Business process outsourcing

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Business process outsourcing (BPO) contains the transmission of processes along with the
associated operational activities and responsibilities, to a third party with at least a guaranteed
equal service level and where the client contains a firm grip over the (activities of the) vendor for
mutual long term success. BPO is positively related to the search for more efficient
organizational designs: cost reduction, productivity growth and innovative capabilities. Hence, a
source for strategic advantage.
Traditionally, BPO is undertaken by manufacturing firms. For instance Coca Cola, where almost
the entire supply chain is outsourced and the company is essentially becoming a marketing
organization.[1] However, BPO is nowadays rapidly conquering the service oriented firms as
well. A well-known example is provided by the Bank of America, who outsourced their entire
HR function to Exult, one of the leading Human Resources BPO vendors.[2]
BPO is often divided into two categories: back office outsourcing, which includes internal
business functions such as billing or purchasing, and front office outsourcing, which includes
customer-related services such as marketing or tech support. The endless opportunities IT
provides, stimulates (cross-border) BPO activities. BPO that is contracted outside a company's
own country is sometimes called offshore outsourcing. BPO that is contracted to a company's
neighboring country is sometimes called nearshore outsourcing.
Use of a BPO as opposed to an application service provider (ASP) usually also means that a
certain amount of risk is transferred to the company that is running the process elements on
behalf of the outsourcer. BPO includes the software, the process management, and the people to
operate the service, while a typical ASP model includes only the provision of access to
functionalities and features provided or 'served up' through the use of software, usually via web
browser to the customer. BPO is a part of the outsourcing industry. It is dependent on
information technology, hence it is also referred to as information technology enabled services
or ITES. Knowledge process outsourcing and legal process outsourcing are some of the subsets
of business process outsourcing.

Contents
[hide]
• 1 Industry size
• 2 BPO increasing the flexibility of organizations
• 3 Challenges
• 4 Threats
• 5 References
• 6 See also
• 7 External links

