e Country

Location of Service Production

Internalised or Externalised Service Production

Externalised (Outsourced)Internalised

Fig. 2.3 Off-shoring and outsourcing(Source: http://dirp4.pids.gov.ph/ris/dps/pidsdps0610.pdf)

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 natureofservicesandofservicetransactions:theseare“economicoutputofintangiblecommoditiesthatmaybeproduced, transferred and consumed at the same time.” They cover the following major industries: transport, travel, communications,construction,financialandinsuranceservices.Unlikegoodsandlargelybecauseoftheirintangiblenature, it is hard to disassociate the production and consumption of services. Thus, most service transactions require thephysicalproximityofboththeproviderandthebuyerofservices.Forexample,apatientwillhaveto“see”adoctor for diagnosis of his/her medical condition (that is, health service).

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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:“TheuseofICTallowsknowledgetobecodified,standardisedanddigitised,whichinturnallowstheproductionofmoreservicestobesplitup,or“fragmented”,intosmallercomponentsthatcanbelocatedelsewhereto 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 searchofthemostcost-effectivesupplynetwork,thatis,withintheorganisationortoathird-party;andwithinthecountry or to abroad.

Increasing tradability of servicesAs 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.

-200400600800

1,0001,200

1,4001,6001,800

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02-

5

10

15

20

25in US$ B % share

% Share of Services to Total Trade (goods + services)

Value of Services Exports, in $B

Fig. 2.4 Share of services in global trade(Source: http://dirp4.pids.gov.ph/ris/dps/pidsdps0610.pdf)

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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Agriculture 4 2 10 25 2 1 25 29Industry 30 29 35 31 25 32 27 44Services 66 69 55 44 73 67 48 28

World Middle income

Lowincome

USHighincome

Japan India Nigeria

Fig. 2.5 Share of services in global economy (in % share)(Source: http://dirp4.pids.gov.ph/ris/dps/pidsdps0610.pdf)

Shifts in cross-border service transactionsMoreover, 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

Mode 1 Cross-border supplyDigitised and processed information crosses the border through telecoms or postal infrastructure (for example, consulting or market research reports, tele-medicine and distance learning)

Mode 2 Consumption abroad

Consumer crosses the border to consume the service (for example, travel, hotel, health or training services given to non-residents)

Mode 3 Commercial presence

Supplieroftheserviceisalocally-establishedaffiliate,subsidiaryorrepresentativeofficeofanon-residentsupplier(forexample,foreign direct investments)

Mode 4 Movement of natural persons

Supplier of the service is in the country on a temporary basis and remains a non-resident (for example, service suppliers, health workers, consultants)

Table 2.1 Modes of supplying services for cross-border transactions

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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 accountingfirm)establishesanaffiliateofficeinanothercountry(mode3),oranengineergoesabroadtoworkona 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 andfinanciallyviable.WithICTprovidingareal-timelink,serviceprovidersandbuyersforcertaintransactionnolonger needed to be physically proximate to each other.

Asaresult,thestructureofservicestradeshifted:“OtherCommercialServices,”providedmainlyunderMode1,increased its share of the total value of trade in services. This item increased its share from 38% in 1990 to about 45%adecadelater.Theextentofoff-shoreoutsourcingcanbegleanedmoreclearlyfromthelargeshareof“OtherBusinessServices” in the totalvalueof“OtherCommercialServices”exports.The“OtherBusinessServices”categorycoversserviceprocesseswhicharetypicallyoutsourced,forexample,legalservices;accounting,auditing;business and management consulting, etc.

TransportTravelOther Comm'l. Svcs.

322354

0002824383

0991

Source of Basic Data: WTO Website

Fig. 2.6 Shift in services trade structure (in % share)(Source: http://dirp4.pids.gov.ph/ris/dps/pidsdps0610.pdf)

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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Personal, Cultural,

Recreational3%

Communications10%

Construction

4%

Financial Svcs.10%

Computer & Info.3%

Royalties & Licenses

13%

Insurance

14%

Other Business

Svcs.43%

Source of Basic Data: WTO Website

Fig. 2.7 Structure of other commercial services exports(Source: http://dirp4.pids.gov.ph/ris/dps/pidsdps0610.pdf)

Trends in foreign investments in servicesThe 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, businessandmanagementconsulting,etc).In1990,theshareof“BusinessActivities”intotalinwardFDIstockstoodonlyat13%;by2002,itssharedoubledasitincreasedto26%.Moreimportantly,thestructureofFDIflowstodevelopingcountriesshiftedinn1990,“FinancialServices”accountedformorethanhalfoftotalFDIs;by2002,“BusinessActivities”attractedthelargestshareofFDIinflows(40%).

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Primary 69Manufacturing 4324Services 0694

20020991

Fig. 2.8 Shift in structure of inward FDI stock (in % share)(Source: http://dirp4.pids.gov.ph/ris/dps/pidsdps0610.pdf)

1990 2002

Developed Countries

Developing Economics World Developed

CountriesDeveloping Economics

Central and East. Europe World

Elect., Gas, Water 1 2 1 3 4 6 3

Construction 2 3 2 1 3 5 2

Trade 27 15 25 20 14 21 18Hotels, Restaurants 3 2 3 2 2 2 2

Transportation 2 8 3 11 10 24 11

Finance 37 57 40 31 22 29 29Business Activities 15 5 13 23 40 10 26

Others 13 8 13 9 5 3 9Total 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 BPOsData 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-sectorA Customer sits down at computer Computer servicesLogs onto Internet Communication servicesOrders products Trade and distribution servicesPays for it Financial servicesDownloads the product or has it mailed to home address Delivery services

Table 2.3 WTO illustration on capturing e-commerce data

Asaresult,therehadbeenconflictingestimatesofthesizeoftheglobalBPOindustry.Fig.2.9illustratesthesedefinitionalproblemsandconsequently,dataestimationproblems.Outsourcedactivitiescovernotonlyservices;infact, as mentioned earlier, outsourcing started in the manufacturing sector. Moreover, another problem is that not allserviceactivitiesareoutsourced;asdiscussedearlier,serviceactivitiescanbedonein-houserightintheexistingpremisesofaparticularcompanyorinthefacilitiesofanoverseasaffiliate(forexample,underthecapturedconceptorsharedservicesconcept).Tosummarise,thedifficultyinestimatingBPOmarketsizecanbeaccountedby:

First,serviceactivitiesbeinggenerallyintangibleproductsaredifficulttotrack(comparedwithgoods).•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 Activities

Service Activities

Outsourced Services

IT-enabled Services

OutsourcedService

ActivitiesBPOs

Fig. 2.9 Locating BPOs: A graphical illustration(Source: http://dirp4.pids.gov.ph/ris/dps/pidsdps0610.pdf)

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Asresultofthesedefinitionalproblems,itisdifficulttopinpointexactlythesizeoftheglobal(orevendomestic)BPOmarket.Moreover,itmustbenotedthatavailableestimatesofBPOmarketsizeandgrowthcurrentlyoriginatefromconsultancyfirmswith specialty IT-related researchproduct offerings.These includeGartnerDataquest,InternationalDataCorporation(IDC)andMcKinsey.IT-relatedmagazinesandpublications,suchasComputerWorld, also monitor BPOs. In the absence of centrally-reported secondary information and given the ambiguity thatstillsurroundsBPOdefinition;availablenumbersonBPOsaregeneratedmainlythroughsurveys.Sincemostreports 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 growthGartner Dataquest-as cited by the Information Technology and Electronic Commerce Council (ITECC)-estimated the globalmarketforOutsourcingataroundUS$495B.Thisfigureincludesbothmanufacturingandserviceactivitiesboth 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 BPOsService Line U S $ BnAdmin/Finance/Acctg/HR 130Payment Services 40Manufacturing Services 235Distribution/Logistics 60Sales/Mktg /Customer Care 30Total 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 •Thebiggestmarketsin2004weretheUS(54%),followedstronglybyEurope(31%);theothermarketshave•substantiallysmallershares:theAsia-Pacificregion(5%),Canada(4%),Japan(3%)andLatinAmerica(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 studyon“TheIndianITIndustry”and thefollow-up2003“IndiaITStrategies.”Citing the1999NASSCOM-McKinsey study, the DTI placed the global market for IT-enabled services at around US $141.2 billion. The biggest segmentisDataSearch,IntegrationandManagement;followedbyCustomerInteraction,RemoteEducation,Networkconsulting, 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.

Market Research, 3%Website Svcs, 4%

Network Consult & Mgmt, 4%Remote Educ., 11%

Finance & Acctg., 11%

Eng'g. & Design, 3%

Transcription / Localization,1%

Data Integ'n. & Mgmt., 11%

28%

Customer Contact Svcs, 24%

Global BPO Market by 2010

Human Resource Svcs,

Fig. 2.10 Global BPO market by 2010(Source: http://dirp4.pids.gov.ph/ris/dps/pidsdps0610.pdf)

Summary of Global market sizesRegardlessofhowBPOsaredefinedandonhowthemarketsizehasbeenestimated,allthereportsconsistentlypoint 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 sizeofabout$1.6Bisstilllessthanapercentofthisprojectedmarketsize.

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 •Globalserviceexportstotalled$32Bin2001;withIrelandaccountingforover¼•

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 inservices,especiallytolessdevelopedcountries.Forexample,evenamongthe1,000largestfirmsintheworld,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%oflargeEuropeancompanieswithoff-shoringwerefoundtohavebeensatisfiedwiththeexperience,only3%weredissatisfiedand44%ofthecompaniesinterviewedplannedfurtheroff-shoringinthecomingyears.Thiswillmostlikelypushotherfirmstolookintooff-shoringasacompetitivestrategy.

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Global Commercial Services Importers2002

Japan, 7%

United Kingdom, 7%

China, 3%

Ireland, 3%Canada, 3%

France, 4%

Italy, 4%

Netherlands, 4%

Others, 42%

US, 13%

Germany, 10%

Fig. 2.11 Global commercial services importers(Source: http://dirp4.pids.gov.ph/ris/dps/pidsdps0610.pdf)

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 $1billionin2002to$24billionin2007.Over-allthegeneralverdictisthatoff-shoringisstillfarfrommaturing;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•Anotherstudysaidthat2millionoff-shoredjobscouldbecreatedinthefinancialservicesindustryaloneand•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%)•Increaseprocessefficiencies(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:

Forcertainservices,proximitytomarkets,interactionwithcustomers,trustandconfidenceoutweighthepossible•benefitsofaninternationaldivisionoflabour.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 •confidentialinformationorforadaptingtorapidlychangingcustomerneeds.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.Thelackofinternationalrecognitionofprofessionalqualificationsisanotherobstacle,asisthelackofglobally•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.TNCstoohavedifferentperceptionsoftherisksandbenefitsofoff-shoringservicesandsomearereluctantto•do so.

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SummaryOutsourcingcanbedefinedas“thecontractingofaserviceprovidertocompletelymanage,deliverandoperate•one or more of a client’s functions”.BusinessProcessOutsourcing(BPOs),asdefinedbytheInformationCommunicationandTechnology(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, •administratesandmanagestheselectedprocessorprocessesbasedondefinedandmeasurableperformancemetrics.Outsourcingeventuallytookthepathof“off-shoring”orlocatingtolow-wagecountries.•A variety of service products were affected by this trend from simple low value data encoding to high-value •processessuchasarchitecturaldesign,analysisofx-rayfilmsandsoftwaredevelopment.Off-shoring of BPOs is part of the emerging global trend of rapidly increasing cross-border trade in services.•Theextentofoff-shoreoutsourcingcanbegleanedmoreclearlyfromthelargeshareof“OtherBusinessServices”•inthetotalvalueof“OtherCommercialServices”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, asmentioned earlier, outsourcing started in the•manufacturing sector.Theextentofoff-shoreoutsourcingcanbegleanedmoreclearlyfromthelargeshareof“OtherBusinessServices”•inthetotalvalueof“OtherCommercialServices”exports.

ReferencesGao, 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.pdf> [Accessed 22 January 2013].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 ReadingErhardt, 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_____________ is the delegation of service-type business processes to a third party service provider.1.

DTIa. BOIb. BPOc. KPOd.

Match the following2.

1. Supply chain management A. Includes activities such as customer selection, acquisition, retention and extension

2. Operations B. Includes activities such as transportation and logistics3. Business administration C. Include activities such as research and development4. Sales, marketing and customer care D. Includesactivitiessuchasfinanceandaccounting

1-D, 2-C, 3-A, 4-Ba. 1-C, 2-A, 3-D, 4-Bb. 1-A, 2-B, 3-D, 4-Cc. 1-B, 2-C, 3-D, 4-Ad.

Which of the following statements is false?3. BPO is limited to service-type activities, specifically business support services and sales-related a. functions.BPO activities should be BPO-intensive only.b. BPO activities should be outsourced.c. Business administration includes activities such as claims and policy processing.d.

____________ of BPOs is part of the emerging global trend of rapidly increasing cross-border trade in 4. services.

Off-shoringa. Globalisationb. In-sourcingc. Outsourcingd.

Match the following5. 1. A Customer sits down at computer A. Communication services2. Logs onto Internet B. Delivery services3. Pays for it C. Computer services4. Downloads the product or has it

mailed to home address D. Financial services

1-A, 2-C, 3-A, 4-Ba. 1-B, 2-D, 3-C, 4-Ab. 1-D, 2-B, 3-B, 4-Ac. 1-C, 2-A, 3-D, 4-Bd.

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____________ and legal requirements may also raise transactions costs and limit international trade in 6. services.

Regulationsa. Recognitionb. Activitiesc. Infrastructured.

______________coupledwithefficientandcost-effectivetelecominfrastructure,werethemainvalueproposition7. of lower-income countries.

Developments in ICTa. Near shoreb. Low-wage professionalsc. ICT workersd.

The contracting of a service provider to completely manage, deliver and operate one or more of a client’s 8. functions is called as _____________.

Business Process Outsourcinga. Outsourcingb. Board of Investmentsc. Department of Trade and Industryd.

The _________ is the lead agency charged with promoting BPOs in the country.9. BPOa. ICTb. BOIc. DTId.

__________ include activities such as research and development and contract manufacturing, which accounts 10. for over 50% of the BPO market today.

Marketinga. Administrationb. Operationsc. Outsourcingd.

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Chapter III

Developing BPO Strategies

Aim

The aim of this chapter is to:

introduce sourcing strategy•

elucidate fundamental equation of outsourcing•

explain Nelson Hall’s business case methodology•

Objectives

The objectives of this chapter are to:

definesourcingandit’srelationtotransformation•

enlistbenefitsofoutsourcing•

explicate component of business case methodology•

Learning outcome

At the end of this chapter, you will be able to:

understand relationship between the sourcing dimensions•

comparebetweensourcingstrategyandspecificsourcingpropositions•

definebusinesscase•

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3.1 IntroductionBusiness 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 isnotthedefinitionofBPO,butaclarificationofthescopeofthetermasweuseit.WeholdthatBPOislimitedto“businesssupportservices”,sometimesknownas“corporateservices”or“supportfunctions”.Theseare:front-office(customermanagement),middle-office(industry-specificoperationalprocessessuchasclaims-processing inaninsurancecompany)andbackoffice(financeandaccounting,HR,procurement,IT,etc.).So,eventhoughtheyarefrequentlyoutsourced,activitiessuchasmanufacturing,logistics,etc.,arenotincludedinourdefinitionofBPO.

3.2 Sourcing and How it Relates to Transformation“Sourcing”, in itswidest sense, can refer tomainstream“procurement” or “supply-chainmanagement” in anorganisation,butweusethetermspecificallytorefertoactivityaroundthebusinesssupportservicesthatarethefocusofBPO.Withthatscopeinmind,wecangoontodefinetheterm.Therearetwomaindimensionsalongwhichmajororganisationalchangecanprogress.Theseare“operationalchange”and“commercialchange”.Operationalchange involvesmodifying themanner inwhicha service isdelivered, in terms sub-dimensionsof “process”,“technology”,“organisation”,“infrastructure” (including“location”)and“people”.Commercialchange,on theother hand, involves changing the responsibilities for service delivery. The graphic below illustrates the relationship between these two dimensions.

Commercial Change

“Who?”

Change the responsibilities for service delivery

Operational Change,

“How?”,

Change the service delivery model, in terms of:

ProcessTechnologyOrganisation InfrastructurePeople

Fig. 3.1 Relationship between the dimensions(Source: http://www.bpopronet.com/public/downloads/BPO%20resources/Developingbpostrategies.pdf)

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Sooperationalchangeisaboutthe“how?”andcommercialchangeisabout“whom?”Thisisatheoreticallypuredefinitionthatcanbehelpfultounderstandandexplorevariouspotentialchangestrategies,forexample,itcanhelpan organisation consider questions such as:

“DoesFunctionXrequirefundamentalchangeinprocess,technology,etc.?”•“Shouldwedesignandimplementsuchchangeourselvesandthenoperatethechangedarrangementsourselves,•or should we use an external partner to work with us in one or more of these activities?”“MightwejustgetanoutsidepartnertooperateFunctionXinitscurrentstatewouldthisgenerateacceptable•benefits?”

