BUSINESS PROCESS OUTSOURCING (BPO)

Academic year: 2010-11 BHARATI COLLEGE Teacher Incharge: Mrs. Hari Krishani Mentor: Mrs. Krishna Singhal Submitted by: Payal Uppal Roll No.: 595

Declaration
I, Payal Uppal, Roll No-595, a student of Bharati College, pursuing B.Com (H) Second Year, hereby declare that I have completed my project titled Business Process Outsourcing(BPO) in the academic year 2010-11. The project is based on my understanding of the subject and has not been copied from any published source or website.

___________________ Signature of the student (Payal Uppal) 2

Acknowledgements
I am grateful to the University of Delhi for providing its students a valuable opportunity to widen their knowledge and research on a topic of their choice. I extend my sincere thanks to my Teacher incharge, Mrs. Hari Krishani and Mentor- Mrs. Krishna Singhal for the encouragement, guidance and time invested with me for the development of my project. I feel highly obliged for the efforts, which she took in answering my queries. Also, I would like to thank my parents and friends who provided me unstinted support and invaluable suggestions for the improvement of the project.

Table Of Contents
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Particulars
Concept Of Business Process Outsourcing The Outsourcing Guide Benefits Of Business Process Outsourcing Disadvantages of BPO Why Outsource Outsourcing of different types Services Key Factors in successfully outsourcing Business Process Business Process Outsourcing in India Government Support SWOT on Indias BPO Industry References

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The idea of business process outsourcing originated from the theory of core competence suggested by C.K. Prahlad. According to this theory a business enterprise should identify the areas of its core competence and focus only on them. In order to utilize its strengths and resources fully for its core competencies, a corporation has to get non core functions performed by outside agencies.

CONCEPT OF BUSINESS PROCESS OUTSOURCING

To outsource means to engage the services of an outside agency to manage, deliver and operate one or more business activities, processes or functions. Business process outsourcing may be defined as the contracting out of a companys in-house function to a preferred vendor with a high quality level in a particular task area. By contracting out activities in which a business firm does not have expertise, it can save costs on employee benefits and free its existing staff for other duties. Outsourcing enables a company to concentrate on its core activities by contracting out non-core and routine activities to outsiders. There is no need for the company to recruit, train and pay workers on permanent basis to undertake non-core, routine jobs. Finance and accounting services, recruitment selection and training of human resources, payroll services, and advertising services are some of the business processes and functions which are outsourced. According to Gartner, BPO is the delegation of one or more IT enabled business processes to a third party that owns, administers and manages the business processes according to a defined set of metrics. The term outsourcing was coined by Eastman Kodak Inc. in 1889. It means having an external vendor who provides on recurring basis a service that would normally be performed within the organization. It involves delegation of one or more business processes to an external provider, who then owns and manages the selected business process based on defined measures of performance. Also known as Business Process Outsourcing (BPO), outsourcing implies the transfer of an enterprises non-core business process to an external provider, it encompasses the overall responsibility and day-to-day administration, operation and management of one or more supporting business processes. In an outsourcing agreement there are two parties-the client company or outsourced which want to outsource a business process, and the vendor or external provider which designs, manages, controls and provides the service to the company. For example, if 5

Reliance Industries Ltd. Wants to outsource advertising service for its Vimal brand of clothing and it appoints ABC Advertising to design, prepare and release advertisements on its behalf, Reliance is the client company which outsources advertising service and ABC Advertising is the vendor or external provider, or outsourcer.

THE OUTSOURCING GUIDE (OR WHAT TO CONSIDER BEFORE YOU TAKE THE LEAP)
You have to be alert to at least three things: selection of the right activities to outsource, identification of the right supplier of services and the right governance approach (service legal agreements) for the relationship. Thats easier than done. Heres quick checklist. 1. What is a good starting point for an outsourcing programme? The sensible approach is to start small. For instance, you could be running a hospital reputed for its heart surgeries. Now since payroll and IT arent among your core areas, outsource these first. 2. Are there enough external service providers available in the market? Its fairly intuitive: the more providers there are in the market, the better position you are in for negotiating a deal. Besides, it also allows you the option to switch, if the need arises. 3. Are you convinced about the quality? Ensure that the quality of service offered by the provider is at least better than what you already had in-house. Scrutinize the service providers track record and speak to a few of his clients. 4. Are you getting the benefits of scale economies? Outsourcing offers sustained cost savings by aggregating the business from different clients. So if it doesnt work out cheaper, the service provider probably isnt leveraging scale or may be your in-house costs are lower. 5. Is your corporate culture ready for it? Outsourcing demands a high level of trust and a spirit of partnership. Most organizations tend to be uncomfortable with the idea of losing control over their operations. To reduce the anxiety levels, make sure the outsourcer truly understands the products and markets served by your firm. 6. Are you building a relationship for the long term? Dont look at it from a one-to-two-year perspective. Plan for the long term. See whether the outsourcer can grow with you in case you expand operations or of global. Check to see if its systems and people can be scaled up quickly. The Outsourcing pyramid 6