[edit] Industry size

India has revenues of 10.9 billion USD[3] from offshore BPO and 30 billion USD from IT and
total BPO (expected in FY 2008). India thus has some 5-6% share of the total BPO Industry, but
a commanding 63% share of the offshore component. This 63% is a drop from the 70% offshore
share that India enjoyed last year, despite the industry growing 38% in India last year, other
locations like Eastern Europe, Philippines, Morocco, Egypt and South Africa have emerged to
take a share of the market. China is also trying to grow from a very small base in this industry.
However, while the BPO industry is expected to continue to grow in India, its market share of
the offshore piece is expected to decline.
The top five Indian BPO exporters for 2006-2007 according to NASSCOM are Genpact, WNS
Global Services, Transworks Information Services, IBM Daksh, and TCS BPO.[4]
According to McKinsey, the global "addressable" BPO market is worth $122 - $154 billion, of
which: 35-40 retail banking, 25-35 insurance, 10-12 travel/hospitality, 10-12 auto, 8-10
telecoms, 8 pharma, 10-15 others and 20-25 is finance, accounting and HR. Moreover, they
estimate that 8% of that capacity was utilized as of 2006. Pakistan has also emerged as potential
market for IT based BPO companies.[5]
[edit] BPO increasing the flexibility of organizations
One of the most important advantages of BPO is the way in which it helps to increase a
company’s flexibility. However, several sources have different ways in which they perceive
organizational flexibility. Therefore business process outsourcing enhances the flexibility of an
organization in different ways.
Most services provided by BPO vendors are offered on a fee-for-service basis. This helps a
company becoming more flexible by transforming fixed into variable costs.[6] A variable cost
structure helps a company responding to changes in required capacity and does not requisite a
company in investing in assets and hereby making the company more flexible.[7] Outsourcing
may provide a firm with increased flexibility in its resource management and reduce response
times to major environmental changes.
Another way in which BPO contributes to a company’s flexibility is that a company is able to
focus on its core competencies, without being burdened by the demands of bureaucratic dictate.[8]
Key employees are herewith released from performing non-core or administrative processes and
can invest more time and energy in building the firm’s core businesses.[9] The key in this lies in
knowing, which of the main value drivers to focus on – customer intimacy, product leadership,
or operational excellence. Focusing on one of these drivers may help a company create a
competitive edge.[10]
A third way in which BPO increases organizational flexibility is by increasing the speed of
business processes. Using techniques such as linear programming is a way to reduce cycle time
and inventory levels, which reduces a company’s slack. Supply chain management with the
effective use of supply chain partners and business process outsourcing increases the speed of
several business processes, such as the throughput in the case of a manufacturing company.[11]
Finally, flexibility is seen as a stage in the organizational life cycle. BPO helped to transform
Nortel from a bureaucratic organization into a very agile organization. A company can hereby
help maintaining ambitious growth goals, which do not fit with regular incumbent strategies.[12]
BPO therefore allows firms to retain their entrepreneurial speed and agility, which they would
otherwise sacrifice in order to become efficient as they greatly expanded. It avoids a premature
internal transition from its informal entrepreneurial phase to a more bureaucratic mode of
operation.[13]
[edit] Challenges
Although the above-mentioned arguments favor the view that BPO increases the flexibility of
organizations, management needs to be careful with the implementation of it. Some tends to
change their attitudes, personalities and character on how the way they talk to other clients.
Although BPO has many potential advantages there are a few stumbling blocks, which could
counter these advantages. Among problems, which arise in practice are: A failure to meet service
levels, unclear contractual issues, changing requirements and unforeseen charges. When BPO
does not work out as planned the company might well experience the way in which BPO makes
a company very dependent on a vendor and therefore very inflexible. Consequently, these
challenges need to be considered before a company decides to engage in business process
outsourcing[14]
[edit] Threats
Risk is the major drawback with Business Process Outsourcing. Outsourcing of an Information
System, for example, can cause security risks both from a communication and from a privacy
perspective. From a knowledge perspective, a changing attitude in employees, underestimation
of running costs and the major risk of losing independence, outsourcing leads to a different
relationship between an organization and its contractor.[15][16]
Risks and threats of outsourcing must therefore be managed, to achieve any benefits. In order to
manage outsourcing in a structured way, maximizing positive outcome, and minimizing risks and
avoiding any threats, a Business Continuity Management (BCM) model is setup. BCM consists
of a set of steps, to successfully identify, manage and control that business processes that are, or
can be outsourced.[17]
Another framework, more focused on the identification process of potential outsourceable
Information Systems, identified as AHP, is explained.[18]
L. Willcocks, M. Lacity and G. Fitzgerald identify several contracting problems companies face,
ranging from unclear contract formatting, to a lack of understanding of technical IT- processes.
[19]