However,weneedtomodifythismodelslightly,tomakeitreflecttherealitythat,whenconsideringimprovementin business support services, one particular element of operational change (that is, change in the location from where theserviceisdelivered)isespeciallycloselyinter-relatedwithcommercialchange.Nowadays,mostsignificant-scalethatis,“businessprocessoutsourcing”whichisanexampleofcommercialchangewillalsoinvolveatleasttheconsiderationof“offshoring”(thatis,there-locationoftheservicestoadifferentgeographyanaspectofoperationalchange). This is true even when other elements of operational change (for example, process re-engineering, new technology,etc.)mightnotbeinplay,atleastinthefirstinstance.Similarly,theestablishmentofinternal(“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 aboutcommercialchangeandthelatterisaboutoperationalchange.Werecognisethisbyouruseoftheterm“sourcing”,which can cover change in one or both dimensions. This certainly does not mean, however, that we agree with the sometimes-seenpracticeoftreatingtheterms“outsourcing”and“offshoring”assynonymstheyarecertainlynot.“Sourcing”canbeusefullycomparedandcontrastedwiththeotheraspectsofoperationalchange,whichwerefertoas“transformation”,asshowninthere-workedgraphicbelow.

Sourcing

“Who?” and “Where?”

Change the responsibilities for service delivery

“Transformation”“How?”,

Change the service delivery model of

ProcessTechnologyOrganisation InfrastructurePeople

Fig. 3.2 Sourcing strategy (and how it relates to specific sourcing propositions)(Source: http://www.bpopronet.com/public/downloads/BPO%20resources/Developingbpostrategies.pdf)

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Sourcingcanbeusedinawidersensethanweuseit.Similarly“sourcingstrategy”canrefertoanorganisationsmake/buystrategyinitscoreoperations,but,inlinewithourusage,“sourcingstrategy”islimitedinscopetoanorganisation’s business support services.A “specific sourcingproposition”means a sourcinghypothesis, idea,proposal,etc.,thatcouldbeexecutedonastand-alonebasis.Somespecificsourcingpropositionsofcoursebecomelivesourcingprojectsandthenongoingsourcingarrangements.“Sourcingstrategy”,ontheotherhand,referstoamacro-levelviewofthedriversandguidingprinciplesforspecificsourcingactivitywithinanorganisation.

SourcingStrategythereforeoperatesatahigherlevelthanspecificsourcingpropositions,settingthecontextandparametersforactivitiestoevaluate/justify/implementspecificsourcingpropositions.Thegraphicbelowshowstherelationshipbetweensourcingstrategyandspecificsourcingpropositions.

External environment

Requirements of business support functions

Functional Strategy

Functional Strategy

Functional Strategy

Top level strategyVision, Mission, Values, Strategic Objectives

Sourcing Strategy

Specific Sourcing propositions/projects/arrangements

Fig. 3.3 Relationship between sourcing strategy and specific sourcing propositions(Source: http://www.bpopronet.com/public/downloads/BPO%20resources/Developingbpostrategies.pdf)

Sourcingstrategyoperates“horizontally”acrosstheorganisation,settingobjectivesandpoliciestooptimisetheorganisation’s use of the appropriate sourcing models. It is driven by driven by top-level (that is, corporate) strategy andinteractswith“vertical”functionalstrategy.

A well-thought-out and well-articulated sourcing strategy provides the perfect backcloth for the evaluation/ justification/implementation/operationofspecificsourcingpropositions/projects/arrangements.Thekeysourcingprinciples, 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 strategypriortoinvestigatingtheirfirst(orfirstfew)specificsourcingpropositions.Althoughnotanidealstateofaffairs, 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,thismightnotproveenoughofajustificationformakingtheinvestmentandincurringtheelapsedtime

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requiredbytheprocessofdevelopingthesourcingstrategy.However,asourcingstrategywilldefinitelybeneededif anything more than a minimal amount of sourcing activity is anticipated within an organisation. Otherwise, there willbearealdangerofmultiplespecificsourcingpropositionsbeingevaluatedorsourcingarrangementsbeingput 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.

Differentorganisationswilladoptsignificantlydifferentformatsfortheirsourcingstrategies,but,inourview,allgood sourcing strategies will share some common features, in that the sourcing strategy will:

clearly linked to overall corporate strategy•have sponsorship at senior level•takeaccountofexternaltrendsanddevelopments(thatis,inthe“sourcingindustry”)•be based on a valid assessment of current operations within the organisation•establishguidingprinciplesandparametersforspecificsourcingactivity•specifytheneedforfit-for-purposeprocessesandsupportingmechanismstoevaluate/justify/implementspecific•sourcing propositions

Wehavenoticedthat,incertainquarters,theevaluation/justificationofaspecificsourcingpropositionisreferredtoas“sourcingstrategy”.Wetermthis“developingthebusinesscase”ofcourse.Referringtoabusinesscaseforaspecificpropositionas“sourcingstrategy”isamistake,inthatitriskstheneedforrealsourcingstrategybeingoverlooked.

3.3 Business CaseAswiththeotherkeyconceptsexaminedabove,thereisagreatlackofconsistencyintheuseoftheterm“businesscase”. We deal with the main issues below:

“Developingthebusinesscase”meansinthefirstinstancetheprocessofevaluatingwhetherahypothesis,an•ideaoraproposedcourseofactionisjustified.Forthosesourcingpropositionsthatarefoundtobejustified,thebusinesscaseevolvesintoaformaljustificationand,further,intoakeymechanismformaintainingmomentum,controllingchangeandtrackingbenefitsrealisation.We cover the various stages of evolution of and uses for the business case below. The point here, however, is •that,inthefirstinstance,theemphasisisontestingthefeasibilityofaparticularsourcingproposition.Acommonmistakeistojumptooquicklytothejustificationstage,oratleasttoappeartojumptooquicklytothatstage.Inthefirstscenario(thatis, jumpingtooquicklytothejustificationstage), it isusefultobearinmindthat•sourcingprojectsareinherentlycomplexandrisky–yes,theycangeneratesignificantbenefits,buttheyarenota“cureforallills”.Evenwhereanorganisationhashadsuccessfulexperiencewithsourcingprojectsandeven 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.Thesecondscenario(thatis,appearingtojumptooquicklytothejustificationstage)riskscausingalarmamongst•key stakeholder groups. When implemented, outsourcing and offshoring will usually have profound effects on significantnumbersofanorganisation’semployees(thepeoplecurrentlydoingthework,theirmanagers,thecustomers 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 willhavetobesupported,bothemotionallyandrationally.Theirfeeling“railroaded”willnotbehelpful,norwilltheabsenceofasolidrationaleforthechange.Wehavewitnessedoccasionswhereuseofterminologylike“wearebuilding 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 sourcingproject isa“donedeal”anda justification isbeingconstructed (asopposed toanevaluation

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being carried out). So, if the business case is about evaluation, what exactly is being evaluated? And, when people refertotheir“beingabusinesscase”foraparticularproposition(thatis,usingtheterm“businesscase”tomean“justification”),onwhatbasisisthisbeliefheld?There is a fundamental equation at the heart of every sourcing businesscase.Thisequationexamineswhetherthebenefitsofthechangeoutweighthechallengestotheextentthatthereisa“netprize”ofsufficientmagnitudetojustifythechange(takingintoaccountofcourse,thenetbenefitsof other possible courses of action that exist in the organisation). Graphically, this equation can be represented as follows.

Cost

Quality RisksRisk Management

FocusOther

Downsides ?Fig. 3.4 Fundamental equation of outsourcing

(Source: http://www.bpopronet.com/public/downloads/BPO%20resources/Developingbpostrategies.pdf)

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,thegenericbenefitsofoutsourcingarerepresentedbythegreenconcentriccircles:

Cost:Cost reduction is themostobviouspotentialbenefit,but cost transparency, costpredictabilityor the•migrationoffixedintovariablecost(orviceversa)canbebenefitsintheirownright.Quality:Thisencompassesimprovementsin“hard”quality(forexample,“activityXwillbeperformedtoat•least 99% accuracy, within y hours of receipt of Z”), but also in increased transparency and predictability and improvementsin“soft”quality–thatis,“customerservice”,“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.Increasedfocusonvalue-creatingactivities:Thisistheconceptthat,withthemore“routine”,“transactional”,•“administrative”,etc.,activitiesoutsourced,thefunctionalstaffretainedbytheclientwillbeabletore-balancetheir 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 wereoutsourced,thestaffcouldbecometrue“businesspartners”.Other:Theabovecategoriesrepresentthemaingenericsourcesofbenefit,but,fromtimetotime,otherpotential•andactualbenefitsoccur,forexample,“organisationalflexibility”–thatis,theenhancementofanorganisation’sability to change its shape (merger, acquisition, divestment, etc.) if support services are not embedded in the core.

Thetangibilityofthesebenefits(asdefinedbytheabilitytoquantifythem)decreasesfromthecentreofthegreenconcentriccirclesoutwards,butthisdoesnotmeanthattheimportanceofthebenefitsnecessarilydecreases.The“challenges”arerepresentedbytheredconcentriccircles.Therearetwocategorieshere:

Downsides:Thesecanbedefinedas“negativesthatwillhappen”investmentforinstanceorthedisplacementof•the incumbent staff (through redundancy, redeployment within the client-organisation or transfer of employment to the outsourcer).

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Risks:Thesecanbedefinedas“negativesthatmighthappen”resistancetochange,servicedisruption,over-run•orover-spendonimplementation,failuretorealisetheprojectedbenefitsofchange,negativepublicity,etc.

Comparing“gross”benefitswithchallengesallowsthe“netprize”tobeidentified.Thenetprizeisevaluatedintermsofwhetheritissufficientmagnitudetojustifythechangethatis,versustheeverpresentalternativeof“donothing”.Italsomustbecomparedtothepotentialnetprizesattachedtootherpossiblechangesintheorganisation(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 netprizeisofthemagnitudegenerallyacceptableintheorganisation.

Inpurelyfinancialterms,thecomparisonwiththe“no-change”optioncanbecodifiedthroughthecalculationofNetPresent Value (NPV) and the comparison with other possible projects through Internal Rate of Return (IRR). Our (shorthand)useoftermssuchas“equation”and“net”mayimplyfinancials,oratleastquantitativedataofsomesortisparamount.However,wearefirmbelieversthatagoodbusinesscasemustbeholisticinthatitcoversbothfinancialandnon-financialdimensionsandbothquantitativeandqualitativefactors(thesetwocategorisationsnotbeingcongruent,asnonfinancialitemsmightstillbequantitative–forexample,qualityorvolumemetrics).Wementionedabovethatalthoughthebusinesscaseisaboutevaluationinthefirstinstance,itspurposeevolvesovertime. It also evolves in terms of level of detail. Let us examine this process of evolution for a few paragraphs.

Attheoutset,therewillprobablyexista“primafacie”businesscase.Thismightbetheresultofasemi-formalreviewormightbelittlemorethanafeelingamongstrelevantexecutivesthataparticularproposition“mightwellbeworthdoing”.Thephrase“high-levelbusinesscase”isoftenusedtodescribethefirstformalevaluationofasourcingproposition. 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(projectplan,reviewgroup,etc.).Ifthepropositionbeingevaluatedisfoundtobenotjustifiedatthehigh-levelbusinesscasephase,theprocessofdevelopingthebusinesscaseends,withthefinalreportofthebusinesscaseprojectbeingretainedtoprovideaformalrecordofwhythe“no”decisionwasmade.

Thisappliesatwhateverstagethe“no”decisionismade.However,ifthepropositionisjustified,theprocessofdeveloping the business case does not stop. The business case is used throughout the course of a project, evolving in two dimensions:

Itisrefinedanddeepened(intermsoflevelofdetail)asthesourcingprojectapproachesthefinal“go/no-go”•decision.At the high-level business case phase, it is purely about evaluation.•

Assumingapositiveoutcomefromhigh-levelbusinesscase,twopurposes,evaluationandjustification,areinplay.Thisisthecaseuptothepointofthefinalgo/no-nodecision.Afterthego/no-godecision(andtheonsetoftheimplementationphaseofthesourcingproject),thepurposesarejustificationandbenefits-tracking,withthelatterreally 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:

“Businesscase”meansmorethan“financialmodel”,althoughthesetwotermsareoftenusedasiftheywere•synonymous.Thefinancialmodel is akeycomponentof abusiness case and, indeed, it is often themostimportant, 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 wellasthefinancials.Usually, the process of developing a business case is written up into a document of some sort. Usually, the •document is referred toas the“businesscase”,although,ofcourse, thebusinesscase (or lack)of it, isanintangible product – a business judgment that exists beyond its documentation.So,inthelightofalltheabove,ourdefinitionforabusinesscaseisasfollows:Aholisticanalysisofwhether•aparticularsourcingpropositionisjustified.

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Increasing detail

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

Produce detailed solution design/ detailed business case,

Select supplier(s)

Carry out due diligence

Negotiate contract

Build operating environment

Mitigate work

Consolidate service

Run operations

Transform service

EvaluationJustificationBenefits-tracking

Fig. 3.5 The evolution of the business case using a generic route map (Source: http://www.bpopronet.com/public/downloads/BPO%20resources/Developingbpostrategies.pdf)

3.4 Introduction to Nelson Hall’s Business Case MethodologyIn 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”)ofasourcingbusinesscase.Graphically,itisrepresentedasbelow.

functionalstrategy

sourcingstrategy

Current operations

top level strategy

the as-is

Operational model

Commercial model

Transition approach

top level strategy

the to- be

implementation route map

Conclusionsqualitative view

quantitative view

review ofexternal world

people

infrastructure

organisation

technology

process

need for

change

Fig. 3.6 The anatomy of a business case methodology(Source: http://www.bpopronet.com/public/downloads/BPO%20resources/Developingbpostrategies.pdf)

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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

conclusions

the to-be

Vs.

implementation route map

Fig. 3.7 Main component of business case methodology(Source: http://www.bpopronet.com/public/downloads/BPO%20resources/Developingbpostrategies.pdf)

At this macro level, the methodology:compares thecurrentsituationrelevant to thesourcingpropositionbeing tested(whichwecall the“as-is”,•represented by the large light grey box on the left)with aoneormorepotential future situations (the “to-be”, representedby the large light greyboxon the•right)toascertainwhetherthereisabusinesscase(thatis,the“netprizeofsufficientmagnitude”)•ifthereisabusinesscase,thewayforwardismappedout,intermsofthe“routemap”forchange(bluearrow•at bottom)

With the anatomy of a business case methodology in mind, we can re-introduce the sub-components. If we summarise atthis“midi”level,then,themethodologywillbeasfollows:

Clarifiesthestrategiccontextforthesourcingpropositionbyinterpretingandidentifyingtherelevantramifications•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 •oftheeffectivenessandefficiencyofcurrentoperationsneedstobeundertaken.Thisiscarriedoutintermsofthe: process, technology, people, organisation and infrastructure.Specifiestheneedforchange.Thisisnotthesolutionatthisstage,butastatementofthecriteriaandparameters•that possible futures will have to adhere to.Exploresexternaltrendsandbestpractices(“theartofthepossible”).Oftenwedothisthroughinteractionwith•external suppliers.

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Envisions to-be models, comprising:Operationalmodel(“howwouldtheservicework?”)•Commercialmodel(“whowouldberesponsibleforwhat?”)•Transitionapproach(“howwouldwemovefromtheas-istotheto-be?”)•

Identifiestherisksassociatedwiththeto-bemodelsanddevelopsriskmanagementactions. �Determines whether there is a business case by comparing as-is with to-be. �Laysouttheimplementationpathfortheselectedoption(“howwouldwemakeitallhappen?”). �

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SummaryBusiness 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 itswidestsense,canrefer tomainstream“procurement”or“supply-chainmanagement” inan•organisation,butweusethetermspecificallytorefertoactivityaroundthebusinesssupportservicesthatarethe 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”canbeusefullycomparedandcontrastedwiththeotheraspectsofoperationalchange,whichwe•refertoas“transformation”.A“specificsourcingproposition”meansasourcinghypothesis,idea,proposal,etc.,thatcouldbeexecutedon•a stand-alone basis.Sourcingstrategyoperates“horizontally”acrosstheorganisation,settingobjectivesandpoliciestooptimise•the organisation’s use of the appropriate sourcing models.Developingthebusinesscasemeansinthefirstinstancetheprocessofevaluatingwhetherahypothesis,anidea•oraproposedcourseofactionisjustified.Costreductionisthemostobviouspotentialbenefit,butcosttransparency,costpredictabilityorthemigration•offixedintovariablecost(orviceversa)canbebenefitsintheirownright.Thetangibilityofbenefits(asdefinedbytheabilitytoquantifythem)decreasesfromthecentreofthegreen•concentriccirclesoutwards,butthisdoesnotmeanthattheimportanceofthebenefitsnecessarilydecreases.“Businesscase”meansmorethan“financialmodel”,althoughthesetwotermsareoftenusedasiftheywere•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/operationofspecificsourcingpropositions/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.

