How to Effectively Implement Business Process Outsourcing

How to Effectively Implement Business Process Outsourcing

Different industry analysts peg the projected compounded annual growth rate (CAGR) of the Business Process Outsourcing (BPO) industry at between 3 and 9 percent. Though they differ in their growth estimate, and even in the size of the industry depending on inclusions and exclusions, the one thing that this tells us about the industry is that they are all united that it is expected to continue to grow strongly over the next few years, depending on their horizon of projection.

The industry has grown over several decades. Starting with tentative efforts to outsource to another unit of the company not too far away, the industry has spread its tentacles all over the world, riding on the back of the explosion in digital and telecommunications technology as well as the expansion and stabilizing of the internet which is able to carry increasingly large volumes of data.

The BPO industry has, indeed, become an ubiquitous tool in the armory of corporations both large and small as a strategy. While larger corporations, with their larger volumes and greater projected benefits were the early movers, smaller companies have, since, joined the fray as well. Today, many startups prefer to directly outsource some of their functions without ever handling them inhouse, such is the credibility of BPO.

It is not to say that it is a strategy that is bound to succeed. While there are many examples of success, there are examples of failure of the strategy as well. Some companies have resorted to changing suppliers several times, while some have even brought the work back inhouse.

Entering the industry with a splash almost eight years back, today oWorkers is a force to be reckoned with and recognized as one of the top three providers in its chosen area of data-based BPO services.

 

Advantages of BPO

As companies are deliberate creatures that act only in pursuit of their goals, the growth of the industry means that there must be benefits that it has delivered to its clients. There is no other reason for it to have consistently grown over so many years and continue to be projected to grow over the next few years.

What are the major benefits delivered?

Financial benefits

At the end of the day, a company measures itself on its financial performance, hence, financial reasons are always the most compelling ones in the adoption of a strategy.

It is the same with BPO adoption. There are compelling financial reasons that make BPO a viable strategy in many cases.

How is that?

Employee cost – BPO providers specialize in analyzing tasks, or processes, and breaking them down to smaller pieces that can then get performed by people with lower requirements of education, knowledge and experience than would otherwise be possible. This, naturally, means that the same work gets done by resources that cost less.

Locational benefit – With digitization of data and the ability to share information to any part of the world through the internet, processing centers, that do not need to be located in expensive real estate for the sake of access to customers, are being taken to the far corners of the world, where the local regulations support setting up of such facilities and there is availability of a talent pool that can be employed for doing the work. Even though some costs, like that of supervision, might increase, with increasing volumes, the reduced cost far outweighs the increase in certain aspects of cost.

Scale – Specialized providers, who provide the same, or similar services, to many clients, not only develop expertise in the subject, but are also able to

oWorkers operates out of three of the most visible delivery locations in the world and is recognized as a preferred employer in each. This draws a steady stream of job applicants enabling a choice of the most suitable ones for each project at the most reasonable prices. Not having to advertise for resources is also a saving that finds its way into the pricing offered to clients.

Strategic benefits

A company is most familiar with its own industry. Running a business, however, calls for skills and knowledge in many areas that go beyond the pale of the industry. A company has to file tax returns, it has to compete in the labor marketplace for resources, it has to ensure that its facilities comply with fire and safety regulations, and many more. Attempting to do everything inhouse can strain resources and take the focus away from the core business.

Hence, for many companies, it is a strategic decision to outsource activities that might not be core to their business. This way, they get an expert to carry out the functions which they may themselves be ill-equipped for. At the same time, the time released can be gainfully employed in pushing their own revenues.

Whether invoice processing or data entry, social media moderation or machine learning data annotation, oWorkers provides specialist support to clients in their area of requirement with a team that operates 24×7.

Technology

Though it was a supporting play in the early days, today technology has come to be a reason for the engagement of a BPO partner.

Why is that?

Many companies are unable to invest in processing technology either because of small volumes or low priority for non-revenue generating activities. This results in inefficiencies in processing.

A BPO partner, however, can invest because:

  • It has higher volumes as a result of doing the same thing for many clients
  • It is a revenue-generating activity for them and will get management attention

Thus, the outsourcer can benefit from advanced technologies if they choose to outsource to a provider who either has it or can procure it.

