1. Introduction and objectives
2. Process outsourcing
2.1. Business Process Outsourcing
2.2. Knowledge Process Outsourcing
2.3. Medium sized enterprise segment in EU
2.4. Prevalence of process outsourcing in Western Europe
3. Process Outsourcing analysis
3.1. Medium enterprises SWOT analysis
3.2. Medium Enterprise PESTEL analysis
3.4. BPO trends for SME in Western Europe
3.5. BPO strategies for improving outcomes
3.6. Regional differences in Europe on business process outsourcing
4. Process Outsourcing quantitative research
5.1. Summary of findings
Conclusions, recommendations and lessons learned
Business process outsourcing is a theme of growing interest within Europe. As the business environment is recovering from the financial crisis, entrepreneurs are focusing on reducing operational costs, improving process quality and efficiency. Business process and knowledge process outsourcing are seen as key tools for companies towards reaching operational excellence. The aim of the book is to study the key trends and strategies with regard to BPO, among medium sized enterprises in the services industry, within Western Europe. Companies in this scope have the highest potential to benefit from business process outsourcing, due to the relatively low investment requirements, ease of process transfer, management and development, better capabilities of harmonization, greater visibility and control (Ernst Young, 2013).
Cost savings is still one of the key drivers for outsourcing. However, attributes such as process quality improvement, gaining access to world class process standards, and sustainable growth are also drivers for BPO. The modern entrepreneur aims for agile management of operations. Core processes are selected and managed in-house while the secondary processes are outsourced. This balance helps to optimally manage business operations, while maintaining control, visibility and cost optimization. Medium enterprise segment within Western Europe is showing fragile but stable growth since the financial crisis. There is EU wide recognition of the contribution by the SME segment. Therefore, several funding programs have been established to support the establishment and growth of enterprises. This provides benefits to both entrepreneurs as well as the regional economies. This is a key enabler for the growth of small and medium enterprises within the European Union (European Commission, 2014).
Based on the analysis, calculations and survey results, it is proven that business process outsourcing can deliver high performance to medium sized enterprises. There are new trends and strategies which help to minimize risks and maximize gains. Through careful planning, solid execution, and continuous improvements, companies can gain value beyond cost savings. As the business environment becomes more globalized, the impact of process outsourcing to successful business operations is of paramount importance. Therefore, it can be concluded that BPO is a critical success factor and key contributor for sustainable business development.
1. Introduction and objectives
The modem global business environment is in constant shift. There are frequent changes in the world affecting entrepreneurs, ranging from technological, socio-economical and geopolitical to healthcare factors. Companies, especially in the medium segment are continually analyzing the impact of these attributes and trying to adapt to new norms in the aim of securing operations and profitability for the future. Medium enterprise segment is an important contributor to the European economy. During the years, enterprises have been focusing more on the outsourcing of business processes in order to improve profitability and performance. The overall aim of the book is to study the strategies of “Business Process Outsourcing, focusing on medium sized enterprises in the services industry, within Western Europe”.
With regard to the services sector, the scope will be on enterprises within business and financial services (NACE classifications K and M) as defined (European Commision, 2012). Furthermore, an important division of Business process outsourcing (BPO), knowledge process outsourcing (KPO) will also be studied. These processes are interconnected and are prevalent within the services sector. In addition, a review will be conducted on medium sized enterprise expectations from BPO/KPO, the types of outsourced processes, costs savings potential, drivers and challenges, opportunities in European Union, and outlook for the future. Through careful research the author will summarize the key strategies on how to maximize gains, maintain operational efficiency and controls. It would provide an objective overview on potential savings through outsourcing.
Furthermore, a study will be conducted on regional, enterprise, industry, company and employee perspectives to obtain information related to process outsourcing. Data will be analyzed from subjective and objective perspectives. In addition, statistical and empirical data will also be examined. Based on the findings, the final conclusions will be formulated. Thereafter, the author will be able to make an informed decision on the BPO trends and strategies in the medium enterprise segment.