ReferencesSaxena, 2009. • Business Process Outsourcing for Strategic Advantage, Excel Books India.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%20resources/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>[Accessed22January2013].Best Outsourcing Strategy: Video• , [Video online] Available at: <http://www.youtube.com/watch? v=UXl2ToaIV9I>[Accessed 22 January 2013].

Recommended ReadingBarrar, 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.Halvey, K. J. & Melby, M. B., 2007. • Business Process Outsourcing: Process, Strategies and Contracts, 2nd ed., John Wiley & Sons.

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Self Assessment__________ involves modifying the manner in which a service is delivered.1.

Organisational changea. Operational changeb. Commercial changec. Supply chaind.

___________operates horizontally across the organisation, settingobjectives andpolicies to optimise the2. organisation’s use of the appropriate sourcing models.

Sourcing strategya. Top-level strategyb. High-level parametersc. Sponsorshipd.

___________encompassesimprovementsin“hard”quality.3. Value-creating activitiesa. Removal of riskb. Costc. Qualityd.

A good ___________ combines qualitative and quantitative elements to present a holistic view.4. key componenta. sourcing propositionb. business casec. financialmodeld.

__________ involves changing the responsibilities for service delivery.5. Organisational changea. Operational changeb. Commercial changec. Supply chaind.

The establishment of internal __________ centres always involve commercial change through the establishment 6. of a pseudo-commercial environment between delivery-centre and customer.

in-sourceda. offshoredb. outsourcedc. boundedd.

Sourcing can be usefully compared and contrasted with the other aspects of operational change, which we refer 7. to as ___________.

transformationa. strategyb. functionsc. strategic objectivesd.

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Whichofthefollowingreferstoamacro-levelviewofthedriversandguidingprinciplesforspecificsourcing8. activity within an organisation?

Top-level strategya. High-level parametersb. Sponsorshipc. Sourcing strategyd.

Whichofthefollowingisthemostobviouspotentialbenefit,butcosttransparency,costpredictabilityorthe9. migrationoffixedintovariablecost(orviceversa)canbebenefitsintheirownright?

Operational changea. Cost reductionb. Organisational changec. Commercial changed.

Aholisticanalysisofwhetheraparticularsourcingpropositionisjustifiedisknownas___________.10. business casea. business judgmentb. financialmodelc. business phased.

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Chapter IV

Business Process Modelling and Simulation

Aim

The aim of this chapter is to:

introduce business process management•

elucidate advanced BPM tools•

explore evaluation criteria of BPM tools•

Objectives

The objectives of this chapter are to:

definemodellingtools•

explicate related work on evaluation criteria of BPM tools•

enlistthecategoriesasdefinedbyBradleyetalinthedirectionofBPS•

Learning outcome

At the end of this chapter, you will be able to:

understand the criteria used for the evaluation of BPS tools•

recognise the BPS tools •

describe tools for BPS•

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4.1 IntroductionBusiness Process Management (BPM) is attracting attention more than a decade now and its attention is now shifting fromtheenactmentofbusinessprocessestowardsimprovingbusinessprocesses.ThefieldofBPMnowsupportsthe 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 andactivitiesareidentified.Thecontrolflowdefinitioniscreatedbyidentifyingtheentitiesthatflowthroughthesystem and describing the connectors that link the differentpartsoftheprocess.Lastly,theresourcesareidentifiedandassignedtotheactivitieswheretheyarenecessary.Theprocessmodelshouldbeverifiedtoensurethatthemodel 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,thesimulationclockadvances.Thesimulationtoolmayshowananimatedpictureoftheprocessfloworreal-timefluctuationsinthekeyperformancemeasures.Whenthesimulationhasbeenfinished,thesimulationresults 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.Inthissectionwediscussseveralsimulationtoolstakenfromthreerelevantareas:businessprocessmodelling,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 ToolsIn 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 definedsevendifferent 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 •performanceTool documentation, covering the availability of several guides, online-help and information about the learning •curve of the toolUser features: amongst others user friendliness, level of expertise required and existence of a graphical user •interfaceModellingcapabilities,suchasidentificationofdi• fferentroles,modelintegrityanalysis,modelflexibilityandlevel of detailSimulation capabilities, summarising the nature of simulation (discrete vs. continuous), handling of time and •cost aspects and statistical distributionsOutput analysis capabilities such as output analysis and BPR expertise•

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ThissectionelaboratesonthecategoriesasdefinedbyBradleyetalinthedirectionofBPS.Especiallythelastthree categories are of interest when evaluating BPS. With respect to modelling capabilities, the patterns research isusedtoevaluatethepossibilitytomodelvariouscontrolflowpatterns,datapatternsandresourcepatterns.Thepatterns 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 e• fficiency, 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•Systematicdesign,themodelshouldhavewell-definedinterfacestoothertypesofmodelssuchasorganisational•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:

Generalcapabilities,includingmodellingflexibilityandeaseofuse•Hardware and software considerations•Animation,includingdefaultanimation,libraryofstandardicons,controllablespeedofanimationandzoom•in and outStatistical capabilities, including random number generator, probability distributions, independent runs (or •replications),determinationofwarmupperiodandspecificationofperformancemeasuresCustomer 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 SimulationManysoftwaretoolsexisttosimulateprocesses.Whensimulatingbusinessprocesses,somespecificrequirementsare 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•

Foreachtypeageneralintroductionandthedescriptionoftwospecifictoolsaregiven.

4.3.1 Business Process Modelling ToolsBusiness 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 flowofbusinessprocesses,theresourcerolesinvolved,documentsbeingusedanditdocumentsinstructionsfortheexecution of steps in the business process. As a result, reports can be generated for process documentation, manuals, instructions,functionalspecifications,etc.Fortheevaluationofthesimulationfunctionalityweconsidertwodifferent tools, one based on Petri Nets (Protos) and one based on Event-driven Process Chains (ARIS Toolset).

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ProtosProtosisamodellingandanalysistooldevelopedbyPallasAthenaanditismainlyappliedforthespecificationofin-housebusinessprocesses.Protosissuitabletomodelwell-definedPetriNetstructures.Nevertheless,italsopermitsfreehandspecificationsofbusinessprocesseswithoutformalsemantics,forexample,tosupportinitialandconceptual modelling. When formal Petri Net semantics have been applied, translation to various other process-based systemsisfeasibleaswell,forexample,totheworkflowmanagementsystemCOSAandtheworkflowanalyserWoflan.

ThemainuseofProtosistodefinemodelsofbusinessprocessesasasteptowardseithertheimplementationofquality management systems, the redesign of a business process, communication enhancement between process stakeholdersortheimplementationofworkflowmanagementsystems.Theprocesscanbeanalysedwithrespectto 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 specifiedintheProtosmodelbefore.Inadditiontothestandardprocessspecification,simulationdatacanbeaddedfortasks, 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%confidenceintervalofutilisationrates,waitingtimes,servicetimes,throughputtimesandcosts.

ARISARIS simulation is a professional tool for the dynamic analysis of business processes. It is an integral part of the ARISToolset;processesrecordedintheARISToolsetareusedasthedatabasisforbusinessprocesssimulation.ARISToolsetisdevelopedbyIDSScheerAGandcanbeclassifiedasanenterprisemodellingtoolwithastrongemphasis 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.

TheprocessmodellingpartsupportsthedefinitionofbusinessprocessesrepresentedinEvent-drivenProcessChains(EPCs). Other modelling techniques supported in the ARIS House are, for example, value chains (also to model thecontrolflow),organisationcharts(tomodelrelationshipsbetweenresources),EPCsandfunctionallocationdiagrams (for supplementary information such as data and systems). The simulation functionality shows whether thespecifiedprocessesareexecutableatallanditanswersquestionsaboutthroughputtimesandutilisationlevelsof 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 ToolsBusinessprocessmanagement(BPM)systemscanbeseenassuccessorsofWork-flowManagement(WFM)systems.ThecorefunctionalityofaWFMsystemisautomating the“flowofwork”.With the introductionofBPMthefunctionalityisbroadenedtosupportthewholeprocesslife-cycle.BPMisdefinedassupportingbusinessprocessesusing 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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FLOWerFLOWerisaflexible,case-basedBPMsystem.Whenhandlingcasesthesystemonlypreventsactionsforwhichitisspecifiedthatthesearenotallowed.Thisresultsinaflexibleprocesswhereactivitiesforacasecanbeexecuted,skipped or redone. The FLOWer systems consists of a FLOWer Studio, FLOWer Case Guide, FLOWer CFM (ConfigurationManagement),FLOWerIntegrationFacilityandFLOWerManagementInformationandCaseHistoryLogging.Thegraphicaldesignenvironment,Studio,isusedtodefineprocesses,activities,precedence,dataobjectsandforms.Workqueuesareusedtoprovideworktousers(definedwithCFM)andtofindcasessatisfyingspecifiedsearch 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 ofdetail.BPMsystems,likeFLOWer,focusontheconfigurationofthesystemandtheexecutionandcontroloftheworkflow.AdditionalfeaturesliketheFLOWerManagementInformationandtheFLOWerIntegrationFacilityare 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.

FileNetFileNet 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 definitionisfeededtotheProcessEnginetostarttheexecutionoftheworkflow.Theexecutiondataforindividualcases 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-boxreports;eachgraphicallypresentingthedatarelatedtooneperformanceindicator.

The Process Simulator in FileNet can be used to evaluate the performance of a created design. The Process Simulator isaseparatetool,whichcanpartlyimportthecreatedprocessdefinition.Otherpartsoftheprocessdefinitionhavetobere-entered.Simplearrivalpatternsofcasesaredefined,thatis,afixednumberofcasesarriveatfixedtimepoints.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 ToolsSimulationtoolsmaybetailoredtowardsaspecificdomain,suchaslogistics(forexample,EnterpriseDynamics)or SPEEDES in the military domain. In this section we consider simulation tools that are not tailored towards a particulardomainandweevaluatetheirsuitabilityforthedomainofbusinessprocesses.Thefirsttool,Arena,hasan 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.

ArenaArena 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.TheProfessionalEditionalsoprovides(andallowsdefinitionof) 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 modelhasbeencreatedandiscompletelyspecified(fromtheArenaviewpoint)anditissyntacticallycorrect,itcanbesimulated.Warm-upandcooldownperiodscanbespecified,aswellasrunlengthandconfidenceintervals.

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-definedbuildingblocks,whichtheyconsideredtobesuccessfulinseveralsimulationstudiestheycarriedout.

CPN toolsCPN 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 ToolsWhen 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 CapabilitiesThe 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.Agraphical user interfacewith predefinedbusiness objectswhich canbedragged anddroppedfacilitates 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 usingaPetrinetbasedworkflowmanagementsystemwhichappeartobecriticalinlargeBPMprojects.Thesereasons are:

the existence of formal semantics despite the graphical nature �the state based diagrams instead of event based diagrams (as can be encountered inmanyworkflow �products)the abundance of analysis techniques �

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Workflowpatterns:Theworkflowpatterns,orcontrolflowpatterns,areusedtoevaluatethenexpressivepower•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 differentneedforinformation;seniormanagement 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 CapabilitiesThe 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 andflexibility.

DistributionsTheaverageperformanceofasimulatedprocessmayseemfinewhileinreallifemanyproblemswouldoccurbecauseof 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.

AnimationWithsimulationnotonlythefinalsimulationresultsbutalsothesimulationitselfcangiveusefulinsightsinthesimulated 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.

ScenariosWith the use of scenarios the consequences of changes can be investigated. While the process stays the same, different configurationsofthesimulationmodelreflectpotentialchangesin,i.e.,thearrivalpatternorresourceavailability.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 CapabilitiesThe 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:StatisticsSimulation 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 measurenotonlythemean,butalsothestandarddeviationandconfidenceintervalsshouldbepresented.

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 analysisBefore a process design is chosen what-if analysis is performed. In this analysis different scenarios (of the same simulationmodel)arecompared.Thecomparisonofconfidenceintervalsofaperformancemeasureshowswhichscenariosperformsignificantlybetterthanothersonthismeasure.Italsoindicatesunderwhichconditionsacertainprocess design will perform within its requirements and under which conditions a performance level can not be reached.

Conclusion-making supportConclusion-makingsupportfacilitatestheinterpretationofthesimulationresults.Usefulsupportistheidentificationoftrends,theslicinganddicingofdataandthetrackingofthecauseofspecificoutcomes.

4.5 Comparison of BPS ToolsIn 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 developedaframeworkwithasetofevaluationcriteriatofindstrengthsandweaknessesofthesetools.Inthissection,wereportourfindings.WewillscoretheBPStoolsforeachoftheevaluationcriteriarangingfromgood(++) and neutral (+/–) to bad (– –).

4.5.1 Modelling CapabilitiesIn this section we evaluate how well and how precise a business process can be modelled in the tools. We provide ashortoverviewpertoolandattheendofthesectionwesummarisethefindingsinTable4.1.

ProtosThecontrolflowofabusinessprocessandtheresourcescanveryeasilybespecifiedinProtos,asmaybeexpectedfromaprocessmodellingtool.Alsothedataperspectiveandinstructionsfortheexecutionoftaskscanbespecified.Thetoolallowsfreehandspecifications,howeveritalsoallowswell-definedPetriNetstructures,thusopeningpossibilitiesforfurtherverification(forexample,inWoflan)andanalysis(basedontheExSpecttool).Theapplicationofsubmodels 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 parttimeworkandovertime.Thiscouldbespecified,forexample,inhistograms(whichcanalreadybehandledbythe simulation engine but is not (yet) allowed in the Protos interface).

ARISThecontrolflowpartisbeingmodelledinEPCs.Thisisaninformalmodellinglanguageandthesimulationrelieson 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, severalworkflowpatterns cannot bemodelled conveniently.Modelverificationisnotsupportedbythetool.

FLOWerWith FLOWer it is, on the one hand, possible to handle exceptions and on the other hand, to force a sequential order handling.DuetothisflexibilityFLOWersupportsmostoftheworkflowpatterns.FLOWerisdatadriven;givingita 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.

FileNetMost BPM tools, including FileNet, use a simple graphical representation of process models without formal semantics andverificationofcorrectness.Withthis,userscancreateanddiscussprocessmodelswithoutdifficulties. More advancedworkflowpatternsandalsotheresourceandthedataperspectiveneedtobehardcodedinFileNet.

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ArenaArena 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 buildingblocksandtheirexactspecificationisrequired.Frequentlyusedcontrolflowpatternsaresupported,butsome more advanced patterns require a bit more indirect modelling.

CPN ToolsThetoolisbasedonPetriNetmodellingtechniquesandbothbenefitsandsuffers from this property: it has formal semantics,allowsformostcontrolflowpatternsandcanbeverified,butthepricetobepaidisthatthemodelsmaybe 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 ToolsEase of model building ++ + + + + --Formal semantics/verif. + - -- -- +/- ++Workflowpatterns + - + +/- + +Resources and data + ++ ++ +/- + +/-Level of detail ++ ++ ++ + ++ --

Table 4.1 Modelling capabilities

4.5.2 Simulation CapabilitiesIn this section, we evaluate in which way a simulation can be carried out and which parameter settings can be made. WeprovideashortoverviewpertoolandattheendofthesectionwesummarisethefindingsinTable4.2.

ProtosThesimulationengineinProtosseemstobeworkingfine.Amoredetailedlook,however,revealssomeweaknessesof 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 toolisthatalldataspecifiedintheprocess,taskandresourcepropertiesaretakenintoaccountinthesimulation.Itappeared 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 arcsorfollow-uptasks).Inaddition,problemsmayoccurwhenusingsub-process;insomecasesanOR-splitcanbe changed into an AND-split (though this seems to be a bug instead of a design issue).

Allimportant(standard)performancedimensionsarepredefined,butitisnotpossibletoaddanyotherdimension.The same holds true for the possible distributions. The most well-known distributions are available but these cannot beextended.Inthefuture,distributionsbasedonhistogramsmaybeprovidedtobemoreflexibleinthisaspect.Facilities for animation and scenarios are not available.

ARISBefore 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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FLOWerMostBPMtools,includingFLOWer,onlyprovidethepossibilitytotestorplaywiththeworkflowbylaunchingsomecasesandexecutethemmanually.Inthissensetheworkflowengineisusedasaruntimesimulationengine.This, however, does not provide explicit simulation functionality.

FileNetAftersimulationwithFileNettheflowofcasescanbereplayedinananimation.Bothtimeandcostsaspectsaretakenintoaccountbutwithoutfluctuationsbecauseonlyconstantperformancemeasuresareusedinthesimulation.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.