[edit] References
1. ^ Tas, J. & Sunder, S. 2004, Financial Services Business Process Outscourcing, Communications
of the ACM, Vol 47, No. 5
2. ^ Harmon, P. 2003, An Overview of Business Process Outsourcing, Business Process Trends
Newsletter, Vol. 1, No. 9
3. ^ Cover Story
4. ^ NASSCOM Announces Top-15 ITES-BPO Exporters Rankings for FY 06-07
5. ^ The Untapped Market for Offshore Services, 2006
6. ^ Willcocks, L., Hindle, J., Feeny, D. & Lacity, M. 2004, IT and Business Process Outsourcing:
The Knowledge Potential, Information Systems Management, Vol. 21, pp 7–15
7. ^ Gilley, K.M., Rasheed, A. 2000. Making More by Doing Less: An Analysis of Outsourcing and
its Effects on Firm Performance. Journal of Management, 26 (4): 763-790.
8. ^ Kakabadse, A., Kakabadse. N. 2002. Trends in Outsourcing: Contrasting USA and Europe.
European Management Journal Vol. 20, No. 2: 189–198
 9. ^ Weerakkody, Vishanth, Currie, L. Wendy and Ekanayake, Yamaya. 2003. Re-engineering
business processes through application service providers - challenges, issues and complexities.
Business Process Management Journal Vol. 9 No. 6: 776-794
10.^ Leavy, B. 2004. Outsourcing strategies: opportunities and risk. Strategy and Leadership, 32
(6) : 20-25.
11.^ Tas, Jeroen, Sunder, Shyam. 2004. Financial Services Business Process Outsourcing.
COMMUNICATIONS OF THE ACM Vol. 47, No. 5
12.^ Fischer, L.M. 2001. From vertical to Virtual; How Nortel’s Supplier Alliances Extend the
enterprise [online]. Strategy+Business, Available from http://www.strategy-
business.com/press/16635507/11153 [Accessed 5 February 2008]
13.^ (Leavy 2004, 20-25)
14.^ Michel, Vaughan, Fitzgerald, Guy. 1997. The IT outsourcing market place: vendors and their
selection. Journal of Information Technology 12: 223-237
15.^ Bunmi Cynthia Adeleye, Fenio Annansingh and Miguel Baptista Nunes. "Risk management
practices in IS outsourcing: an investigation into commercial banks in Nigeria", International
Journal of Information Management 24 (2004): 167-180.
16.^ K. Altinkemer, A. Chaturvedi and R. Gulati. "Information systems outsourcing: Issues and
evidence", International Journal of Information Management 14- 4 (1994): 252- 268.
17.^ Forbes Gibb, and Steven Buchanan. "A framework for business continuity management",
International Journal of Information Management 26- 2 (2006): 128- 141.
18.^ Chyan Yang and Jen-Bor Huang. "A decision model for IS outsourcing", International Journal
of Information Management 20- 3 (2000): 225- 239.
19.^ L. Willcocks, M. Lacity and G. Fitzgerald. "Information technology outsourcing in Europe and
the USA: Assessment issues", International Journal of Information Management 15- 5 (1995):
333- 351.

[edit] See also

• Outsourcing
• Offshoring
• Nearshoring
• Homeshoring
• Globalization
• List of call centre companies
• Recruitment
• Recruitment Process Outsourcing
• Software testing outsourcing
• BPO security
• Business process outsourcing in India
• Business process outsourcing in the Philippines
• Website Management Outsourcing
[edit] External links
• Report on Business Process Outsourcing (BPO)
Retrieved from "http://en.wikipedia.org/wiki/Business_process_outsourcing"
Categories: Business process | Business terms | Information technology management
What is KPO?
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 favorable advantageous and future

scope. But, let us not treat it only a 'B' replaced by a 'K'. In fact, Knowledge process can be defined as high

added value processes chain where the achievement of objectives is highly dependent on the skills, domain

knowledge and experience of the people carrying out the activity. And when this activity gets outsourced a

new business activity emerges, which is generally known as Knowledge Process Outsourcing.

Knowledge Processing Outsourcing (popularly known as a KPO), calls for the application of specialized

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 expertise. KPO Industry is handling more amount of high skilled work other than the

BPO Industry. While KPO derives its strength from the depth of knowledge, experience and judgment factor;

BPO in contrast is more about size, volume and efficiency.

In fact, it is the evolution and maturity of the Indian BPO sector that has given rise to yet another wave in the

global outsourcing scenario: KPO or Knowledge Process Outsourcing. The success achieved by many

overseas companies in outsourcing business process operations to India has encouraged many of the said

companies to start outsourcing their high-end knowledge work as well. Cost savings, operational efficiencies,

availability of and access to a highly skilled and talented workforce and improved quality are all underlying

expectations in outsourcing high-end processes to India

The future of KPO has a high potential as it is not restricted to only Information Technology (IT) or

Information Technology Enabled Services (ITES) sectors and includes other sectors like Legal Processes,

Intellectual Property and Patent related services, Engineering Services, Web Development application,

CAD/CAM Applications, Business Research and Analytics, Legal Research, Clinical Research, Publishing,

Market Research (Market research KPO ) etc.

In today's competitive environment, focus is to concentrate on core specialization and core-competency

areas and outsource the rest of the activities. Many companies and organizations have come to realize that

by outsourcing non core activities, not only cost are minimized and efficiencies improved but the total

business improves because the focus shifts to the key growth areas of the business activity.