Overall, the business process outsourcing (BPO) is growing worldwide. More and more companies are using BPO as a tool to reduce operational costs, automate processes and improve quality. More importantly, BPO helps companies to outsource their secondary processes; thus it gives the ability and opportunity to focus more on their core business. As a pre-study for process outsourcing, selected BPO partners are carefully analyzed. These companies have specialized knowledge in the specific business process, and are up to date in the market trends and best practices.
As a result, companies are able to transfer processes to outsourcing partners with confidence. The operational costs are usually decreased in the long term. Investment needs for internal process development is eliminated, functions could be automated, and quality would be improved. Medium enterprise segment within the services sector have much to gain through business process outsourcing. This sector has relatively high sensitivity to financial, socioeconomic and geopolitical risks. Therefore, careful management of operations and optimized costs are vital for growth. BPO and KPO provide this opportunity. In-house business process management is costly and consumes significant amount of resources. It requires heavy investments and know-how on how to best manage processes. By outsourcing such functions, companies in SME segment can ensure transparency, aim for better quality, reduce costs both from an investment, resourcing and maintenance perspective, and most importantly they could focus on core operations and business development.
As for geographical scoping of Western Europe, the analysis will focus on commonalities as well as regional differences in northwest and southwest Europe with regard to BPO. The book will specifically focus on companies in the services sector concentrating on finance and business services, other sectors such as trade and distribution, government and public, pharmaceuticals, and production sectors are excluded from the study.
As companies start to expand internationally, the savings impact of outsourcing also increases. Scalability is an important attribute in BPO. Companies may operate in multiple subsidiaries or locations. By using BPO services, the cost savings impact would be higher. Also, a new component is added; “Centralized outsourcing”. Companies need to have visibility and control over their global processes. By focusing on centralized outsourcing, companies will gain transparency of operations for all its subsidiaries and locations. It creates a high level of business intelligence. As a result, business control and management becomes easier. Operational cost reduction potential increases.
As the business environment becomes more complex and globalized, the relevance of BPO is clearly prevalent. Through careful planning outsourcing partnerships, companies in the SME segment can increase yields. Through smart BPO, enterprises can focus on their core business, increase profitability, aim to be market leaders and generate sustainable growth.
2. Process outsourcing
Process Outsourcing (PO) is described as a method of subcontracting business related operations to a selected third party service provider (Scarborough, Wilson, Zimmerer, 2009). During the last decade, the focus towards outsourcing has been constantly growing, especially in the services sector. There are 2 distinct branches of outsourcing which is business process outsourcing (BPO) and Knowledge process outsourcing (KPO). A key driver for BPO is the cost savings potential, complemented further by process improvements, access to latest technology and trends, quality enhancements, and better control capabilities. In BPO, a company has the flexibility to select processes to be outsourced. Furthermore, an analysis is done on preferred partners for outsourcing.
Since the latest economic recession, medium sized enterprises interest in BPO has clearly increased. These companies face a comparatively high risk towards economic volatility. Therefore, they strive to maintain low operational costs and minimal investment expenses. The focus is more on business development and resource optimization while maintaining profitability. Since the 2008 recession, SME segment growth in Europe today still is in a fragile state. Companies focus on cost savings, eliminating unnecessary expenses administration processes, increasing automation, better process control and organic growth. BPO is in line with this strategy. The SMEs in the Western European is expected to grow during the next years. Therefore, the utilization of BPO is forecasted to increase (European Commission, 2014).
This section will discuss the overview of business and knowledge process outsourcing. It will focus on planning and executing a BPO program, including process selection, partner selection, outsourcing methods, risks, challenges, opportunities and control mechanisms. The objective of the chapter is to present a comprehensive outlook of the BPO industry with direct focus on medium sized enterprises in the services sector, in Western Europe. The study also will illustrate the shift in norms, key drivers and the next generation developments.