ArenaIn 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.Animationsareobtainedbyiconsflowingthroughthemodelor3Danimations(inapost-processingtool).AlternativemodelscanbedefinedandevaluatedintheProcessAnalyser.

CPN ToolsCPN 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.

Feature Protos ARIS FLOWer FileNet Arena CPN ToolsPerformance dimensions -- ++ -- + ++ ++

Distributions + + -- -- ++ ++Animation -- + -- + ++ +Scenarios -- - -- +/- + +

Table 4.2 Simulation capabilities

4.5.3 Output Analysis CapabilitiesIn 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 pertoolandattheendofthesectionwesummarisethefindingsinTable4.3.

ProtosThe simulation results are made available in a very basic spreadsheet, but all important performance dimensions arelistedandsupplementedwithmeansand90%and99%confidenceintervals.However,dependingonthedataspecifiedintheprocessmodel,thesimulationresultsmaybeincorrect.

ARISThe 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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FLOWerMost BPM tools, including FLOWer, do not provided simulation functionality and output analysis functionality.

FileNetThefirstimpressionoftheperformancereportsprovidedbyFileNetisagoodone.Nicegraphicsareshownfordifferent 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.

ArenaArenaprovidesstandardstatisticsforallperformanceindicatorsspecified.Foreachstatistic, theminimumandmaximumvalueisgiven,aswellasmeanandhalflengthofthe95%confidenceinterval.Whenasimulationhasrun to completion, we can see the results in a standard report, it can be analysed later in the output analyser (in theadvancedprocesspanel)oritcanbewrittentoanExcelfile(byinsertingtheread-writemodule).Conclusionmaking support is provided in the process analyser.

CPN ToolsStrongpointofthetoolisthestatisticallycorrectoutputofthesimulation.Allaspectsspecifiedintheprocessmodelare taken into account, thus resulting in good simulation results. The standard output format gives 90, 95 and 99% confidenceintervals.Inadditionotherconfidenceintervalscanbecalculatedmakinguseoftherawsimulationdata.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.

Feature Protos ARIS FLOWer FileNet Arena CPN ToolsStatistics - -- -- - ++ ++Format - +/- -- +/- + +/-What-if analysis -- + -- -- - -Conclusion-making support -- + -- -- + --

Table 4.3 Output analysis capabilities

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SummaryBusiness 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.•Bradleyetaldefinedsevendi• fferent categories to evaluate business process re-engineering software tools.Business Process Modelling tools are developed to describe and analyse business processes.•ProtosisamodellingandanalysistooldevelopedbyPallasAthenaanditismainlyappliedforthespecification•of in-house business processes.ARIS simulation is a professional tool for the dynamic analysis of business processes.•TheprocessmodellingpartsupportsthedefinitionofbusinessprocessesrepresentedinEvent-drivenProcess•Chains (EPCs).The simulation toolbar shows buttons for start and stop, one time step and simulation steps and options for •animations.Businessprocessmanagement(BPM)systemscanbeseenassuccessorsofWork-flowManagement(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.•

ReferencesLaguna, 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 ReadingBarjis, 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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Self AssessmentThefieldof______supportsthedesign,enactment,controlandanalysisofbusinessprocesses.1.

BPMa. BPSb. BPRc. EPCd.

___________ tools are developed to describe and analyse business processes.2. Business Process Management a. General Purpose Simulation b. Business Process Modellingc. Business Software d.

_________ is a modelling and analysis tool developed by Pallas Athena and it is mainly applied for the 3. specificationofin-housebusinessprocesses.

Woflana. ARISb. Protosc. ExSpectd.

_________ simulation is a professional tool for the dynamic analysis of business processes.4. Woflana. ARISb. Protosc. ExSpectd.

Net based tool _________ has been integrated in the Protos environment and it facilitates the simulation of the 5. businessprocessashasbeenspecifiedintheProtosmodelbefore.

FileNeta. FLOWerb. ARISc. ExSpectd.

_________ integration facility provides the functionality to interface with other applications.6. FileNeta. FLOWerb. ARISc. ExSpectd.

________ is a general purpose simulation tool developed by Rockwell Automation.7. Arenaa. FLOWerb. FileNetc. FLOWerd.

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________ tools is a tool for editing, simulating and analysing Coloured Petri Nets.8. BPSa. Simulationb. CPNc. FileNetd.

When evaluating _______ tools, the modelling, simulation and output analysis capabilities of the tool are 9. important.

BPSa. Simulationb. CPNc. FileNetd.

Match the following10. 1. Formal semantics A. Flexible, case-based BPM system2. Theworkflowpatterns B. Used to evaluate the expressive power of modelling languages

3. CPN Tools C. Provide a precise and unambiguous description of the behaviour of the modelled process

4. FLOWer D. Based on Petri Net modelling techniques1-D, 2-B, 3-A, 4-Ca. 1-B, 2-D, 3-C, 4-Ab. 1-A, 2-C, 3-B, 4-Dc. 1-C, 2-B, 3-D, 4-Ad.

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Chapter V

Outsourcing

Aim

The aim of this chapter is to:

explicate importance of outsourcing•

explain types of outsourcing•

elucidate the 5 W’s of outsourcing•

Objectives

The objectives of this chapter are to:

examine the sales outsourcing•

enlist marketing outsourcing•

describe the precautions to be taken before outsourcing•

Learning outcome

At the end of this chapter, you will be able to:

defineoutsourcing•

understand the advantages of outsourcing•

identify the needs of outsourcing•

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5.1 OutsourcingOutsourcing 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 firmsthatareprovidingtheoutsourcingservicesarethird-partyproviders,orastheyaremorecommonlycalled,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.Thoseprocessescouldbedonemoreefficientlyandthereforemorecost-effectively,byothercompanieswithspecialised tools and facilities and specially trained personnel.

Currently, outsourcing takes many forms. Organisations still hire service providers to handle distinct business processes,suchasbenefitsmanagement.Butsomeorganisationsoutsourcewholeoperations.Themostcommonforms are Information Technology Outsourcing (ITO) and Business Process Outsourcing (BPO). Business process outsourcingencompassescallcenteroutsourcing,HumanResourcesOutsourcing(HRO),financeandaccountingoutsourcing, and claims processing outsourcing. These outsourcing deals involve multi-year contracts that can run intohundredsofmillionsofdollars.Frequently,thepeopleperformingtheworkinternallyfortheclientfirmaretransferred 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 itContract development, to work out the legal, pricing and Service Level Agreement (SLA) terms•Outsourcingmanagementorgovernance,torefinetheongoingworkingrelationshipbetweentheclientand•outsourcing service providers.

In all cases, outsourcing success depends on three factors: executive-level support in the client organisation for the outsourcingmission; ample communication to affected employees; and the client’s ability tomanage itsservice 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 beflexibleasbusinessneedschange.

The challenges of outsourcing become especially acute when the work is being done in a different country (offshored), sincethatinvolveslanguage,culturalandtimezonedifferences.

5.2 The 5 W’s of OutsourcingThe 5 main questions related to outsourcing are given below that would provide you the base for outsourcing:5.2.1 Who Should Outsource?Everycompanycanreapbigbenefitsthroughoutsourcing.Outsourcingcanchangethewaycompaniesdobusiness-throughpeople,processesandtechnology.WhetherB2BorB2C,whetherSMEsorlargediversifiedcompaniesorsmallhomeoffices,everycompanycanleveragethepowerofoutsourcingforbusinesstransformation.

Technology is the key to the competitive edge in the marketplace, and outsourcing helps companies to leverage the latestandmostsophisticatedworkflowtechnologies-withoutcapitalinvestment-tooptimisetheirbusinessprocessesandget“morebangforthebuck.”Outsourcingopensthedoortoaglobaltalentpoolofhumanresourceswiththequalificationsandskillsetstoharnessthistechnologyeffectively.Theinternetalongwithworkflowtechnologyhasstreamlinedtheprocessing,transferanddeliveryofdatasothatlargevolumesofworkcanbequicklyandefficientlycompleted and delivered.

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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,increaseefficiency,speeduptime-to-market,reducelaborcosts,andenablecorebusinessfocus.Outsourcinghasactuallyhelpedcompaniesfindnewerandbetterwaystodothings,thusaddingvaluetotheirproductsandservices.

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 amythswhichIndia-watchers(especiallysceptics)havelongbelieved.ThefirstmythwhileoutsourcingtoIndiaisthat 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 andgreateremphasisongrowthratherthanredistribution;clearerpolicyframeworksininfrastructuralareasliketelecomandroads;power,moreopenpoliciesonexternaltradeandforeigninvestment;fasterfiscalandfinancialreformsandmoreaggressiveslashingofredtape.Though,inlaborreformsandprivatisation,therearesignificantdifferences 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,•feedingafrenzyofnationwideroad-buildingprogram,•thebuildingofhundredsofmalls,ahousingboom,multiplexes,officecomplexesandindustrialparksincities•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 andcapitalgoods.India’seconomyisnolongerjustanIT-service,outsourcing-drivenstory,back-office,asiswidelyperceived. 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 •operationalefficiencieswithoutcapitalinvestment•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 andvolume.Research andAnalysis outsourcingis 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 themWhen 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 OutsourcingThefollowingaresomeofthebenefitsofoutsourcing:

Cost savings: The lowering of the overall cost of the service to the business. This will involve reducing the •scope,definingqualitylevels,re-pricing,re-negotiation,costre-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:Serviceswillbeprovidedtoalegallybindingcontractwithfinancialpenaltiesandlegalredress.•Operationalexpertise:Access tooperationalbestpractice thatwouldbe toodifficultor timeconsuming to•develop in-house.Staffingissues:Accesstoalargertalentpoolandasustainablesourceofskills.•Timezone:Asequentialtaskcanbedoneduringnormaldayshiftindifferenttimezones-tomakeitseamlessly•available 24x7. Similar can be done on a longer term between earth’s hemispheres of summer/winter.Increaseinbusiness:Benefitofoutsourcingisseeingabigincreaseinyourprofits,productivity,levelofquality,•business value, business performance and much more.Concentratemoreonyourcorebusiness:Oneofthebenefitsofoutsourcingisthatyourorganisationwillbe•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.Makefasterdeliveriestocustomers:Anotherbenefitofoutsourcingisthatyoucanmakequickerdeliveriesto•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. •Outsourcingcanhelpyoubenefitfromincreasedcustomersatisfactionandyourcustomerswillremainloyalto your organisation.

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5.4 Disadvantages of OutsourcingThe 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 OutsourcingGiven below are the types of outsourcing:5.5.1 NearshoringNearshoring 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 theoutsourcingpartnerinoffshoreoutsourcing.Theterm“Nearshore”hasbeentakenfromthefishingindustryandnow it is used widely in the world of outsourcing.

Advantages of nearshore outsourcing are as follows:Closer proximity•Boththeoutsourcerandthevendorareinthesametimezone•Better coordination and communication•Similar culture, mindset and language•Frequent visits to the outsourcing partner is possible•Greaterefficiency•

5.5.2 OffshoringOffshoring 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,totaptalentcurrentlyunavailabledomesticallyortoovercomeregulationsthatpreventspecificactivitiesdomestically.

5.5.3 OnshoringOnshore 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•Managemoreeffectivelyadifficultorproblematicfunction.•

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5.5.4 Information Technology OutsourcingIT 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 pursuingoutsourcingoptionsinvolvesthestrategic,financialandtechnologicalbenefitstobegained.

5.5.5 Knowledge Process OutsourcingKnowledgeprocesscanbedefinedashighaddedvalueprocesseschainwheretheachievementofobjectivesishighly 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, availabilityof and access to ahighly skilled and talentedworkforce and improvedquality are allunderlying expectations in outsourcing high-end processes to India.

5.5.6 Business Process OutsourcingBusinessprocessoutsourcing(BPO)isthecontractingofaspecificbusinesstask,suchaspayroll,toathird-partyservice 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 ofcertaintasks,which,ifdoneinhouse,willprovetobenothingbutawasteoftime,andbothfinancialandhumanresources. 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. Butstill,thesetaskshavetobefinished.ThisiswhereBPObusinessprocessoutsourcingcomesinhandy.

A company can acquire business process outsourcing service for many types of work. But, the services provided arebroadlydividedintotwogroups.Thefirstoneisfortheinternaloperationsortasks,andiscalledthebackofficeoutsourcing. 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 technicalsupporttothecustomers,oranythingsimilar.Suchservicesarecalledfrontofficeoutsourcing.

BenefitsderivedfromBPOcanbesummarisedasfollows:Productivity improvements•Access to expertise•Operational cost control•Cost savings•Improved accountability•Improved HR•Opportunity to focus on core business•

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5.6 Sales Outsourcing: How is it Done?Well within subject marketing, they are usually involved in sampling and other in retailer activation campaigns. Outsourcingincomecouldcarryaboutasubstantialupliftinincomefigures,andthisissimpletoexamine-basicallyallocate 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 outsourcingmakes it possible for all enterprise partners to share both risks andbenefits.Total,marketingandadvertisingROIisfirst-classduetothefactofhigherclosingratioanddecreasedbillsassociatedwith 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.•Whenyouwant toget theupcomingleveloforganisationgrowthswiftlyandefficientlyandwantexterior•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 OutsourcingInessence,then,yourenterprisedemandstooutsourcetoobtainaproficientgroupofmenandwomenwhowillfunction 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, andfreeofchargeupyouaretolookintodevelopingnewearningsstreamstoboostprofitability.

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 analysisandtrustworthyreferral,youshouldmakeitextremelyverycleartotheoutsourcingfirmexactlywhatyouneed 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 OutsourcingMarketing 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 ModelMarketing 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 youwithbenefitsoftheproductumpteennumbersoftimes.Televisionbroughtadvertisingintothedrawingroom.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 inmanybusinessesarebig;teemingwithideasandyes,themoneyisgood.Butwiththemarketingscenechangingdramatically, 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•

Thesearefantasticbenefitstosaytheleast,andthesmartmarketingCEOlatchedontoit.Whenitwasinitsnascentstage,marketingoutsourcingwasnotstreamlinedasitisnow.Abusinessprocessandflowwerecreatedtomanagethehugeinflowofprojects.

5.10 Different Types of Marketing OutsourcingTherearethreedifferentcoretypesofmarketingoutsourcingcompanies.Theyareclassifiedaccordingtothewayin which they operate:Project basedProject 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 basedCustomer 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 thatideascanclashandthecustomermaynotbefullysatisfiedwiththeendeavoursofthevendor.Responsibilitiesare tremendously huge and hence they need to be taken care of in a very professional manner.

Project and customer basedProject 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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5.11 Ten Precautions while OutsourcingPrecautions 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 tochoosetherightserviceprovider.Theoutsourcershouldbehonestandefficientwithgoodcommunicationskills.Thisisnotabiganddifficulttaskandallonehastodoisasktherightquestions.

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 •informationonthecompanyastothestrengthofthecompanyandtheirfinancialsituation.Find out about the quality of the services provided by them, for example, whether they have an ISO and CMM •certifications.Customerreferenceandrecommendationarethebestwaytofigureoutacompany’sservices.Beforeyoufinalisetheoutsourcingcompanyitispertinentforyoutotakeintoconsiderationallthehiddencosts•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,accesscontrols,dataencryption,andmanymore)andhumanresourcerelatedlikepre-recruitmentprecautions 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 •referralsofcustomerforensuringthatthecompanyishonestinfinancialdealings.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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SummaryTheoutsidefirmsthatareprovidingtheoutsourcingservicesarethird-partyproviders,orastheyaremore•commonly called, service providers.Organisationsstillhireserviceproviderstohandledistinctbusinessprocesses,suchasbenefitsmanagement.•Outsourcing success depends on three factors: executive-level support in the client organisation for the outsourcing •mission;amplecommunicationtoaffectedemployees;andtheclient’sabilitytomanageitsserviceproviders.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.•Theinternetalongwithworkflowtechnologyhasstreamlinedtheprocessing,transferanddeliveryofdata.•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.BusinessProcessOutsourcing(BPO)referstodefinable,repeatablebusinessprocessesthatinvolvescaleand•volume.The company should outsource keeping in mind costs, geographical locations, cheap labor, and high quality •service and price competitiveness.Knowledgeprocesscanbedefinedashighaddedvalueprocesseschainwheretheachievementofobjectivesis•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.

ReferencesBurkholder, C. N., 2006. • Outsourcing:TheDefinitiveView,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> [Accessed 23 January 2013].Outsourcing Marketing Tasks for Your Business• [Video online] Available at: <http://www.youtube.com/watch?v=G3WFvnz8khU>[Accessed23January2013].

Recommended ReadingBrown, 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. • TheDefinitiveGuidetoOutsourcingtothePhilippines,AmazonDigitalServices,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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Self AssessmentOutsourcing is a technology- driven, ___________ service business.1.

customer-centrica. processingb. product-centricc. process-centricd.