Like oWorkers, which has nurtured relationships with top technology providers. This gives them unparalleled access to the latest technologies and even deploy them on client projects.

 

Challenges with the BPO model

There rarely are unmixed blessings. BPO is no different.

Transition and management

A client considers a BPO option for activities that need to be done by people. It is to be understood that if it could have been automated, it most likely has been. When processing is done by people, knowledge keeps getting developed, not always formally and documented.

A BPO contract requires a transition of the work to the vendor. This requires equipping them with the knowledge and skills which the client’s staff have, probably, taken a lifetime to develop. Hence, errors are made and there are gaps that need to be filled as time goes by. Moreover, even after a transition has been achieved, the client needs to invest resources in monitoring the vendor.

It is a commitment of time and resources, initially as well as on an ongoing basis, by the client.

With a leadership team that has many years of hands-on experience in the industry, oWorkers is well placed to not only navigate the treacherous paths of transition, but also hold the hands of its clients and guide them along. 

Poor service

While vendors promise the best quality at the lowest price while pitching for business, the reality may turn out to be different. This can become a nightmare for the client and result in an impact on their core business as well.

The client may have achieved a certain equilibrium between the three sides of what is known as the Iron Triangle of delivery – Quality, Cost and Speed. The vendor might have a different view of the equilibrium. Getting the two to align can take time and cost money.

The vendor is providing the service as a business. They need to make money as well. This could lead to cutting corners in areas where it hurts the client’s business. Staffing is a common example. Many BPO projects are often beset by attrition, as the pay is low and the work hard. The vendor’s inability to stem attrition can cause continuing loss of knowledge and repeated efforts at building it up. This will cause stress and financial strain for both the vendor and the client.

Working with employed resources, as oWorkers does, compared to contractors and freelancers, as some of its competitors do, has benefits, as the oWorkers team will tell you. With a career at stake, and not merely a temporary engagement, the oWorkers team makes it a point to meet and exceed client expectations. oWorkers routinely receives ratings of 4.6 or more, on a scale of 5, on external platforms like Glassdoor, from past as well as present employees.

Labor law compliance

On the one hand, outsourcing could result in shedding of staff. Not all jurisdictions turn a blind eye towards staff being released. There could also be compensation payments required to be made to the staff being released by the client. Of course, there will be a loss of knowledge that has been accumulated over the years.

Additionally, if the vendor operates in another jurisdiction, compliance with labor and other laws there will also need to be ensured. One does not want one’s image to be tarnished because a BPO vendor failed to pay the minimum wages stipulated.

oWorkers operates as a locally incorporated business in each of its three delivery locations. They recognize and respect the local laws. They pay

Cost and scope creep

In the early days of BPO contracting, one common challenge that used to surface after some time of the transition having happened, is that the client would find that adequate provisioning had not been done for the additional cost and effort that might be required in the oversight of the vendor.

Though modern contracting is much more evolved, this issue does crop up time and again.

From the vendor’s perspective, scope creep creates a challenge to the relationship. Before a transition has happened, the vendor, though he might have an understanding of the business, industry and process, does not know the nitty gritty of each process. That becomes known only after the contract has been signed and the transition done. Only then the vendor might realize that some of the assumptions made while taking the business do not hold true and impact adversely on financials.

oWorkers has consistently been able to offer savings of up to 80% to clients, especially the ones from North America and Western Europe, without any compromise on quality.

Reduced flexibility

With outsourcing, the ability to react quickly to market changes may be compromised. The vendor is likely to insist on a documented ‘change management’ process for any change which, while instilling discipline in the system, will probably reduce the client’s ability to respond with speed.

Lack of flexibility is the least of all concerns for clients of oWorkers. It can ramp up by a hundred resources within 48 hours, allowing the handling of unexpected and unplanned volume spikes without sacrificing revenue.

Data security and privacy

Though technologies have evolved, the threat of data being compromised is ever present. While it could also be present when processing is done inhouse, outsourcing the work adds a new potential ‘point of failure’ for the same. 

oWorkers operates out of Super secure facilities & protocols for your data security with ISO certifications (27001:2013 & 9001:2015), and is also GDPR compliant.