Scope and Future of KPO

According to a report of National Association of Software and Services Companies (NASSCOM), the Indian

chamber of commerce that serves as an interface to the Indian Software industry, Knowledge Process

Outsourcing industry (KPO) is expected to reach USD 17 billion by 2010, of which USD 12 billion would be

outsourced to India. Another report predicts that India will capture more than 70 percent of the KPO sector

by 2010. Apart from India, countries such as Russia, China, the Czech Republic, Ireland, and Israel are also

expected to join the KPO industry.

According to a recent study by “Evalueserve, a Gurgaon based outsourcing company having service chart for

global world”, the global KPO market is expected to grow at a cumulative annual growth rate (CAGR) of 46

per cent, from $1.2 billion in 2003 to $17 billion in 2010. Compare this with the prediction for the low-end

outsourcing services market. This is expected to have a CAGR of 26 per cent, from $ 7.7 billion to $39.8

billion in the same period.

Evalueserve says India provided $3.5 billion of BPO and KPO (but non-IT) services in 2003 and is expected to

grow at a CAGR of 36 per cent during 2004 to 2010. Hence, it is likely to earn $30 billion in 2010 by

providing these services.

Says country general manager, Kelly Services, Achal Khanna “India still maintains the competitive advantage

for providing, the combination of the most cost-effective and high quality manpower- this is India's strength

in the off-shoring business”.

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 Research, Clinical Research,

Publishing, Market Research (Market research KPO), etc.

"Over the past year or two, the outsourcing industry has been throwing up jobs for Doctors, Engineers, CAs,

Architects," says Jacob William of the Bangalore-based Outsource2India, which employs 500 people and

offers services in the big-buzz, big-bucks area of knowledge process outsourcing. "Unlike the first wave

which was more about entering data and answering phone calls, these jobs involve skill and expertise."

Also, of course, the talent is much more affordable. "Law firms in the US charge an average of $400-450 per

hour, and we do the same work for $75 to $100 an hour" says Kamlani" who is an outsourcing provider in the

same area.

In the Indian context, KPO salaries could be 25-50 per cent higher than those offered to the same domain

experts such as Engineer, Doctor, CA, Lawyer, Architect, Biotechnologist, Economist, Statistician and MBAs, it

said.

In its annual publication Strategic Review 2005, Nasscom has said the high-end activity of the BPO industry—

the KPO or knowledge process outsourcing could be worth $15.5 billion by 2010.

According to earlier estimates, the BPO industry itself was expected to be about $20bn by 2008, hence a

very significant portion of the sector—in excess of 50% is now projected to be knowledge based. This

represents significant metamorphosis of call centre sector business to completely different model.

Interestingly, Sunil Mehta, Nasscom vice-president research, distances himself from the estimates.

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

specialized 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 grow at almost 46%.

Bottlenecks in Future Growth
A study on Knowledge Process Outsourcing (KPO) sector shows a huge supply gap that threatens to cripple

its growth. Rocsearch, a UK-based research services company, has gathered evidence suggesting that the

KPO market may just about reach a size of $5 billion by 2010, manned by 100,000 people instead of

projections of a $12 billion market supported by 250,000 employees.

This accentuates Nasscom's projections of a shortfall of 500,000 workers in ITES and BPO sectors by 2010.

Assuming an average revenue per person of $55,000 over the next four years, 100,000 knowledge workers

point to a $5 billion market. This size, though based on a CAGR of 32%, is still 60% less than the $12 billion

potential projected by big KPOs, like Evalueserve, last year.

Rocsearch COO, Ashish Sinha says the sector is restricted by low employability despite high graduate

turnout, and competing demand from other sectors as jobs grow faster than the workforce.

For example, all the 2,000-odd IIM and top 10 B-School graduates are employable, while less than half the

84,000 graduates from Tier-II B-Schools would make the grade.

The study sees only 500,000 of the over 3 million workers added to the labour pool in 2005 as employable in

global firms and of these, just 2 in every 100 are likely to opt for work in knowledge space.