The Business Process Outsourcing deals involve _________ contracts that can run into hundreds of millions 2. of dollars.

multi-yeara. single-yearb. priorityc. goodd.

_________________ outsourcing is the higher end of the BPO spectrum, involving advanced analytical skills, 3. domain knowledge, expertise and judgment.

Information Technologya. Research and Analysisb. Knowledge Processc. HRd.

Outsourcingopensthedoortoa______________ofhumanresourceswiththequalificationsandskillsetsto4. harness this technology effectively.

customer relationshipsa. technologyb. global talent poolc. process maturityd.

Customerreferenceand_____________arethebestwaytofigureoutacompany’sservices.5. trusta. satisfactionb. recommendationc. feedbackd.

Which of the following statements is true?6. BusinessProcessOutsourcing(BPO)referstodefinable,repeatablebusinessprocessesthatinvolvescalea. and volume.Offshore outsourcing is the obtaining of services from someone outside a company but within the same b. country.Nearshoring is known as domestic outsourcing.c. Customer based outsourcing companies are small scale, working on independent needs of larger d. companies.

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____________ is one of the forms of outsourcing, where an organisation outsourcers its business processes to 7. an outsourcing partner who provides cheaper services.

Offshoringa. KPOb. BPOc. Nearshoringd.

Match the following8.

Frontofficeoutsourcing1. Pricing and Service Level Agreement(SLA) A. terms

Payroll2. Providing technical support to the B. customers

Customer- based marketing outsourcing3. Function of outsourcing modelC.

Contract development4. Adds a lot of value to the customerD.

1-B, 2-D, 3-A, 4-Ca. 1-B, 2-C, 3-D, 4-Ab. 1-D, 2-A, 3-B, 4-Cc. 1-A, 2-D, 3-C, 4-Bd.

_______________________ is the contractingof a specificbusiness task, suchaspayroll, to a third-party9. service provider.

Information technology outsourcinga. Offshoringb. Business process outsourcingc. Knowledge process outsourcingd.

Business process outsourcing encompasses which of the following?10. Information technology outsourcinga. Finance and accounting outsourcingb. Legal process outsourcingc. Overall outsourcingd.

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Chapter VI

Challenges in the BPO Industry

Aim

The aim of this chapter is to:

explicate importance of challenges in the BPO industry•

explain the challenging factors of BPO•

elucidate the importance of selecting the right service provider•

Objectives

The objectives of this chapter are to:

examine what attrition is•

explicate the attrition rates•

describe the effects of attrition•

Learning outcome

At the end of this chapter, you will be able to:

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 industryThe major challenges to the BPO companies in present scenario are as follows:No clear strategyThere are numerous good reasons to outsource, but the worst is not to have a reason. Some companies suffer with the “ustoo”complex.Thisariseswhenacompetitorissuccessfullyoutsourcing,soitmustbegoodforyourcompanytoo. BPO should create added value for the company and shareholders by releasing resources from spending timeonaccountspayable,invoicingandgeneralledgerprocessingtofocusonstrategicanalysis,financemissiondevelopment and policy setting and approval. BPO can also add value by integrating different functions within yourorganisationthatotherwisecouldnotbecost-justified,and,atthesametime,providethenecessaryresourcesto 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 providerWhen 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 negotiationService 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 relationshipOn 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-downA 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 consumersloseconfidenceinthegrowthoftheeconomyandspendless.Thisleadstoadecreaseddemandforgoodsand 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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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 cripplingloandefaults.ForeclosuresspreadlikewildfireputtingtheUSeconomyonshakyground.This,coupledwith 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.

ThefearofarecessionloomsovertheUnitedStates.Andastheclichégoes,whenevertheUSsneezes,theworldcatches 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.

ThecurrenteconomicmeltdownintheUnitedStatesandotherdevelopedcountriesislikelytobenefittheIndianBPO industry as it would compel more companies in these markets to look at outsourcing as a way to cut costs and enhanceefficiencies.

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 runningahistoricallyhightradedeficit(itimportsmorethanwhatitexports).Itissimple-biggerthetradedeficitfaster 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(whentheUSimports,exportingcountriesearnforeignexchange),financialspeculationwasslowlygivingway 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 asprofitabilitygoes,theimpact 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;itcouldspuramovetowardsgreaterinnovationandefficiency.

This time is the major sustainability test or BPO sector. Indian BPO sector will continue to boom in the adverse conditionsalso.ItwillhavethesignificantgrowthincomingyearsandwillbringlargerevenuesforIndianeconomy.It will polish the shine that India is having in BPO sector.

AttritionThe 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 intheBPOindustryinIndiaiscurrentlynearly50%.Attritioninindividualfirmsvariesfrom15%inthelargerfirmstoupto40%inthesmallerones.Analystsbelievedthatifthisleftunchecked,therewouldbeashortageofprofessionals.

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•Failurebythecompaniestoproject‘careers’insteadof‘jobs’•Poor perception by job seekers•

6.2 AttritionAttrition in the BPO industry is one of the biggest issues which the growing ITES industry in India is facing. The effectsofattritionarewidevaryingandimpactsthefirmsintermsoflosses(duetotrainingandadministrationcost, high recruitment cost), incompetent processes, inability to offer services for highly technical process Attrition thoughanuisancealsohassomeassociatedbenefitsalongwithsuchaslowcostofoperation,knowledgesharingamongstthefirmsbenefitingtheoverallindustryinincreasingitscompetencies.

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 oftheemployeesintheBPOindustryandidentifyinggapsintheirexpectationswhichneedstobefilledup.TheWin-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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Variousmeasureshavebeenidentifiedwithineachlevelofstrategytohelpinmanagingattritioncreatingawin-winsituation for the industry as well as its stakeholders.

6.2.1 About the IndustryBusiness Process Outsourcing (BPO) is the delegation of one or more IT-intensive business processes to an external providerthatinturnownsadministersandmanagestheselectedprocessbasedondefinedandmeasurableperformancecriteria. 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 afewyearsagotoabout500in2004.ThesizeoftheIndianBPOmarketislikelytobearound$9-12billionby2006 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, theBPOindustryinIndiaisbleedingwithheavyattrition.Accordingtoseveralrecruitmentfirmsinthecountry,attrition in the ITES (IT enabled services)-BPO industry is close to 35-40 %. The worse news is that, this is only thereportedfiguresandtheactualfiguresaremuchhigherandcanbeashighas80%annually.Nasscominareportsaid 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.

Attritioncannotbeblindlyclassifiedwithanegativeconnotation.Ahealthyattritionrateinanyindustryisnecessaryfornewideasandinnovationtoflowinaswellastofacilitatetheoverallgrowthoftheindustryintermsofknowledgesharing. But after a particular level the same boon becomes a bane. Recruiters explain that the high attrition rates significantlyincreasetheinvestmentsthataremadeontheemployees.Theproblemoflosingfundsinemployeeacquisition is more prominent in the high-end BPO segment. Companies invest a lot of time and money in training acandidateforthefirstfourmonths.Buttheseinvestmentsdonotalwaysgetconvertedintoactualprofits.Incaseof 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 fornearly thefirst2-3months.Henceanemployee leaving theorganisationwithin thefirst6months isabadinvestment 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 perspectiveforattritionwhichisspecifictotheBPOindustryinIndia.IndiaatthemomentisworkingonlowendBusiness 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, SouthAfrica,Ireland;Indiaistheonlycountrywherewehaveabalancebetweenthecostinvolvedandthequalityprovided till now.

For Indian companies to remain successful in future they would have to keep the cost low. Since the tasks performed byanagentareprettystandardanddoesnotrequireaddedskills,thereisnobenefitinretainingahighlyexperiencedemployee.Atthefloorleveloperation,anon-experiencedcandidatecouldworkwiththesameefficiencyofa2-3year 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 CausesAttrition in the BPO industry is twofold. One part of the attrition is where the employee leaves the industry entirely. Theothersectionofattritioniswheretheemployeejoinsanotherfirmintheindustry.Boththesectionshaveseparatereasonswhichneedtobeidentified.Theprimaryreasonforpeopleleavingtheindustryisduetothecausethattheindustryisviewedasagapfilleroccupation.Thereseemstobeaflawinthewaytheindustryisstructured.Theindustry 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,thechiefcauseistheunavailabilityofresourcesinthejobmarketcausingagreatdemandcomparedtothesupplyavailable.PresentlythereisnocertifiedinstituteprovidingBPOspecifictrainingandeducation.

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 processessuchasworkforceplanningbeingimplementedbythefirms.UsuallynewprojectsintheBPOindustry,requires a transition stage to be implemented within a short time. The lack of pre- planned recruitment leaves the firmswithnooptionbuttofulfiltheirimmediaterequirementbypoachingresourcesworkingonsimilarprojectsinotherfirms.

6.2.3 Analysing Causes of Attrition using a Multilevel ApproachAttrition in the BPO industry needs to be tackled using a multi-level approach.

Maslow’s hierarchy of needsItisamultilevelmodelwhichprimarilyidentifiestheneedswhicharelikelytoactasfactorsofmotivationforanyhuman 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 fulfilledpresently.Duringthisprocesstheframeworkwouldalsobeusedtoidentifygapswhichwhenhandledappropriately 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 needsThese are biological needs. They are the strongest needs because if a person were deprived of all needs, the physiologicaloneswouldcomefirstintheperson’ssearchforsatisfaction.ForanypersonintheBPOindustry,thisbasicneedissatisfiedbythecompensationprovided.Hencehelooksforwardtoasufficientcompensationstructurewhich would take care of all of his basic physiological needs. This needs to be continuously updated with time such thatitfulfilsallthephysiologicalneedofthepersonandhisfamilyateverystageofhislife.PresentlytheBPOindustry 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 needsWhenallphysiologicalneedsaresatisfiedandareno longercontrolling thoughtsandbehaviors, theneeds forsecurity 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 belongingThe 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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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.TheBPOcompaniestrytocompensateforthisbycreatingafun-filledworkingenvironmentandmuchstressis laid down on developing friends and relationships inside the company. But there is a huge gap in expectation and fulfilmentwhichneedstobesatisfied.

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 esteemAsperMaslow,afterthefirstthreeclassesofneedsaresatisfied,theneedforesteembecomesdominant.Theseinvolve needs for both self-esteem and for the esteem a person gets from others. Humans have a need for a stable, firmlybased,highlevelofself-respect,andrespectfromothers.Whentheseneedsaresatisfied,thepersonfeelsself-confidentandvaluable.Whentheseneedsareleftunfulfilled,thepersonfeelsinferior,weak,andhelplessandworthless.BPO industry unfortunately has been regarded by the Indian society as a low value industry with low end workandwhichdoesnotneedhigheducationalqualification.Henceapersonworkinginthisindustryisviewedasa person of less ability compared to others working in any other industry.

ThisattitudehasdevelopedbecauseofthemassrecruitmentundertakenbyBPOfirmsduringtheinitialdays,wherenot much focus was laid on selecting highly capable person. This diminution in esteem sometimes leads to reasons foronetoleavetheindustry.Theindustrypresentlyrequiresanimagemakeover.Someofthepresentfirmsarefocusing 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.

Peopleworkinginthisindustryhaveanunsatisfiedesteemneedbecauseofthegeneralperceptionabouttheindustry.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-actualisationWhenalloftheforegoingneedsaresatisfied,thentheneedforself-actualisationgetsactivated.Maslowdescribesself-actualisationasaperson’sneedtobeanddowhatthepersonwas“borntodo”.Theseneedsmakethemselvesfeltinsignsofrestlessness.Thepersonfeelsonedge,tense,lackingsomething,inshort,restless.TheBPOfirmsnowadays are trying to provide career growth path and higher educational opportunities for employees as a measure ofretainingthem.Thesestepsarestridesinfulfillingthediscontentedselfactualisationneedsoftheemployees.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 RecommendationsOwning 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 employerTo 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 employeeEnrichedjobprofile•Better career path•Challenging work environment•Future prospects of the job•

Inanutshell,ajobthatsatisfieshisoverallneedsasdiscussedearlier.

6.2.5 The Win-Win ModelThe 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 planOneoftheobjectivesatthislevelshouldbeonretentionforaspecifiedperiodoftimethatisthebreakevenperiodso 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.•

80-20Rule:Thefirmsconcentrateon20%oftheroles/employeeswhocontributeto80%oftheproductivity.Theseidentifiedemployees/rolesneedtoberetainedbyspecialattentionfromthemanagement’sside.

Short term contingency planThis plan will focus on the work environment that enhances employee motivation for the job. It includes work conduciveandfunfilledenvironment,informalworkculturesuitingtotheneedsoftheyoungemployees.Thisis 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•‘Workingfromhome’whenrequiredforashortterm•Addedbenefitslikesponsoredvacations•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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Long term mitigation planThe long term mitigation plans are steps taken by the management to minimise the impact of attrition such that the firmdoesnotfacelossesonthelongtermbasis.Definingjobroleswouldhelpinmitigatingtheeffectsofattrition.Clear documentation of the process and the jobs performed so that the process is not dependent upon an employee. Anassessmentandcertificationcanalsobehelpfulincreatinganemployabletalentpoolwithbenchmarked-requisiteskill for frontline management.

Long term contingency planThe 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.

Environment

Employees

Short term mitigation

planShort term

contingency plan

Long term mitigation

planLong 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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SummaryWhen 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.Arecessionnormallytakesplacewhenconsumersloseconfidenceinthegrowthoftheeconomyandspend•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.•BPOwillhavethesignificantgrowthincomingyearsandwillbringlargerevenuesforIndianeconomy.•Attritioninindividualfirmsvariesfrom15%inthelargerfirmstoupto40%inthesmallerones.•Attrition usually occurs on two fronts- people leaving the industry and people shifting jobs inside the •industry.Accordingtoseveralrecruitmentfirmsinthecountry,attritionintheITES(ITenabledservices)-BPOindustry•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 •andwhichdoesnotneedhigheducationalqualification.The attrition in the BPO is consistent with what has been witnessed in any industry during its growth phase.•Thefirmsconcentrateon20%oftheroles/employeeswhocontributeto80%oftheproductivity.•The long term mitigation plans are steps taken by the management to minimise the impact of attrition such that •thefirmdoesnotfacelossesonthelongtermbasis.

ReferencesSople, 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> [Accessed 22 January 2013].15 tips to improve First Call Resolution in the Call Centre,• [Video online] Available at: <http://www.youtube.com/watch?v=zPBmf3d5tHc>[Accessed22January2013].

Recommended ReadingAnandkumar, 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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Self AssessmentThe __________ model encloses the employee by 4 levels of strategies thus reducing the attrition rate as well 1. as minimising the impact whenever it occurs.

Maslow’sa. Win- Winb. BPO modec. William’sd.

____________ agreements (SLAs) lie at the core of the BPO contract.2. Service levela. Customer levelb. Service providerc. Finance partnerd.

The __________ in the BPO is consistent with what has been witnessed in any industry during its growth 3. phase.

dissatisfactiona. low costb. contract negotiationc. attritiond.

Oneoftheobjectivesattheshorttermmitigationplanlevelshouldbeonretentionforaspecifiedperiodoftime4. that is the ___________ so as to recover the cost incurred on the employee.

break perioda. breakeven periodb. bond timec. tenure bondd.

A recession is a decline in a country’s _________________ growth for two or more consecutive quarters of a 5. year.

populationa. servicesb. customer satisfactionc. gross domestic product (GDP)d.

Which of the following statements is false?6. Attrition usually occurs on two fronts- people leaving the industry and people shifting jobs inside the a. industry.Physiological needs are the strongest needs.b. PeopleworkingintheBPOindustryhaveasatisfiedesteemneedbecauseofthegeneralperceptionaboutc. the industry.A common database should be maintained by all the players of the industry to ensure that they are not d. cannibalising each other resources.

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The rate of attrition in the BPO industry in India is currently nearly ____.7. 55%a. 45%b. 20%c. 50%d.

Match the following8.

Evaluating a BPO service provider1. Leads to lay-offs and a sharp rise in A. unemployment

Identify the service deliverables and 2. expectations of your service provider The ability to deliver improvementB.

Recession3. Biological needsC.

Physiological needs4. Service level agreementsD.

1-B, 2-D, 3-C, 4-Aa. 1-B, 2-D, 3-A, 4-Cb. 1-D, 2-A, 3-C, 4-Bc. 1-D, 2-B, 3-A, 4-Cd.

Whenallphysiologicalneedsaresatisfiedandarenolongercontrollingthoughtsandbehaviors,theneedsfor9. _______ becomes active.

securitya. affectionb. physiologicalc. self-actualisationd.

The ___________ framework helps in giving a better perception about the motivation of the employees in the 10. BPO industry and identifying gaps in their expectations.

Employeea. Win-Winb. Maslow’sc. Williamd.