 

Navigating a BPO engagement

With the accumulated knowledge residing in industry veterans, as well as with the clients who have used the strategy over many years and decades, what are some guidelines and recommendations for managers who are in the thick of it now? What should they do? How should they go about outsourcing business processes so that their plans don’t run aground because of these challenges?

Attain internal agreement

Some outsourcers attempt to ‘play it by the ear’ and invite interest from potential vendors even before they are clear what they wish to outsource. This is a strategy designed to fail. Each bidding vendor will paint a different picture. Moreover, internal disagreements could result in a fraught start to the strategy.

It is recommended that the client identify the scope of outsourcing, including activities that are considered core business and clearly not on the list, despite the inducements offered. Moreover, internal agreement should be reached. Not only on the activities to be outsourced, but also the selection criteria for the eventual partner chosen.

Be prepared for change

On the face of it, many engagements try to do whatis known as a ‘lift and shift,’ In other words, what was being done here till today, will be done in a different place, by some different people, but exactly the same way.

This is an unreasonable and unrealistic expectation. It will not be the same. The legacy process will be broken up and again put together with the vendor’s involvement. Tasks could be broken down further, process flows might become different. The measure of success has to be defined and monitored, not whether the task is being done in the same manner.

Look beyond labor arbitrage

While labor arbitrage drives a significant volume of the BPO business, managers are well advised to look for a vendor who is in a position to potentially offer benefits that go beyond labor arbitrage. Specialization in the area and technology that supports the business are useful considerations that will add value over the budget. Just as cost creeps might erode some of the planned financial benefit, such benefits, if the vendor is able to deliver, could restore and even enhance the benefits.

Move in small steps

If a process is in the process of undergoing change, it is best avoided for transitioning in the hope of saving time and money by changing it while transitioning. Even established processes have failed while transitioning. A process undergoing change will be waging an uphill battle. And, if it does fail, as is likely, you will not even know where to assign the responsibility.

Communication strategy is useful

It is always best to avoid surprises, especially of the nasty variety. The leadership should be involved either as members of the steering committee or through a process of communication, so that the unfolding initiative is in the knowledge of people who are likely to be impacted by it. This includes clarity on the roles and responsibilities of the people involved in the process of transitioning as well as ongoing management, and the people responsible for authorization of different types.

Vendor selection

It is difficult to change a vendor in a B2B relationship. Of course, it can be done, but entails cost and effort. Hence, effort should be made to ensure that there is a proper selection process laid out, including due diligence and reference seeking and checking, before a contract is signed.

Standard Operating Procedures (SOPs) and Service Level Agreements (SLAs) are useful documents to have in addition to a signed contract.

Regulatory impact

In cases where the engagement involved offshoring, or, the vendor operates from a different jurisdiction, regulatory impact needs to be considered. There could be an impact of labor laws, there could be an impact of taxation laws and there could be an impact of workplace norms, amongst others. The impact needs to be considered while evaluating the pros and cons.

Evaluate option of Shared Service Center versus a Third-party Provider

In many cases, it may not be necessary to contract with a third-party BPO provider. An inhouse, or within the same group management, option in the form of a Shared Service Center (SSC) might also be a possibility. Many companies have started their BPO journey with the engagement of a third-party vendor but, as volumes grew and they gained experience, some of them have consolidated their process outsourcing under an SSC.

 

In conclusion

As with everything else in life and in business, there are no guarantees. If the business is inherently weak, outsourcing might reduce the bleeding for some time but may not be able to transform the business.

Like everything else, BPO is a tool to be employed when the conditions are right and the company has the wherewithal to manage it.

While the savings in terms of lower labor cost might be obvious, outsourcers need to carefully weave in the more difficult to identify additional supervisory and oversight costs that might be incurred. Pros and cons of SSCs versus external vendors should also be evaluated before taking a decision. As should be the capabilities of technological tools like Robotic Process Automation (RPA) and Artificial Intelligence (AI).

With services in 22 languages, a slew of unicorn marketplaces and technology companies from around the world as clients and a pricing model that offers a choice to clients between input and output models, oWorkers is the provider of choice to help you navigate the winding lanes of BPO contracting, transitioning and delivery.

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