2.1. Business Process Outsourcing
The interest in outsourcing business processes has seen constant growth especially within the medium segment enterprises within Europe. This is driven through the demand to reduce costs and resources, automate processes and have better quality and results from operations. BPO is a strategic decision. By careful outsourcing, companies can focus on their core operations and business development. Within the services sector, the knowledge process outsourcing (KPO) is closely connected to BPO. There are several important steps to be considered in the outsourcing process. The initiation stage is where a company analyzes its current operations process in order to understand its strengths and weaknesses. Strategic objectives should also be carefully considered. A categorization of primary (core) and secondary (non-core) processes is the then conducted. This helps to carefully plan on which processes to outsource and through which means. The best practice is to outsource secondary processes so the company can fully focus on its business (Ernst Young, 2013).
In order to identify the business impact, a company needs to create a business case calculation. The principle here is to state all costs related to establishing and maintaining secondary processes. It is also important to define the business impact of outsourcing processes on an individual level. There could be secondary processes which are of high costs but still should not be outsourced. Therefore, each process should be carefully selected based on business and financial impact principles. The outsourcing partner selection is also a vital step. The company should decide if to outsource all processes to a single partner, or conduct a process based outsourcing to multiple partners. It is important to understand that process outsourcing is not only solution but is also generates a partnership with the BPO partner. It’s a long term commitment. Although price is one of the drivers in selecting outsourcing services providers, the quality and scalability are also important attributes to be considered. It is of critical importance to ensure that the partner provides the services according expectations and that there is future potential for growth.
The success of the outsourcing is dependent on the planning and execution. In order to excel in this process, the transition should be conducted as a structured BPO project. It would ensure that the service is outsourced as planned, but importantly, that it is functional according to the customer expectations. Furthermore, the outsourcing project should deliver the anticipated cost and quality benefits.
2.1.1. Selection of business processes for outsourcing
Companies need to carefully analyze and determine which functions or processes to outsource. Among companies in the services sector, most commonly outsourced functions are related to finance or administrative support processes. Each company defines as to which are the core and non-core processes. It is most frequently the non-core or secondary processes that are outsourced. As a result, the company is able to focus on the core business and ensure growth. Furthermore, by Non-core process outsourcing, companies reduce the costs, but maintain control and quality through strategic partnering. Companies analyze the business impact and importance of processes, in the decision making for outsourcing. Majority of outsourced processes are related to finance, supply chain and administration functions. With regard to enterprises in services sector, the most frequently outsourced processes are shown below with the respective percentages (Ernst Young, 2013) .
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Figure 2.1. Processes and the frequency of outsourcing in Europe Source: (Ernst Young, 2013)
2.1.2. Drivers of business process outsourcing
BPO is a strategic opportunity for companies to focus on core functions, where a selected partner manages the secondary processes. In order to achieve the best results from outsourcing, the process should be managed according to a structured methodology. The key drivers for outsourcing are related to cost reduction on operational and administration, improving efficiency of processes and need reducing number of personnel, this contributing to cost savings.
Based on studies (Frost, 2000), (Ernst Young, 2013), (Deloitte Consulting, 2013), main drivers for BPO are as follows.
- Better control and reduction of operational costs
Companies aim to reduce their expenses related to operations and administration by outsourcing the services. Most of the outsourced processes are secondary functions such as HR, Finance, Legal, Helpdesk, Marketing etc...)
- Improving focus on core operations
As the secondary functions are outsourced, companies can better focus on the primary functions and drive business. It gives more opportunities in generating growth and business development
- Gaining access to latest process trends and world class capabilities
The outsourcing partners are specialized in services and therefore are up-to-date in technology trends and best practices. Most of the services are scalable. Therefore companies can significantly improve their process quality and capabilities.
- Optimally utilize personnel for core business operations
With the outsourcing of services, the internal personnel need for companies decrease. These resources can be utilized for the core operations of the company, or they are made redundant. From a cost perspective, BPO generates opportunities to decrease personnel costs.