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Chapter VII

Scope and Need of BPO

Aim

The aim of this chapter is to:

explicate importance of the BPO sector•

explain the areas of concern of BPO•

elucidate the need of the BPO industry•

Objectives

The objectives of this chapter are to:

examine the scope of the BPO industry•

explain the current and future scenarios of BPO•

describe the key growth drivers•

Learning outcome

At the end of this chapter, you will be able to:

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 IndustryThe 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 topaythembythehour,andtheydon’thavetopayoutsourcingcontractorsbenefits.Ontheotherhand,agenciesfoundthattherewerepeoplethatwantedtoworkonacontractbasis,andtheydon’tmindnothavingbenefitsorvacationtimeiftheycouldgainotherthingssuchasflexibility,andthefreedomtoworkforasmanycompaniesasthey 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 hadtolearnhowtofunctionwithoutfull-timestaffandassuch,theyfiguredoutthathiringoutsourcingcontractorssaves 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 RelationsCustomersarethelifebloodofanybusiness.A“do-it-all”handykitchentoolwouldbeasuselessasafreezerinAlaska 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,whichmeansthatyourshopcan“stayopen”evenasyousleepandyoucanevenreach(andbereachedby) 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 WorthWhy 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 BPOBPO Role in India’s Economic Growth has been tremendous, especially in the last few years, when the demand for outsourcingworktoIndiahasbeensignificantamongwesterncompanies.

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 Indiaarefocusedonthedomesticsegmentsandoffshoring.Thebenefittothelocaleconomyissubjecttojudiciousexploitation 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’sRoleinIndia’seconomicgrowthissettowardsmakingasignificantimpactinthetimetocomeaswell.Thedriving forces that account for the increase in foreign investments through the BPOs in India are:

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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 industryassociation,pointsoutthatthecurrentfiscalcrisisintheUnitedStateswilladverselyaffecttheIndianBPO/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:Thisglobaleconomicrecessionwillforcediversefinancialorganisationstooutsourcemoreworktocutcosts•toalargeextent.ThiswilldefinitelyboosttheBusinessProcessOutsourcing(BPO)fromthefinancialservicessectorsabroad,withourestimatedworkinflowincreasedto40-45timesthecurrentmarketsizeoverthenextfiveyears.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 forIndia,beingthehubofglobaloutsourcingforfinancialservices,theopportunityforglobalBPOwillmounttoUSD145to165billionforIndiabasedservices,withinthenextfiveyears.TheoutsourcingofBPOprojectsfrom the insurance sector will have a steady rise, about 12-15 times simultaneously, according to the report.Bankingsectorsandotherfinancialfirmsareundergoingsignificantcost-reductionpressureandaretherefore•planning to move jobs offshore.

BPOroleinIndia’seconomicgrowthisdefinitelyatthegrowthstagebutisallsetforamajorcontributiontotheIndian 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’sfinancialinstability:Thebuyerwillhavetosearchforanewvendorifthevendorbecomesfinancially•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 ScenarioLetuscomparetheexportfiguresofITES-BPOfortheyear2002-03and2005-06:

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?TheeducationalqualificationrequiredtogetajobinaBPOisnotsohigh.AnygraduatecanjoinaBPO.Otherreasons why people join BPOs are:

Theydidn’tgetabetterjobandtheydidn’tfindanythingbettertodo•Education level doesn’t matter so much•Good work environment•Manybenefits•Timeflexibility•Attractive life style•Transportation facility•

7.3.2 Why People Leave BPOs?Inspiteoftransportationfacility,money,benefits,lifestyleassociatedwiththeBPOs,attritionrateinBPOsishigh.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 ScenarioIndia 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 India1. Ahmedabad2. Nagpur3. Pune4. Chennai5. Hyderabad6. Kochi7. Kolkata8. Manglore9. Thiruvananthapuram10. 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 AnalysisThe following are some of the conclusions by Nasscom regarding the BPO industry in India:7.5.1 The Indian ITES-BPO ScenarioThe 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.

315

FY 05 FY 06 FY 07

415

553

Fig. 7.1 Employees ITES-BPO(Source: http://www.scribd.com/doc/6925928/Indian-ITESBPO-IndustryNASSCOM-Analysis-Aug-07)

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FY 05 FY 06 FY 07

ITES-BPO Export

10

8

6

4

2

0

4.66.3

8.4

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.•Overthepastdecade,theIndianBPOsegmenthaswitnessedsignificanttransformation.Startingwithbasic•dataentrytasks,theindustrygraduatedtoahighproportionofvoice-basedservicesandarangeofback-officeprocessing 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 inFY2005-06,illustratingasignificantincreaseindemand.Whilethehighgrowthratemaybeattributedtoasmall-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 IndiaWithsignificantbandwidthcapacity lyingunutilisedand thesteadyadvancement in technologymakingaccessfaster and less expensive than before, it is likely that the share of telecommunications in the cost structure of an IT-BPOfirmmayfurtherdecline.Firmsarealsomanagingtolowertheirfacilitiescostsbyexpandingintoothertier-II locations.

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Finally,thereisscopeforfurtherleveragingoperationalleverstodriveefficienciesintheorganisation.Adetailedindustry 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 operationalexcellenceinIndianIT-BPOfirms.

This is also being evidenced in the performance of some of the best-in-class players. Contrary to concerns of rising wageinflationerodingthesustainabilityofIndiacost-advantage,especiallyoverthepasttwoyears,leadingplayershavemanagedtogrowatanaboveaverageratewhilesustainingtheirhighlevelsofprofitability.

7.6 Key Growth Drivers of Indian ITES-BPO ExportsThe key growth drivers of Indian ITES-BPO exports are:Abundant talentIndiayoungdemographicprofileisaninherentadvantagecomplementedbyanacademicinfrastructurethatgeneratesa large pool of English speaking talent. Talent suitability concerns are being addressed through a combination of government,academiaandindustryledinitiatives.TheseinitiativesincludenationalrolloutofskillcertificationthroughNAC(NasscomAssessmentofCompetence),settingupfinishingschoolsinassociationMHRDtosupplementgraduateeducationwithtraininginspecifictechnologyareasandsoftskillsandwitheducationagencieslikeUGCand AICTE to facilitate industry inputs on curriculum and teaching and develop faculty development programme.

Sustained cost competitivenessIndiahasastrongtrackrecordofdeliveringasignificantcostadvantage,withclientsregularlyreportingsavingsof 25-50percent over the original cost base. The ability to achieve such high levels of cost advantage by sourcing servicesfromIndiaisdrivenprimarilybytheabilitytoaccesshighlyskilledtalentatsignificantlylowerwagecosts 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 qualityDemonstrated 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 environmentStakeholders of Indian BPO recognise full proof security as an indispensable element of global service delivery. IndividualfirmleveleffortsarecomplementedbyacomprehensivepolicyframeworkestablishedbyIndianauthorities,whichhasbuiltastrongfoundationforan‘info-secure’environmentinthecountry.Theseincludestrengtheningtheregulatory 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 infrastructureRapid growth in key business infrastructure has ensured unhindered growth and expansion of this sector. The BPO sectorhasbeenakeybeneficiarywiththecostofinternationalconnectivitydecliningrapidlyandservicelevelimprovingsignificantly.Thegrowthistakingplacenotonlyinexistingurbancentresbutincreasinglyinsatellitetownsandsmallercities.Criticalbusinessinfrastructuresuchastelecomandcommercialrealestateiswellinplace;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 environmentThe 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,recognisingitsimportancenotonlyasasourceoffinancialcapitalbutalsoasafacilitatorofknowledgeandtechnologytransfer.TheIndianITES-BPOsectorhasbenefitedfromthisapproach,withparticipatingfirmsenjoyingminimalregulatoryandpolicyrestrictionsalongwithabroadrangeoffiscalandproceduralincentives.

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7.7 BPO: Three Rules to Live ByThe 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 motleysetofhorizontalandverticalindustry-specificprocessesorfunctions,theBPOindustryisgrowingalongallaxes (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 worldsThedevelopmentofspecifictechnologieslikedocumentmanagement,informationretrievalssystems,andsuchhad speeded up work in many document-intensive processes. But the advent of IT -based solutions that automated specificpartsoftheprocesslentfurtherimprovementinefficiency.Forexample,solutionsdedicatedtoprocessinginsuranceclaimsorprocessingmortgageapplications,automatedtheprocesstodeliverbetterefficiencyandrequiredlesser 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 couldbeenterpriseresourceplanning(ERP)orfinancialmanagementandaccountingsoftware,payments,oralbilling 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 andinfrastructureset-up,networking,disasterrecovery);implementation(coverssystemdesigntodeployment);processmanagement(processstandardisation,bestpractices,analytics);andmaintenance.

SomeexamplesincludeTCS’platformBPOforprocurementthathandlesthesource-to-paycycle;IBM’sLenderBusinessProcessServicesformortgageprocessing;andCaliberPoint’s(Hexaware)Republicwhichisamulti-tenant HR services delivery solution.

Rule 2: Process improvement is reaching its limit. Tie in process to business outcomes and performanceGains 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. CheckwhetheryourBPOvendorisabletodeliveronthisfront.Inasurveyof151seniorfinanceexecutives,donebyCFOResearchServicesandGenpact,therespondentsshowedthattheytakeabroadviewofthebenefitsofprocess improvement throughout their organisations. Many of them link process improvement to overall company performance-notjusttoprocessefficiency.

Theyalsoseekawiderangeofsecondarybenefitsthatcanimprovebothefficiencyandeffectiveness,includingstandardising 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 andonimprovingtheefficiencyofprocessesthemselves.Amajorityofrespondents(58%)saythatefficiencygainsin 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 analyticsAnalytics 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 marketingandengineeringhaveyieldedresultsthatgobeyondimprovingefficiencytodeliveringbetteroutcomesand 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 efficiencyandnoteffectiveness.Processanalyticshavetobemeasuredintermsofperformanceparametersandthereafter 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, analyticsoftendoesnotcomeaspartoftheBPOdealunlessbusinessoutcomesarespecifiedaspartofthedealdeliverables.ArecentreportonanalyticsoffshoringbyHfSResearch,titled‘WhereOffshoreAnalyticsisheadingin2011’,states:“Analyticsstraddlesacrossdatamanagement,MISreporting,predictivemodeldevelopment,andbusiness 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 forprocessoptimisation,itmakesbusinesssense.However,whenbusinessdecisions(suchasdefiningmarketingstrategy 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 IndustryFrom 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.OffshoreBPOispredicted togrowatasignificant rateperyear.BPOwithinAsia-Pacificmarket isexpected 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 profitsbyimprovingtheirbusinessoperations.BusinessProcessOutsourcingisatoolthatallowsthecompaniestosurvive 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 IndiaToday 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. SubsequentlyIndia’seconomyhasgotahikesincetheestablishmentofBPOfirms.

7.8.2 Future of BPO in ChinaAccording 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 firmsinChinaowingtohighproductivityandcost-effectivehumanresources.

7.8.3 Future of BPO in RussiaIn the present scenario many companies are banking upon Russia’s outsourcers wish to have a large number ofBPOfirms.RussianoutsourcingisknownforcosteffectivequalityserviceswhichgivestheclientsallgoodreasonstohireRussianBPOfirms.Russiaisemergingasaskilledbackofficeadministrationtotheworld’sleadingcorporations.

7.8.4 Future of BPO in PhilippinesBusiness 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 by2010.PhilippinesBPOsaredoinggreatlyinlegalandmedicaltranscription,finance,logisticsandaccounting.

7.9 Area of Concern in BPOThe 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 •joinBPOstoearnmoneytofinancetheirhighereducation,someasawayofimprovingtheirlifestyles.Someothersjoinbecausetheycouldnotfindanythingelse.Inshort,veryfewpeopletakeupemploymentinBPOsfor 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. TherateofattritionintheBPOindustryinIndiaiscurrentlynearly50%.Attritioninindividualfirmsvariesfrom15%inthelargerfirmstoupto40%inthesmallerones.Analystsbelievedthatifthisisleftunchecked,there would be a shortage of professionals.Control:ByusingBPOservices,manyfirmsloosingmanagerialcontrolbecauseitisnoteasytomanageoutside•serviceprovidersthanmanagingone’sownstaffworkingpossiblyinthesameedifice.Security:ThemaindisadvantageofBPOoroutsourcingisitssecurityandsecrecy.Incase,inafirmthatoperates•inserviceslikeMTandbankaccounts,thenthefirmmustbeverycarefulinselectingwhichservicesitwantsto outsource and to which provider.

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SummaryThe 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%.Outsourcinginvolvesmanyrisksincludingdatasecurity,vendor’sfinancialinstability,lossofexpertiseand•many more.Starting with basic data entry tasks, the industry graduated to a high proportion of voice-based services and a •rangeofback-officeprocessingactivities.Firms are also managing to lower their facilities costs by expanding into other tier-II locations.•Indiayoungdemographicprofileisaninherentadvantagecomplementedbyanacademicinfrastructurethat•generates a large pool of English speaking talent.Indiahasastrongtrackrecordofdeliveringasignificantcostadvantage,withclientsregularlyreportingsavings•of 25-50percent over the original cost base.Stakeholders of Indian BPO recognise full proof security as an indispensable element of global service •delivery.TheBPOsectorhasbeenakeybeneficiarywiththecostofinternationalconnectivitydecliningrapidlyand•servicelevelimprovingsignificantly.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 •highprofitsbyimprovingtheirbusinessoperations.

ReferencesNakkiran, S. & Franklin, D. J., 2004. • Business Process Outsourcing, (BPO): Concept, Current Trends, Management, Future Challenges, Deep and Deep PublicationsBagad, S. V., 2009. • Management Information Systems, Technical PublicationsIndian 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 ReadingCain, S., 2012. • How To Do A BPO-Your Step-By-Step Guide, Kindle EditionBoatright, 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 AssessmentBPOs are aiming at contributing towards bringing in more earnings to the country and ____ creation.1.

businessa. customerb. IPc. economyd.

Talent suitability concerns are being addressed through a combination of government, academia and 2. ________________.

industrya. project relatedb. customer initiativesc. industry led initiativesd.

___________ is about tapping into the embedded intelligence of a system.3. Analyticsa. Softwareb. Programming languagesc. BPOd.

Which of the following is not among the driving forces that account for the increase in foreign investments 4. through the BPOs in India?

Quality productsa. Abundant talentb. English speaking manpowerc. Emphasis on quality servicesd.

_____________ on the part of some people leads them to take up jobs in BPOs.5. Health conditiona. Moneyb. Financial desperationc. Educationalqualificationd.

Which of the following statements is true?6. Thedevelopmentofspecifictechnologieslikedocumentmanagement,informationretrievalssystems,anda. such had speeded up work in many document-intensive processes.NasscompointsoutthatthecurrentfiscalcrisisintheUnitedStateswillnotadverselyaffecttheIndianb. BPO/IT sectors.Thebuyerwillhavetosearchforanewvendorifthevendorbecomesfinanciallystable.c. Processmeasurementsareorientedtowardsefficiencyandeffectivenessboth.d.

_________ means a gradual reduction in the number of people working in a company due to retirement, 7. resignation or death.

Controla. Attritionb. Securityc. High expectationsd.

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Match the following8.

Data Security1. Process managementA.

An indispensable element of 2. global service delivery Outsourcing riskB.

A stage of platform BPO3. RussiaC.

Skilledbackoffice4. administration Full proof securityD.

1-B, 2-A, 3-D, 4-Ca. 1-C, 2-D, 3-B, 4-Ab. 1-C, 2-A, 3-D, 4-Bc. 1-B, 2-D, 3-A, 4-Cd.

_________ BPO usually involves the development of IP in the form of a solution that delivers the process.9. Domestica. Condition basedb. Platform-basedc. ITes-ITd.

The wide range of services provided by the BPO industry comprises which of the following areas?10. Customer satisfactiona. Human Resource Administrationb. Data entryc. Online researchingd.

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Chapter VIII

BPO and KPO

Aim

The aim of this chapter is to:

explicate importance of KPO•

explain what KPO is•

elucidate the difference between BPO and KPO•

Objectives

The objectives of this chapter are to:

examine the fuelling factors of KPO•

explain the need of KPO•

describethebenefitsofKPO•

Learning outcome

At the end of this chapter, you will be able to:

definethescopeandresearchofKPO•

understand the bottle necks of KPO•

identify why India is the destination of KPO•

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8.1 Difference between BPO and KPOThere 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 placesanemphasisonhighlevelprocessessuchaspatentfiling,investmentresearch,andlegalissues.Whenitcomes 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 amountofknowledgeinanyspecificareas.TheprimaryrequirementsforBPOworkersareahighcommandoftheEnglish language and simple computer skills.

Incontrast,KPOworkersareexpectedtospecialiseinspecificfields.SomeexamplesoffieldswhereKPOworkersareexpectedtohavespecialisedknowledgearefinancialanalysis.Theseprofessionalsareexpectedtobequalifiedas 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%. Inadditiontothis,theprofitsthatarecreatedbytheuseofKPOsaredoubletherevenuesthatareobtainedfromBPOs.