Level 1: The commodity level. This is the cost reduction phase where the company gains no strategic initiative. Skill level needed are basic as the processes outsourced are catering, security, fleet management etc. Level 2: Moves into areas where company can gain strategic initiatives and skill levels get higher, but the processes are still routine. These include pay-roll and HR administration. Level 3: At this level, the outsourced processes require high level of skills and can directly affect bottom lines. The areas would include management and R & D.

BENEFITS OF BUSINESS PROCESS OUTSOURCING

1.Focus on key functions: Outsourcing enables an enterprise to concentrate its time and efforts on its key activities. The enterprise is freed from performing routine and non-core activities. Therefore it can focus on matters which are more crucial to its success. It can make better use of its human, physical and financial resources. 2. Reduction in cost: Outsourcing agencies are specialist in their activities. They can perform the same job at a lower cost. Therefore charges paid to outsourcing agent will be much less than what the enterprise would itself spend on the performance of routine activities and functions. 3. Less Investment: The firm need not invest money in creating and maintaining systems for routine and non-core activities. 4. Specialization: The outsourcing agent provides expert advice and assistance to the client company for better management of concerned functions. 5. Convenience: The firm is saved the problem of hiring and maintaining labour force for jobs that can be hired to outsiders. 6. Freedom of choice: The Company can choose the best outsourcing agency. It can have outsourcing contract with the agency for a limited period. The company is free to terminate or review the contract depending on the quality, reliability and efficiency of services offered by the agency. 7. Economic Progress: Due to outsourcing, every function is performed by the organization mist competent to do it. Division of labour and greater specialization helps to maximize productivity and profits. Outsourcing contributes to economic growth by enabling everyone to utilize his potential to the maximum.

DISADVANTAGES OF BPO
1.Hampers confidentiality: There is always a risk of information being leaked out to competitors.

2. Potential Competition: The outsourcer may start business in competition with the outsourcee due to outsourcing over a period of time. 3. Sweat Shopping: The outsourced may be accused of unfair labour practice because the outsourcer indulges in exploitation of labour in his own country. For example, the outsourcer may employ child labour and women on low wages. 4. Resentment: Outsourced may have to face resentment in his own country because people feel hat outsourcing is reducing job opportunities for the local citizens.

WHY OUTSOURCE
1. Expertise: Not all banks, especially the smaller ones, have the expertise needed to manage a complex network of ATMs. 2. Costs: Better cost management lowers currency-carrying costs, which is one of the biggest costs of running ATMs. 3. Service: Round the clock and remote monitoring helps minimize outages and thus provide better customer service. 4. Upgrades: A service provider is able to provide state-of-the-art tools, diagnostics and ATM knowledge as technology evolves.

OUTSOURCING OF DIFFERENT TYPES OF SERVICES

A wide variety of routine activities and services can be outsourced. Some of these services are given below: 1.Financial Services: Outsourcing service providers may be hired for maintaining books of accounts, for issue of securities, for raising debts and other financial activities. When a company needs to raise finance by way of issue of shares and debentures, several formalities have to be performed. These formalities are cumbersome and require specialized knowledge and skills. Similarly, when a company wants to takeover another company or when two companies want to merge together, expert valuers are required. Merchant banks, issuing houses and investment banks provide financial services to business enterprises. 2. Advertising Services: Advertising service is generally outsourced. Business firms hire advertising agencies to design and carry out advertising campaigns for them. These agencies design the advertising copy, arrange space and time for advertising and produce advertisements. They are experts in advertising and outsourcing advertising services to them provides benefits of specialization to business firms. 8

3. Courier Services: Courier Service is essentially postal service provided by private firms. Couriers carry letters and parcels at low charges and deliver them more quickly and safely than post office. Business firms hire couriers to send letters, documents and samples of products from one place to another. Couriers offer desk-to-desk service under which the articles to be dispatched are picked up from the senders place and delivered to the receivers place. A large number of courier service firms have come up in big cities and towns. They are doing brisk business.

