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BUSINESS PROCESS OUTSOURCING

Business Process Outsourcing (BPO) means delegating the ownership, administration, and operation of a process to a third party. BPO is about solving a business problem. BPO aims to raise a client company’s shareholder value because it is about delivering outcomes—that is, higher-performing business processes. Companies essentially have three kinds of processes: core processes (which give strategic advantage), critical, non-core processes (which are important but are not competitive differentiators), and non-core, non-critical processes (which are needed to make the environment work). Few advisors suggest outsourcing core processes; they recommend investing in them. Many do recommend outsourcing critical, non-core processes to providers who specialize in those processes because they will invest in them and aim to make them world-class. And most advisors recommend outsourcing all non-core, non-critical processes. However, outsourcing does not mean handing over an entire process. It generally means turning over to a BPO provider the “how” aspects of a process—the systems, infrastructure, administration, execution, and some of the design of non-core processes. The company retains the “what” aspects of the process—the governance, policy-setting, decision making, and strategy of these processes. The intent is to outsource the execution of a process while retaining the direction-setting part.

Transaction providers handle a single process (such as payroll), at their sites and with their people. They are accountable for the transactions only, and they are paid per transaction. This form of outsourcing is easiest to manage, but it can also fragment operations because different pieces are handled by different providers. Niche providers handle several processes (such as employment, which includes hiring and staffing). They may work at their site (or the company’s) and they may take on some of company’s staff. They are accountable for the outcomes of those processes (such as reduced time to hire or lower attrition), so they may be paid based on outcomes.

Comprehensive providers handle the transactional and administrative processes of a function (such as HR). They work globally, they aim to increase process effectiveness, and they are generally paid based on outcomes. This is the newest form of BPO and it involves the most change because the providers introduce new and better practices and processes. Offshore outsourcing is building at a very rapid pace. Outsourcing to India has been successful. Other offshore countries currently include Ireland, Philippines, and Eastern Europe. Near-shore countries include Canada and Mexico. Future countries include Vietnam, Russia and China. Some providers are making heavy investments in education and IT infrastructure in these countries. All are possibilities for back-office work. But companies do need to guard their intellectual property when they outsource, especially offshore.

Successful management means having the appropriate governance model, processes, and skills in place, so that the relationship evolves with the business environment. At the moment, outsourcing end-to-end BPO processes is not for the faint of heart because it does involve transforming processes. But it can also lead to more world-class processes than clients would implement on their own. The goal of BPO is to increase shareholder value. One way to achieve that is to have your A players facing your customers, and your provider’s A players in your back office. Outsourcing is not a one-time event; it is continuous. Companies that outsource one process later outsource another, then another—as their strategies change and new outsourcing options open up. The outsourcing field is thus not slowing down. At the moment, BPO is the driving force, and it is developing fast.