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 KPOThe 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, knowledgeprocesscanbedefinedashighaddedvalueprocesseschainwheretheachievementofobjectivesishighly 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 derivesitsstrengthfromthedepthofknowledge,experienceandjudgmentfactor;BPOincontrastismoreaboutsize,volumeandefficiency.

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 outsourcingtheirhigh-endknowledgeworkaswell.Costsavings,operationalefficiencies,availabilityofandaccessto 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 coreactivities,notonlycostareminimisedandefficienciesimprovedbutthetotalbusinessimprovesbecausethefocus shifts to the key growth areas of the business activity.

8.3 KPO: A Step Ahead of BPOFrom ‘Make’ to ‘Buy’:With theadventof specialisedandhigh-qualityKPOvendors in India, customerswillincreasinglygothe‘buy’routeratherthansettinguptheircaptiveoffshorecenters.Settingupacaptivetakesatleasta 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 stronginKPO,sincemostcompaniesdonotwanttobuildin-housecapabilitiesinsuchfieldsinIndiaduetothelack 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 ifissuesrelatedtolanguageproficiencyandculturalcontextarehandledproperly.Ifaddressedappropriately,thenon-English segment could become an excellent growth opportunity for Indian companies.

Customerswantfocusratherthanbreadthorsize:BuyersofoffshoringservicesareincreasinglylookingforthoseKPO 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 asthetypeofclientsserved.Typically,customerslookfortheskillratherthanforthesizeofavendorandpreferfocused 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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8.4 Demand Side Perspective of KPO: Well Beyond Cost ArbitrageThe global KPO industry is still in a nascent stage. However, it is growing at a rapid pace. The sectors that are expected to‘shine’withintheKPOindustryincludedatasearch,integrationandmanagementservices,financialservices,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 asRandDinVLSI,engineeringdesign,IT,financialriskmanagement,andmanymore.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 simplifiestheprocessandmakesitmoreflexible.Consistentqualityisthekeywordandprimarilydrivesthebuyingdecisions.Forexample,anerrormadeinacorporatefinancevaluationmodelcanhaveahugefinancialdownside,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 customersKPO 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. TherearemillionsofSMEs,whichcanbenefitfromKPO;however,theiraveragevolumesaremuchlowerthanafew 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 benefitfrombuyingKPOservicesfromspecialisedvendorsbybeingabletogainaccesstoverylargeresourcepoolsquickly 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 MarketingKPO 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 likelytoemergeincountrieswiththehighesteducationalstandards,providingalargenumberofhighlyqualifiedprofessionals (Engineers, MBAs, PhDs, CFAs, Lawyers, and many more.) such as India, China and Russia. India islikelytocaptureabout70%ofthemarketforKPO,butthechallengeswillbesignificant.

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.SettingupsuccessfulKPOcompanies,captivesandthird-partyvendors,isverydifficultandtherearesignificantbarrierstoenterhavebeenreflectedinthepastandthehugelistofunsuccessfulentriesclearlyreflectthis.

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People philosophy and developmentKPO 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.

RecruitingRecruitingtherightpeopleiscriticalandrequiressignificanthiring,buildingbrandequityattherightschoolsandin 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%.

TrainingOne 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 expertiseThe 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 researchAnalysts 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)oringeographicknowledge(forexampleunderstandingmid-sizedGermancompanies).

FocusThe‘JackinallTrades’approachisnotlikelytoworkinKPO.TheworkatKPOrequiresdomainexpertiseandthereforethecultureandcustomerrequirementofKPOsandBPOsvarysignificantly.Hence,itisimportantthatKPOs 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 differentiationKPO 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 brandingSellingKPOservicesintheWestwillrequireaWesternsalesforceandsignificantbrandingeffortsinthemedium-term. As of now, tapping the SME potential and selling into Continental Europe requires local support. Successful brandingwillbeanothernecessaryingredienttogenerateasufficient‘pull’inthemarket.

8.6 Why KPO?Ifwelookintoanyfinancialnewspaper,magazineoranyliteraturegivingknowledgeabouttheoutsourcingbusinessin 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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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 begotdonewithsimilarprecisionandqualityandatmuchlessercostsabroad.ThemajorKPObenefitswhichcanbe derived are described below.

8.7 Benefits of KPOStandardised 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.

OutsourcingofactivitiestoKPOcompaniescanprovidethefollowingbenefits:Valuable cost savings that can be utilised elsewhere•Trained professionals at work•Standardoperationalefficiency•Increaseinprofits•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 theclientandprovidesservicesthatarepredefinedintermsofqualityandstandardofwork.

WhileworkingwithaKPOfirm,theoutsourcingcompanycanexpecttogetthefollowing: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 KPOBelow 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.

ApartfromIndia,countriessuchasRussia,China,theCzechRepublic,Ireland,andIsraelarealsoexpectedtojointhe 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,theBPOindustryitselfwasexpectedtobeabout$20bnby2008,henceaverysignificantportionofthesectorinexcessof50%isnowprojectedtobeknowledgebased.Thisrepresentssignificantshiftofcallcentersector business to different model.

Evalueserve studyAccording 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 theseservices.Sayscountrygeneralmanager,KellyServices,AchalKhanna“Indiastillmaintainsthecompetitiveadvantage 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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Rocsearch, a UK-based research services company studyAnother 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 marketmayjustaboutreachasizeof$5billionby2010,mannedby100,000peopleinsteadofprojectionsofa$12billion 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 years100,000knowledgeworkerspointtoa$5billionmarket.Thissize,thoughbasedonaCAGRof32%,isstill60% 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 addedtothelabourpoolin2005asemployableinglobalfirmsandofthese,just2inevery100arelikelytooptforwork 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 thepast year or two, theoutsourcing industryhas been throwingup jobs forDoctors,Engineers,CAs,Architects,” says Jacob William of the Bangalore-based Outsource2India, which employs 500 people and offers servicesinthebig-buzz,big-bucksareaofknowledgeprocessoutsourcing.“Unlikethefirstwavewhichwasmoreabout entering data and answering phone calls, these jobs involve skill and expertise.”

Thehigh-endKPOopportunitiesareimmenseforIndianfirms.Forinstance,lookatsomeofthefigurespertainingto intellectual property research. DraftingandfilingofpatentapplicationsintheUSisquiteexpensive.Atypicalapplicationcostsabout$10,000to$15,000todraftandfilewiththeUnitedStatesPatentandTrademarkOffice.Costsavingsfromoffshoringevenaportion 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 whereasaround50patentscanbegotfiledbyoutsourcingthesaidactivityatacostoflessthan$10000.Also,ofcourse,thetalentismuchmoreaffordable.“LawfirmsintheUSchargeanaverageof$400-450perhour,andwedo the same work for $75 to $100 an hour” says Kamlani” who is an outsourcing provider in the same area. Quite predictably, lawbusinessfirms such asPatentMetrix,Cantor-Colburn andSchwegman,Lundberg, andWoessnerandKluth,havealreadyestablishedtheirofficesinIndia.ThereareafewotherswhoareassociatingwithIndian companies to encash the emerging opportunity.

8.10 Bottlenecks in Future GrowthA 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 mayjustaboutreachasizeof$5billionby2010,mannedby100,000peopleinsteadofprojectionsofa$12billionmarket 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.Thissize,thoughbasedonaCAGRof32%,isstill60%lessthanthe$12billionpotentialprojectedbybigKPOs, 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 firmsandofthese,just2inevery100arelikelytooptforworkinknowledgespace.

8.11 Why India to be preferred to other Countries?Duetoalargeknowledgepoolandasignificantcostarbitrage,fewcountrieslikeIndia,PhilippinesandChinaarefront 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 •countryhasculturalaffinitieswiththeU.S.andiswell-versedinlabourIn 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.neighbourCanadatothenorthhassolideducationalsystem,withaqualifiedlabourforceofmorethan•16 million.InIreland,relativelysmall;34,000graduatesannually,5,000ofthemtechnical.•Mexico provides U.S. companies with millions of Spanish-speaking people to staff call centres.•

Labour costsIn 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.InPhilippines,higherlabourcoststhanIndia;technicalsalariesrangefrom$5,000to$10,000annuallyand•backofficefrom$3,000to$8,000.InRussia,ITsalariesrangefrom$6,000to$10,000.Thecountryhasn’tyetdevelopedback-officecompetence.•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.InMexico,lowlabourcosts;companiescansaveupto50%byoutsourcingtoMexico.Costscouldbeoffset•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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Government PoliciesOutsourcing is so imbibed in the fabric in the country and the Indian government has a national minister •specificallyforIT.ThegovernmentfavoursITforeignownershipandimposesnoexporttaxes.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.InRussia,governmentiserraticand,fornow,stickingbyoldtaxlawsandstructuresthatdon’tbenefitbusiness.•But a treaty with the U.S. could change things down the road.China’sgovernmenthashamperedgrowthduetotradepoliciesandoverregulation;intellectualpropertyconcerns•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.

InfrastructureIn 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.•

ExpertiseInIndia,applicationdevelopment,maintenance,financialprocessing.ExpertsseeIndiabecomingahotbedfor•more critical analytical jobs.InPhilippines,accounting,finance,animation,humanresources.•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.•

CustomersFor India, Citigroup, GE Capital and American Express have a very large presence and have set up their own •centers hereFor 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 advantageIndia also gets advantage in terms of cost advantage and more and more companies are turning to India for offshoring KPOworkasqualityworkgetsdoneatcheaperrates.Forinstance,draftingandfilingofpatentapplicationsintheUSisveryexpensive.Atypicalapplicationcostsabout$10,000to$15,000todraftandfilewiththeUnitedStatesPatentandTrademarkOffice.Companiescansaveupto50percentofthecostbyoffshoringtheworktoIndia.

More foreign firms head for IndiaThe testimony to the fact that India is being chosen as preferred country becomes evident as many companies such asPatentMetrix,Cantor-ColburnandSchwegman,Lundberg,andWoessnerandKluthhavealreadysetupofficesin 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’sgoodnewsforIndianknowledgeprocessoutsourcing(KPO)firms.Indiaisthemostattractivedestinationfor 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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SummaryThe 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 •aspatentfiling,investmentresearch,andlegalissues.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).Costsavings,operationalefficiencies,availabilityofandaccesstoahighlyskilledandtalentedworkforceand•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 •BPOsvarysignificantly.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.•

ReferencesSingh, R., 2008. • Research in Management and Technology, Deep and Deep PublicationBansal, 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> [Accessed 22 January 2013].After BPOs, it’s KPOs now• [Video online] Available at: <http://www.youtube.com/watch?v=lbYWZdS4CsE> [Accessed 22 January 2013].

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Recommended ReadingGopal, R. & Manjrekar, P., 2008. • BPO/KPO Management, Excel BooksRoebuck, K., • BPO- Business Process Outsourcing: High-impact Strategies, Tebbo PublicationsKobayashi-Hillary, M., 2010. • Talking Outsourcing

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Self AssessmentKPOplaces an emphasis on_______ level processes such as patentfiling, investment research, and legal1. issues.

higha. lowb. servicec. priorityd.

Motorola, Intel, IBM, Cisco, Texas Instruments, Nokia and Philips have set up offshore design centres in 2. ___________.

Irelanda. Mexicob. Indiac. Chinad.

When work is outsourced to other countries, companies in the developed nations can save large amounts of 3. money on the cost of manufacture which is nearly ____.

50-60%a. 20-40%b. 30-70%c. 40-70%d.

_________ workers can expect to deal with international clients on a regular basis.4. KPOa. BPOb. LPOc. ALOd.

KPO business entities provide typical ____________ processes, advanced analytical skills and business expertise, 5. rather than just process expertise.

customer-baseda. high-level b. domain-basedc. low-leveld.

Which of the following statements is false?6. KPOworkersareexpectedtospecialiseinspecificfield.a. Companies can save up to 70 per cent of the cost by offshoring the work to India.b. Buyers of off shoring services save more at the high end of the value chain, as compared to the low end on c. a per-job basis.The differences in specialisation between BPO and KPO are primary connected to their domainsd.

Which sector holds immense potential for the SMEs in the long-term?7. BPOa. KPOb. ALOc. LPOd.

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Match the following8. Conventional BPO1. Knowledge expertiseA. KPO2. UK-based research services companyB. Rocsearch3. Process expertiseC. Mexico4. NAFTAD.

1-B, 2-D, 3-A, 4-Ca. 1-C, 2-D, 3-A, 4-Bb. 1-C, 2-A, 3-B, 4-Dc. 1-D, 2-A, 3-B, 4-Cd.

Billing rates for KPO are higher at ________ per hour compared to just $10-14 in the BPO business.9. $20-40a. $30-45b. $38-70c. $67-89d.

InMexico,lowlabourcosts;companiescansaveupto______byoutsourcingtoMexico.10. 50%a. 80%b. 75%c. 43%d.

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Case Study I

Call Centre Outsourcing

IntroductionThe 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 companyisbasedontheframeworkthatissummarisedinthefollowingfigure:

Company requirements

Type of service outsourced, specificqualities

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 fundamentalsThe 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 •largecompanythatoperatesonfinancialsector.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 serviceThe 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 Balsoprovidessomesupporting,back-officetypeservices.

Outbound salesOutbound 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 serviceInbound 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 ofoutboundandinboundcalls,itaffectsfinalsalesratesdirectly.Ifthevariouscontractpapersarenotsenttothecustomer 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 campaignsDaily 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 BCompany 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 activitiesCo-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 improvementCompany 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 BThis 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 yearsCompanyAhasneverhadthecapabilitytoproducetheservicethemselves;itscallcentreoperationsinFinlandhavealwaysbeensuppliedbyoutsidecompany.MostsignificantchangesincallcentreoutsourcingforCompanyA 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 CompanyAlimitstheapplicabilityofcompletelyoutcomebasedbilling.Forexample,itismuchmoredifficulttoevaluatetheoutcomeofinboundcustomerserviceworkorthebackofficetypesupportfunctions.

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Communication structure in Co-operationCommunication 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 performancedifficultforCompanyAanditimprovementisakeypriorityinthenearfuture.OngoingITeffortsarefocused 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 AorCompanyB.CompanyAtakesayearlyauditofCompanyBthatfocusesonbothfinancialandsecurityissuesas 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 AccountManagerwascommentedonbyintervieweesinbothcompanies:Ofcourse,theinformationisfilteredthrough the Key Account Manager.

Company AI 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 BThere is also non-systematic communication between individuals and from the supervisors and sales agents at CompanyB.Thecurrentcommunicationstructureissummarisedinthefollowingfigure.

Call center managers

SupervisorsKey Account Manager at Company B

Outsourcing Manager at Company A

Company AStakeholder A

Company AStakeholder B

Company AStakeholder C

Fig. 2 Proposed communication structure between Companies A and B(Source:http://epub.lib.aalto.fi/en/ethesis/pdf/12260/hse_ethesis_12260.pdf)

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.Managementwasidentifiedasoneofthedifferentiatingfactorsbetweensuccessfuloutsourcingventuresand failures communication structure.

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Co-operation from value Co-creation viewpointKeyenablersofvalueco-creationweredefinedbyPrahaladandRamaswamytobedialoguebetweenparties,accesstoinformation,sharingofrisksandbenefitsandtransparencyofinformation.

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 ASharingoftheriskandthebenefitsisakeyissueinthisco-operation.Initialstrategyfortheco-operationwasthatCompany 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 multipleelementsonthemonthlybillsthatdescribevarioustypesofsupportingofficework.

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-operationMost significant riskdue to thenatureof co-operation fromCompanyAperspective isofbusiness continuity.Given disruption in the service production at Company B, Company A would be without an important customer serviceprovider,whichwouldbeasignificantissue.OtherservicesprovidedbyCompanyB,outboundsalescallsand 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.

Onekeyriskinoutsourcingcontractsisinformationsecurity.Informationsecurityisalsosignificantisthisbusinesscase,sincethetypeofinformationprovidedtoCompanyBcontainsfinancialrecords.CompanyAstillhasstrictpoliciesinplacethatareenforcedinthisbusinesscase.InternalriskeffectsidentifiedbyLonsdaleandCoxoflosingcoreactivities,strategicflexibilityandinternalcoherencearenotsignificant.Thisismostlyduetothehistoryoftheoutsourcing contract: the service itself was never performed internally by Company A.

Evaluation of case Company B with vendor evaluation frameworkIn 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.ThentheperformanceofCompanyBincurrentsituationisanalysedthroughfivedifferentcapabilityareas.Thefivedifferentcapabilityareasconsistofsmallerareasthataresummarisedinthefigurebelow.