4. Customer Support Services: Producers and sellers of durable house-hold products such as washing machine, air conditioners, television sets, etc. are required to provide after sale services to their customers. Prompt, courteous and effective after sale services is essential for survival and growth of business in this competitive world. Large companies may have their own customer support service departments. Alternatively, they may outsource customer support services to outside agencies. These agencies are experts and can ensure complete customer satisfaction and theory enhances the goodwill of the client companies. 5. Human Resource Services: Several services concerning employees are now-a-days outsourced. Recruitment and selection, orientation and training, payroll administration, employee welfare services (E.g. transport and food for the staff) are examples of such services.

KEY FACTORS IN SUCCESSFULLY OUTSOURCING A BUSINESS PROCESS

1. Thoroughly analyze your process so you know your cost, and can determine the cost savings of outsourcing over a specific time period. 2. Defines roles and responsibilities in the outsourcing partnership, so there are no surprises, and so that the expectations of both parties are clear. 3. Have measurable performance objectives- The speed of transactions, the time period to close the books etc- and establish performance incentives, both revert and penalties, for meeting those objectives. 4. Develop a detailed transitions plan to ensure a smooth hands off. Outsourcing is a measure undertaking that benefits from careful advanced planning.

5. Establish a clear disputes- Resolution process to handle issues as they arise. This makes for smoother operation and does not make every issue a contractual or legal problem. 6. Monitor results for continues improvement. Arrange long term contracts on a yearly renewal basis, so there is an annual review of an outsourcers performance.

BUSINES PROCESS OUTSOURCING IN INDIA- GOVERNMENT SUPPORT

Business process outsourcing is progressing quite fast in India. Initially only a few corporations in the United States and Europe outsourced small relatively low grade jobs like storage of old records. Later as their confidence grew, they started trusting more valuable functions like payable accounting, customer care, and human resource development to Indian firms. For example, EXL service in noida handles underwriting insurance and claims processing functions on behalf of Conseco (USA). It also handles significant bank office operation for three other clients are mortgage bank, and e-tailor and a consulting firm. India has low cost but highly qualified English speaking labour, therefore, BPO is accelerating quite fast in India. The first companies to start experimenting with India as an outsourcing base were multinationals who started company owned back office operations and call centres. Very soon they began outsourcing far more complex functions from India. The trend was started in India by GE when it setup its facility in Gurgaon in the end 1990s. Today it has over 6500 seats in two centres Hyderabad and gurgaon and employs over 12000 peoples. It has setup a third facility at Bangalore. Swissair and British airways have centres at run frequent fliers programs out of India. American Express, HSBC, Citi Bank standard Chatered also have BPO operations in India. India has emerged as a measure hub for back office operations. While MNCs still dominate the outsourcing scene in India, several Indian firms have now started playing a roll. Infosys, Wipro, Satyam and HCL technologies have entered BPO operations. Indian business process outsourcing and call centres and IT enabled services are coming of age. Tracanail, Daksh, Apicentre, Spectramind are some of the example of India a BPO firms which have moved up the value chain. BPO industries are in transition. Large firms are consolidating their businesses. Small companies are gobbled up by large players from outside. The main drivers of outsourcing 10

are cost, quality, technology and reliability. Companies are scaling up, looking at technology, tie-ups and quality certifications. In view of the vital role of BPO, Government of India has announced several policy initiatives and concessions to encourage the growth of the IT enabled outsourcing sector. The Indian software and in service industry under the leadership of the National Association of Software and Service Companies (NASSCOM) has also taken several steps to make India a global huge for outsourcing. Some of the steps taken by the Government and the industry for BPO are given below: 1. Foreign direct investment up to 100 percent of the equity has been permitted in BPO companies. 2. Duty free imports of capital goods (under the export promotion of capital goods scheme) For BPO sector have been permitted. 3. Government of India has promoted several Software Technology Parks (STPs) which offer ready-to-plug IT and telecom infrastructure. These parks also provide single legal window clearance for all regulatory procedures and formalities. STPs have been established in most measure cities across the country. 4. On the recommendations of NASSCOM, Government of India removed various procedural bottlenecks that were hampering the growth of BPO. 5. Under the Income-tax act, exemptions has been allowed on several IT enabled products and services.

SWOT OF INDIAS BPO INDUSTRY

STRENGTHS -Abundant manpower -Operational excellence -Conducive business environment OPPORTUNITIES -$69 billion ITES business by 2010 -$97.5 billion IT (consulting, software solutions) market by 2010 WEAKNESS -Manpower shortage -Local infrastructure -Political opposition from developed countries THREATS -Competition from other low cost destinations -Slowdown of demand

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REFERENCES

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