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Managing Business Process Outsourcing Module 1 Reference Slides

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A Revolution
Like a tsunami, every revolution starts slowly and then accelerates. BPO firms in India that started off in the early 1990s have seen a similar transformation and are today on the threshold of creating a revolution that touches not only the 600,000 people directly employed by them, but millions of others who are associated with them. The industry has notched up revenues in excess of US $7 billion in 2007 and is all set to exceed US $10 billion in the next few years. In short, the BPO industry has achieved in less than a decade what the IT industry took over 20 years to achieve.

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As the industry has grown from a zero base, it has absorbed people from different industries. Today, it stands out as a unique business that employs the largest variety of professionals graduates, undergraduates, chartered accountants, people with B.Com degrees, engineers, MBAs, graphic designers, animation experts, investment bankers, data entry operators, presentation specialists, lawyers, paralegal assistants, equity research specialists, analysts, doctors, etc.

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1. You go to a bank and open a new account. The form gets updated by someone in the system and you soon get a mail with your new account number and password.

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2. After you travel and come back to office you submit your bills, someone checks it and credits the amount to your bank account.

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3. You buy a mobile phone and someone in the service providers back office needs to set you up on the network and provision you with the right set of services.

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4. A research professor wants to get details on a certain area and does not have time to surf through a detailed website. He seeks the help of someone like a research assistant.

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5. An insurance company wants to identify the highest liability age group for a certain product. They have the data, but want someone to analyze it.

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6. Your personal computer crashes and you need to get it fixed in time for an urgent presentation. You call up the toll free number of your PCs manufacturer and someone helps you troubleshoot and solve the problem.

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7. You need to book a ticket and call the leading airline company. Someone helps you with the best rates, books your ticket, charges your credit card and sends you confirmation by email.

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8. There is an accident (in the US) and call is placed to 911. Someone takes the call and sets in motion a series of actions aimed at solving the injured persons problem at the earliest.

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cost cosT coST cOST COST.

The CTC of an entry-level accountant in the US may be upwards of $36,000 per year. The same job can be done in India by a commerce graduate whose CTC would be less than $5,000 a year. Multiply this saving over millions of jobs the world over and it is easy to understand why the outsourcing boom is growing by leaps and bounds.

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Savings from labour arbitrage is a key benefit of the global outsourcing business. Developed economies have higher minimum wages and taxes. The cost of living is extremely high compared to developing countries. The growth of China and Taiwan in manufacturing, India and east Europe in IT and India and Philippines in call centres and BPO firms are classic examples of large corporations using global cost economies to their advantage.

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Models of BPO
VRIO Porters Model Hamel and Prahlad Inside Out Corporate Strategy Model

Value

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Value means if the organisations resources and capabilities add value seen from the outside.

Value can be developed by exploiting changes in the environment. But this very often demands a change in the resources and capabilities of the organsation.

Rareness

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If the resources and capabilities of a company are rare, they are often valuable and can give a competetive advantage

Most companies therefore underline how rare they are

Imitability

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If a companys resources and capabilities are difficult to imitate, it can gain a competetive advantage. There are 3 typical ways of doing this: 1. To have a long history, developing a strong organisation, method and respectability 2. To make many small decisions, so it becomes difficult for competitors to isolate and copy the companys resources and capabilities 3. To create a good co-operative spirit in the company

Organization

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Barney understands organization as formal structure. For instance: Quality control Stock management Accounting systems Salary agreements of bonus systems Employees should be organizable are they able to submit to the organizational systems. Also the systems can both strengthen and weaken the company by being either appropriate or too rigid

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Answering VRIO
The Question of Value "Is the firm able to exploit an opportunity or neutralize an external threat with the offer?" The Question of Rarity "Is control of the resource/capability in the hands of a relative few?" The Question of Imitability "Is it difficult to imitate, and will there be significant cost disadvantage to a firm trying to obtain, develop, or duplicate the offer?" The Question of Organization "Is the firm organized, ready, and able to exploit the offer?

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Exercise: How do you contribute to the VRIO of your company?

1. Consider if you contribute to: Value Rareness Imitability Organization 2. In pairs: Present your VRIO-profil to eachother 3. In pairs: On this basis, discuss what management challenges you represent to your leaders

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Porter 5 forces Model

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Types of BPO
The world of business transformation outsourcing may be split under three broad heads: Process outsourcing BPO. IT outsourcing application, maintenance and development. Infrastructure outsourcing.

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Hamel and Prahalad - CC

Where the outside-in approach (such as Porters five forces model) places the market, the competition, and the customer at the starting point of the strategy process, the core competence model does the opposite by stating that in the long run, competitiveness derives from an ability to build, at lower cost and more speedily than competitors, the CC that spawn unanticipated products. The real sources of advantage are to be found in managements ability to consolidate corporate-wide technologies and production skills into competencies that empower individual businesses to adapt quickly to changing circumstances. CC can

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CC can be seen any combination of specific, inherent, integrated and applied knowledge, skills and attitudes Dismiss the portfolio perspective as a viable approach to corporate strategy Primacy of SBU is now clearly an anachronism Corporation should be build around a core of shared competencies

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Three Tests to identify a CC

1. provides potential access to a wide variety of markets 2. should make a significant contribution to the perceived customer benefits of the end product (s) 3. a CC should be difficult for competitors to imitate Core competencies are built through a process of continuous improvement and enhancement. They should constitute the focus of corporate strategy. At this level, the goal is to build world leadership in the design and development of a particular class of product functionality. Top management can not be just another layer of accounting consolidation, but must add value by enunciating the strategic architecture that guides the competence acquisition process. Once top management (with the help of divisional and SBU managers) has identified an overarching CC, it must ask business to identify the projects and the people closely connected with them. Corporate auditors should

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Integrated IT BPO organizations are better suited to win these contracts. This is in line with what we see in India. Most companies that started their operations with call centres and scaled their business with them, are increasingly looking at growth from knowledge process outsourcing (KPO) and the non-voice side of business. The scope for intelligent optimization here is immense. Indias large educated population is well suited to meet these requirements.

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Legal process outsourcing, medical transcription, remote diagnostics, sales order processing, procurement, claims processing, finance and accounts services, insurance claims processing, mortgage processing, securities underwriting, equity research, secretarial services, language translation etc. the list can go in terms of the work that can get outsourced.

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The Advantage - India

The biggest difference between KPO/transaction processing and the call centre business is a less stringent demand on voice communication. Indians by nature are introverts and a very small percentage of the population can communicate in a neutral accent. Expecting an Indian to talk like an American is the same as expecting an American to talk like a Tamilspeaking person. The beauty is that hundreds of thousands of Indians do it, while even a handful of Americans may not cross the bar.

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In emerging countries like India and the Philippines, the word BPO is loosely used for any non-IT outsourcing work. Globally, contact centres or call centres as a business are distinctly separate from BPO. Given the dominance of India in the IT market, another term used to describe BPO/contact centre work is ITES (IT enabled services). Work done by voice-centric BPO companies would normally be in the customer relationship management (CRM) space.