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•Behaviourmanagement/Humanresources•Sourcing,Revenue/Demandmanagement

•Organisationaldesign•Governance•Program/projectmanagement•Leadership

•BusinessManagement•Planningandcontractmanagement

•Processawareness•Re-engineeringcapabilites

•DomainExpertise•Technologyexploitation

Resources at BPO

Implementation and operations

Business sustainability

Expertise

Process capabilities

Fig. 3 Different capability areas of BPO vendor(Source:http://epub.lib.aalto.fi/en/ethesis/pdf/12260/hse_ethesis_12260.pdf)

Outsourcing strategy of Company AThe 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-operativewiththecurrentproviderstartedwiththepressureofdifficultsituationwiththepreviousprovider.Thebasis 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 toMcIvor’s(2008)foursourcingstrategiesforservicestheoptionsCompanyAhas;arelimitedtoinvestingtoperform 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.

ActualoutsourcingstrategyatCompanyAhasnotbeenstrictlydefined.Itcanbesaidasawholethattheoutsourcingmanagement 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 serviceconceptprovidedbyCompanyBareveryvariedamongthecompany;thereisnotadefinedconceptthatisknown 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 BCompany 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 AAnalysing 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] Availableat:<http://epub.lib.aalto.fi/en/ethesis/pdf/12260/hse_ethesis_12260.pdf>[Accessed22January2013]).

QuestionsThis case study is based on which service?1. AnswerThiscasestudyisbasedon“business-to-business-to-consumer”service.

Mention the effect of risk in co-operation.2. AnswerMostsignificantriskduetothenatureofco-operationfromCompanyAperspectiveisofbusinesscontinuity.Given disruption in the service production at Company B, Company A would be without an important customer serviceprovider,whichwouldbeasignificantissue.OtherservicesprovidedbyCompanyB,outboundsalescallsand 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.

Onekeyriskinoutsourcingcontractsisinformationsecurity.Informationsecurityisalsosignificantisthisbusinesscase,sincethetypeofinformationprovidedtoCompanyBcontainsfinancialrecords.CompanyAstillhasstrictpoliciesinplacethatareenforcedinthisbusinesscase.InternalriskeffectsidentifiedbyLonsdale&Coxoflosingcoreactivities,strategicflexibilityandinternalcoherencearenotsignificant.Thisismostlydueto the history of the outsourcing contract: the service itself was never performed internally by Company A.

Mention the outbound sales idea of company B in this case study.3. AnswerOutbound 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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Case Study II

Business Process Outsourcing in the Philippines

IntroductionFocusing on thefinance and banking service sector, this case study profiles business-process outsourcing inthe Philippines, including its sub-sectors, contributions to the economy and emerging decent work issues in the industry.

The competitive advantageBusiness-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 financeaccountingoccupations.ThisisthehighestrateinAsia.SuitabilityratesdeterminethepercentageshareofqualifiedcandidatesthatwillbeemployedbyHRpersonnelwhentheyneedtomeetanappropriatedemand.Thecost 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, theBoozAllenOffshoringResearchNetworkSurveyplacedthiscountryinthenumber-twoposition,afterIndia,aspreferredoutsourcinglocationamongFortune500companies,particularlyinthecontactcentreandback-officeoperations sub-sectors. That same year, the country was awarded Offshoring Destination for 2007 by the National OutsourcingAssociation,intheUnitedKingdom(UK).Severalotherglobalsurveysaffirmedthisassessmentofthe country’s potential as a premier hub for business-process outsourcing.

The country’s sunshine industryOver 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,theBPOindustryisthecountry’s“sunshineindustry”,employingcloseto100,000workersandchalkingupearnings 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).

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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 in2004.Anestimated108companiescomprisethissegment;about50percentmorethandidin2004.

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 in2005.InAsiaPacific,themarketshareofthePhilippinesandIndiaare31percentand68percent,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.

Muchroomremainsforgrowth,astheUSandEuropeanmarketsarestilllargelyuntapped.AsiaPacificonlydrewon 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 developedatthenationallevel,ifthecountry’spositionasaBPOhubistobesolidified,attractingmorebusinessand increasing market share.

Non-voice BPOThe recent spate of consolidations in the BPO industry is mostly due to call centres acquiring data-processing companiestomaximisetheiroperationsduringthedaytime,takingadvantageofthegrowinginterestinfinanceandaccounting(F&A)BPO.Revenuesfromback-officeoperationsincreasedby50percentfrom$180millionin2005to$120millionin2004.Betweennowand2010,theback-officesegmentissettogrowbya5-yearCAGRof 67.8 per cent to $2.4 billion.

IntheAsiaPacificregion,oneofthekeyBPOdriversistheoutsourcingofF&Aservices,sincethesecovertheentirespectrum of BPO, given the diverse demands from developed and developing economies in the region. According totheInternationalDataCorporation(IDC),developedeconomiesinAsiaPacificviewF&ABPOasaneffectivecost-containmenttoolfordomesticcompanies.Subsequently,thisserviceisleveragedbythebankingandfinancialsectors 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 8.7percent,comparedtothedouble-digitexpansionratesofotherBPOplayersinAsiaPacific.Yetthecountryisin a good position to take advantage of this growth area, given that 28 per cent of graduates come from business administrationandrelatedacademicprogrammeseachyear.Additionally,languageproficiency,althoughthiswillremain an important factor, will be less crucial than the customer-care segment.

Whiletheoffshoreoutsourcingindustryhasflourishedbyprovidingwell-specified,structuredandrepeatabletasks,the ability to perform more value-added, knowledge based activities such as analytics, research and credit analysis isopeningupopportunitiesinknowledgeprocessoutsourcing.Thisservicerequiressignificantareaproficiencyandthe ultimate goal is to generate value for the client by providing business expertise rather than process expertise. Currentlyonlyinchoate,theglobalknowledgeprocessoutsourcing(KPO)industryissettogrowrapidlyinfieldssuchasbiotechnologyandpharmaceuticalresearch,intellectualpropertyandfinancialanddataanalytics.Knowledge-based offshoring should continue to surge in India and other parts of Asia.

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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 andotherconfidentialinformationarenotleakedoutoncetransferredintothehandsofathird-partyvendor.

Philippine BPO in banking and financial servicesThesegmentsofthePhilippineBPOindustrythatcatertothebankingandfinancialservicessectorarethecustomercontactandbackofficesub-sectorsandthereforethissectionshallfocusitsdiscussiononthesetwosegments.

Customer contactThe 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 ofEnglishproficiencyanddeliverqualityserviceatlowercost.Eagertostrengthenitspositionasaleadingcall-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.,ICTMarketingServicesofthePhilippines,Link2Support,PacificInternet,PeopleSupportInternational,Inc.and Sykes Asia. Following are the inbound and outbound services offered by contact centres in the Philippines.

Telemarketing Technical helpdesk Advisory Payment authorisation Salesverification Ordertakingandfulfilment 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 servicesDatafromtheBusinessProcessingAssociationofthePhilippines(BPA/P)showedthatbackofficegrewby50percent in 2005 and, according to forecasts, will be bigger than customer contact beyond 2010.

Atpresent,financeandaccountingoutsourcingisoneofthefastest-growingsegmentsoftheBPOmarketandthePhilippines 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 officesinthePhilippines(forexample,Citibank,AIG,AccentureandIBM).ThedemandprimarilycomesfromtheUSA and Europe, secondarily from Australia and Canada.

TheMETAGroupfoundFilipinoaccountants tobe“among thebest in theworld”.Thus, thecountry’shighlytrainable,English-proficient,IT-enabledqualitymanagementmanpowerisbehindthecontinuedsuccessoftheback-officeprocessingandsharedservicessector.Everyyear,thispoolofefficientworkersisreplenishedwith80,000to100,000freshgraduatesfromaccountingandotherbusiness-relatedcourses,plus2,500to3,000newcertifiedpublic accountants. These CPAs are adept in generally accepted accounting principles (GAAP) and international accountingstandards(IAS)forfinancialreporting,whichareusedinEurope,JapanandtheUSA.

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Thekeyplayers in thefirstsub-sector includeAIGBusinessProcessingServices,Inc.,whichperformschequepreparation,accountinganddisbursementservicesformembercompanies;CaltexSharedServiceCentre(CSSC),whichprovidesaccountingandfinancialservicestoCaltexbusinessunitsinHongKong(China),Singapore,Thailand,theUKandtheUSA;Maersm,AdministrativeCentreLtd.,whichdoesgeneralaccountingdocumentationforthecompany’s11branches;andProcterandGambleAsiaPte.Ltd.,whichperformsahostofaccountingandfinancialservicesforP&GaffiliatesinAustralia,HongKong(China),India,Japan,theRepublicofKorea,NewZealand,North America, Southeast Asia and Taiwan (China).

The second sub-sector includes such companies as Business Process Outsourcing International, which provides financeandaccountingaswellaspayrollandbenefitsadministrationservices;SPITransact,whichprovidesarange of processing services to banks, insurance companies and mortgage originators, as well as other transaction- intensiveindustrysegments;andSummersault,whichspecialisesinclaimsprocessinganddisbursement,financeand 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]).

QuestionsWriteanoteonbackofficeprocessing.1. What are the advantages of business process outsourcing?2. What are the inbound and outbound services offered by contact centres in the Philippines?3.

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Case Study III

Applying Business Process Management Systems

IntroductionBusiness 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•itincludeshumanactivitybyincorporatingworkflow•it allows web service orchestration•itprovidestheopportunitytocustomisethewholeprocessforspecificcustomersandpartners•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 ProcessModellingNotation(BPMN).Configurationincludesthetransformationfromprocessmodelsintoformallanguages such as the Business Process Execution Language (BPEL). Integration facilitates better reuse of existing applications.BPMSallowseasydeploymentofconfigured.

Evaluation CriteriaThe 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 •tobebusinessdriven,andflexible,thus,peoplewhomanagebusinessprocesses,needtobeinthepositiontoexpress their understanding of business, without technically founded limitations.Standard or proprietary design notation points out if the process design notation in question was standardised •byagroupsuchasOMGorOASIS,orifitisavendorspecificformat.Moreover,doesthestandardcoverthegraphical 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 processdiagramsemulatingmissingconstructs,whicharedifficulttomaintain.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.Whatkindsofpeopleareinvolvedintheconfigurationandtheintegrationstepofthelifecycle?Processdiagrams•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 •ifitisvendorspecific.Thiscoversthelanguageandthepersistenceofthelanguage.Usingastandardlanguageeasesswitchingexecutionenginesorexchangingprocessconfigurationsbetweendifferentengines.Industry acceptance shows if an execution language is widely used in industry. Besides the importance to use •standards,itisnecessarytofindsupportingtechnologiesandmiddle-waretosupportexecutionlanguages.Messagetypemanagement.Isitpossibletodesignorevenimportmessagetypeswiththeconfigurationtool?•Nexttoconfiguretheflowofbusinesstasksbetweenapplications,departmentsandcompanies;itisnecessarytodefinemessagetypes.Thesetypesmaybeimportedfromservicedefinitions,databasetabledefinitionsorclassdefinitionsfromaprogramminglanguage.Otherwise,theymightbedefinedwiththeconfigurationtool.Configurationcomplexitymeasureshowmanytoolsareneededforasuccessfulprocessconfiguration.Besides•anintegratedconfigurationtool,itmaynecessarytoapplyconfigurationtoothermiddle-warebeforedeploymentispossible.Themoretoolsandmiddle-wareneedtobeconfigured,thehigherthecomplexity.Isprocessconfigurationpartofasharedrepository?Thiscriterionpointsoutiftheconfigurationtoolaccesses•processconfigurationsfromasharedrepositoryorfromalocalmachine.Theformerhastheadvantagethatmorepeopleaccesstheconfiguration,thusprocessconfigurationmightbeadaptedbymanypeople.Istheprocessconfigurationattachedtotheprocessdiagram?Ifthereisawell-definedlinkbetweenaprocess•diagramandtheprocessconfiguration,changingthediagramaswellastheconfigurationconsistentlybecomesmuch easier.Isprocessconfigurationboundtooneexecutionplatformreferstothevendorlockissue.Thisisthecase,if•processconfigurationsareonlybeexecutedontheplatformwhichtheprocessdiagramwasconfiguredwith.This may happen if execution engines do not support standards or industry accepted execution languages. A vendorlockmakesitdifficulttoswitchbetweendifferentexecutionengines.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.Whatkindsofpeopleareinvolvedinthedeploymentstep.Systemanalystsshouldbequalifiedtoaccomplish•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 •

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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 arestillrunning.Thirdly,thetooltriestomergerunninginstanceswiththenewprocessdefinition.

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 Scheer (ARIS)

SOA Architect Business Architect

X X X

OracleProcess Manager BPEL Designer

X X X X

IntalioProcess Server Process Designer

X X X X X

Table 1 BPM tools used in the process life cycle

ResultsTwo 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.Pricesforsparepartsarenotfixedandchangeonadailybasis.ShadeTreeGaragewantstominimiseitsstockingcostsandtomaximiseplanningreliability.SPCidentifiesthisdemandasasellingproposition,andintendsto 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•

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BothservicesareavailableaswebservicesandprovideaWDSLfile.Theappropriatemessageexchangepatternbetween 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>[Accessed23January2013]).

QuestionsDefinebusinessprocessmanagementsystem.1. What are the criteria used to evaluate BPMS tools.2. What is the use of BPMS tool.3.

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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].Laguna, M. & Marklund, J., 2005. • Business Process Modeling, Simulation and Design, Pearson/Prentice Hall.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].Manuel, L., Laguna, M. & Marklund, J., • Business Process Modeling, Simulation and Design, Pearson Education India.Mehrotra, N., 2005. • Business Process Outsourcing: The Indian Experience, ICFAI BooksMital, 2007. • Cases in Strategic Management, Tata McGraw-Hill Education.Nakkiran, S. & Franklin, J. D., 2004. • Business Process Outsourcing (BPO): Concept, Current Trends, Management, Future Challenges, Deep and Deep Publications.Outsourcing• [Online] Available at: <http://www.scribd.com/doc/9760596/Outsourcing> [Accessed 23 January 2013].Outsourcing Marketing Tasks for Your Business• [Video online] Available at: <http://www.youtube.com/watch?v=G3WFvnz8khU>[Accessed23January2013].Premier BPO’s In troduct ion• , [Video onl ine] Avai lable a t : <ht tp : / /www.youtube .com/watch?v=XL8YxFcfo_8>[Accessed 15 January 2013].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.pdf> [Accessed 22 January 2013].ProcessFlows - Business Process Outsourcing• , [Video online] Available at: <http://www.youtube.com/watch?v=RZ7IqyKMtVA>[Accessed 15 January 2013].Pros and Cons of Outsourcing• , [Video online] Available at: <http:/ /www.youtube.com/watch?v=90a2qHYqMoU>[Accessed 22 January 2013].Sales Outsourcing Advice• [Video online] Available at: <http://www.youtube.com/watch?v=f7D9D7dshPc> [Accessed 23 January 2013].Saxena, 2009. • Business Process Outsourcing for Strategic Advantage, Excel Books India.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].Singh, R., 2008. • Research in Management and Technology, Deep and Deep PublicationSOPLE, V. V., 2009. • Business Process Outsourcing: A Supply Chain of Expertises, PHI Learning Pvt. Ltd.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.pdf> [Accessed 15 January 2013].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].What is BPO?• [Video online] Available at: <http://www.youtube.com/watch?v=N8pKLgs4CaQ> [Accessed 21 January 2013].Why Outsource?• [Online] Available at: <http://www.kpoexperts.com/outsourcing/why-outsource.htm> [Accessed 23 January 2013].

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Recommended ReadingAnandkumar, 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,Wileyedition;1stedCain, S., 2012. • How To Do A BPO-Your Step-By-Step Guide, Kindle EditionDucker, C. C., 2012. • TheDefinitiveGuidetoOutsourcingtothePhilippines,AmazonDigitalServices,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 BooksGreasley, A., 2004. • Simulation Modelling for Business, Ashgate Publishing, Ltd.Halvey, K. J. & Melby, M. B., 2007. • Business Process Outsourcing: Process, Strategies and Contracts, 2nd ed., John Wiley & Sons.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 OutsourcingMehrotra, 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 PublicationsZeigler, 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 Ia1. c2. b3. a4. d5. b6. d7. c8. a9. b10.

Chapter IIc1. d2. b3. a4. d5. a6. c7. b8. d9. c10.

Chapter IIIb1. a2. d3. c4. c5. b6. a7. d8. b9. a10.

Chapter IVa1. c2. c3. b4. d5. b6. a7. c8. a9. d10.

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Chapter V d1. a2. b3. c4. c5. a6. d7. b8. c9. b10.

Chapter VI b1. a2. d3. b4. d5. c6. d7. b8. a9. c10.

Chapter VII c1. d2. a3. b4. c5. a6. b7. d8. c9. b10.

Chapter VIII a1. c2. d3. a4. c5. b6. b7. c8. b9. a10.