- Complexity to manage and control processes
As process maturity increases, its management costs and resource requirements also grows. It cases adverse effects to companies. Through BPO, processes can be streamlined, structured, and optimized. Methodologies such as “Six sigma” and “Lean” are used to reduce the lead time, decrease process errors and improve speed and efficiency. It also generates better control and transparency.
- Mitigation and sharing of business risks
Having all processes managed in-house is a business risk. Through clever outsourcing strategies, this risk can be diversified. Therefore, in the event of an unexpected risk realization, the negative impact is reduced, and BPO serves as a contingency plan for business continuation.
- Improve quality and efficiency of processes
By using experienced and innovative BPO partners, companies can outsource processes and increase the quality. Through access to latest market trends, technological advancements, centralized monitoring capabilities, and efficient change management, processes quality can be significantly improved to serve customer needs. Furthermore, by adapting to continuous improvement methodologies, the BPO functions will remain up-to-date. As a result, companies can gain heavily and it will contribute to the business operations and add value beyond cost savings.
2.1.3. Implementation of business process outsourcing
With regard to process implementation, it is important that the planning, migration and follow up activities are conducted according to a structured framework. Analyzing studies (Deloitte Consulting, 2013) and (Hewlett Packard, 2013), a core framework has been identified for effective business process outsourcing, focusing on small and medium enterprises.
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Figure 2.1. BPO migration process Source: Deloitte Consultancy Services
The following key steps are stated in business process outsourcing (Deloitte Consulting, 2013).
1. Due diligence on business processes
2. Define outsourcing approach
3. Manage migration project
4. Post migration follow up
5. Continuous improvements
- Due diligence on business processes
An analysis is done on the company’s existing business processes. The categorization of core and non-core processes is conducted. Thereafter, these are cross checked based on the importance and cost impact of in-house management. An analysis should be conducted also from a strategic perspective to ensure that long term business goals are considered. As an outcome from the study, the list of processes for outsourcing is formulated. These are to be discussed and agreed with the BPO partner in order to finalize the objectives and plan the next steps.
- Define outsourcing approach
The next step in the process is to clearly define and plan the outsourcing approach. Depending on company expectations, BPO can be conducted based on a prioritization method. The components include processes, systems, organizational units and countries. Further classification can be done based on cost and quality impact. It is important that all parties agree on the migration approach in a detailed level. This contributes to a smooth transition and minimizes risks. The key outcomes from this study include a migration strategy, rollout plan, and a transition plan.
- Manage migration project
The success of a BPO is highly dependent on the effectiveness of the migration project. A dedicated team is involved both from a company and BPO service provider. They come together in order to plan the project, focusing on the objectives, deliverables, tasks, schedules and budgets. Furthermore, accent is placed on communications, risk, quality, test, and go live plans. Analyzing several migration project management models, the model by Hewlett Packard (Hewlett Packard, 2013) seems to provide a comprehensive coverage on the most important aspects. A structured 4 phase methodology is presented covering the design, build, test, and go live phases.
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Figure 2.2. HP BPO project model: Phases and objectives: Source (Hewlett Packard, 2013)
The migration needs to cover processes, knowledge, software and tools, instructions, training, reporting functions and personnel. Since it’s a multidisciplinary project, careful planning and execution is needed. Overall, the project team needs to drive the migration and ensure that it is completed according to the defined scope, schedule, timeline budget and quality standards while maintaining high levels of customer satisfaction.
- Post migration follow up
Upon the completion of the migration, it is of importance to closely follow to ensure that migrated processes function as planned. The successes and failures of the migration should be carefully evaluated. Lesson learnt analysis is a key attribute. The outcome of the analysis would help to improve the quality and efficiency of the next rollouts.
In order to measure the performance of the post migration process, key performance indicators (KPI) and controls should be set in place. It would provide visibility on the overall functionality, quality, integrity, consistency and problems could be addressed.
- Continuous improvements
Once the base process has been established and is functional, regular review and improvement practicality should be set. It would give the opportunity to detect problems and fine tune the overall solution. This would create a continuous improvement process, and as a result companies would be able to establish efficient, cost effective processes and maximize benefits.
2.2. Knowledge Process Outsourcing
Business process outsourcing is an important contributor to a company’s productivity, profitability, and operations quality. However, BPO is focused on a specific process. In order to effectively manage and develop an outsourced function, the core knowledge, expertise and insights should also be considered. This would add much greater value than merely having a process outsourced. As a result, the concept of “knowledge process outsourcing” (KPO) is formed. It is the continuation of BPO, where a process, together with the obtained in-house knowledge and information, is outsourced. The objective of KPO is to ensure improvement of process effectiveness, efficiency and cost optimization. Furthermore, anticipation from KPO is to obtain best practices of the industry, consultancy and insights from outsourcing specialists. KPO is used a preferred option when there would be the lack of in-house competence, knowledge or high costs related to specialists are prevalent. BPO focuses on processes expertise whereas KPO focuses on business expertise (Mierau, 2007).
Based on a recent study conducted (Capgemini, 2013), companies are looking for more than cost savings in process outsourcing. Due to this specific reason KPO is used. It gives the opportunity to utilize best competences, knowledge and strategic insights in process management, beyond simply replacing or transferring a function. Knowledge process outsourcing can be considered as the continuation of business process outsourcing. KPO focuses on the intellectual value chain. KPO deals with deep process knowledge, domain expertise, use of industry or market niche, and superior analytical capabilities within process management.
Within a traditionally outsourced business process, there are clear definitions on handling operations. Rules have been set on which actions to take in each scenario. Considering this fact, BPO is highly useful in functions requiring high resource capacity and manual processes. By outsourcing such functions, companies reduce costs, improve productivity of retained workforce, and aim for improvement of the outsourced process. However with KPO, there are no clear rules and guidelines on processes. With this regard, relatively advanced and non-defined processes are outsourced.
A high level of expertise and skill is needed in order to analyze outsourced processes, manage and develop them. Therefore the focus is on deep knowledge in specific industries, market segments, domains and business processes. When outsourcing knowledge, companies transfer their competence to the partner. Thereafter, KPO specialists evaluate this information and utilize in process management.
In order to succeed in KPO, partners should have highly skilled experts with superior analytical and judgment skills, deep industry and process competence, logical decision making skills, and a mindset towards business development and continuous improvements. To summarize, KPO is an advanced form of outsourcing, and requires competences with specialized knowledge, in order to successfully manage outsourced processes.
As illustrated in figure below, traditional BPO process includes a narrow scope and standardized processes with defined instructions. The outsourcing of business processes deliver value from cost reductions and productivity improvements. Costs are reduced through personnel redundancies. This contributes to increased productivity as well. Furthermore, the improved efficiency, speed and quality of outsourced process would also contribute to generating value.
With regard to KPO, it is a continuation of BPO, and can be realized as role based KPO and Analysis based KPO (Capgemini, 2013).
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Figure 2.3. BPO and KPO overview: Capgemini Consulting Source: (Capgemini, 2013)
Comparative analysis between BPO and KPO
Based on a study (KPMG Consulting, 2014) on Knowledge process outsourcing, the following graph is created to illustrate the differences between Business Process and Knowledge Process Outsourcing.
In knowledge process outsourcing, the functions are industry specific, case dependent and relatively complex. There are no clear definition and rules for the result. Due to this fact, it is important that the specialists in the outsourcing partner have the skillset and mindset to analyze data, cross check against industry and market information, and make an informed decision on managing processes. With regard to value generation through KPO, it is attributable to cost savings and productivity improvement through headcount reduction and increased efficiency of outsourced processes.
Furthermore, the expertise gained through the outsourced partner is a contributor. In analysis based outsourcing, there are also insights obtained by the outsourcing specialists. This is a direct result of having highly skilled consultants with deep industry/ domain expertise.
The value equation proves that companies can gain better outcomes through knowledge process outsourcing. The value gained as expertise, insights, industry knowledge has an immense impact to the business development. It shows that through BPO and KPO, companies can gain value beyond cost savings. A key benefit in KPO is that companies can utilize highly skilled international expertise for process management and development. The need for expensive inhouse specialists and tools can be eliminated. Experience of highly educated consultants with dedicated area specific knowledge can be obtained at a lower price. KPO is also a solution for the shortage of skilled specialists, which is prevalent EU. As a result, KPO is an opportunity for medium sized enterprises to gain expert knowledge, improve process efficiency, quality, and cost savings in business operations.
A key risk connected to Knowledge process outsourcing is the intellectual property (IP) rights and conflict management. In contrast to BPO, KPO functions distinctly involve knowledge, competence, skills, and insights acquired by a person or an organization. The use of data should be conducted in a controlled manner, adhering to confidentiality agreements and respecting the international standards of intellectual property protection rights. The long term relationship in KPO is dependent on the integrity, consistency, professionalism and business ethics of the outsourcing partner and the company. Quality assurance measures include setting a defined process on intellectual property and conflicts management, Careful selection of workforce for KPO activities adhering to strict security clearances and Non-Disclosure agreements, and certifications and audit approvals on data security and transparent operations. Furthermore, the intercultural and language barriers should also be taken into consideration especially in KPO. As the complexity of the outsourced processes is high, and there is no strict definition on results, specialists should be able to explain their decisions, conclusions and judgment, basing them on concrete facts and figures. In order to succeed in this area, the specialists need to have superior analytical and decision making skills, outstanding communication skills, global experience and local knowledge on the customers industry and business environment. Most of all, the professionalism, mindset and proactiveness play a key role in successful KPO management.
Overall, by carefully planning the outsourcing methodology, minimizing risks and focusing on opportunities, medium sized enterprise can make significant gains through KPO, as a complementary process to BPO.
2.2.1. Risks in process outsourcing
Business or Knowledge Process Outsourcing is a strategic transition. Undoubtedly it needs to be carefully analyzed, planned and executed. Companies are vulnerable in the migration process due to the risk of failure during the transition. As an adverse result, if the outsourcing fails during the migration, both the “as-is” process and the “to-be” process would fail. The outcome would pose a serious threat to business continuity. Therefore, the risks in BPO should be studied and mitigation plans should be prepared to manage and overcome them.
The main risks in the outsourcing process can be categorized into 3 areas: Operational risks, Strategic risks and Composite risks (Wharton Business School, 2005), (Ernst Young, 2013).
- Operational risks
These risks are related to the daily operations of the company. If realized, it could disrupt the functions of the company. These are primarily short term risks.
The main operational risks are as follows
Risk of losing control, overview and transparency of processes o Hidden costs of outsourcing o Loss or decrease in service quality o Communication and co-ordination issues o Low motivation of employees
Operational risks are exposed as breakdowns in the daily processes and are more visible in manual processes. Mitigation of operational risks is crucial for the company. Process outsourcing is a change in functions. Therefore, it is important to clearly understand these changes and its impact, both from a short term and long term perspective. Thereafter, plans can be made to manage the impact. Outsourcing creates a partnership. Investigations should be done at an early stage to analyze the operational capabilities of the BPO/ KPO partner and confirm that they are in-line with the company’s expectations.
Studies (Leavy, 2004, pp. 20-25) show that majority of operational risks are caused in the transition period due to gaps in communication and mismatch in expectations. By addressing issues early and by selecting an agile, customer focused outsourcing partner, these risks can be effectively managed.
- Strategic risks
These risks would pose a threat for business long term continuity if realized. It would harm the company’s strategy and vision. As a result it would adversely affect strategic growth. These risks are connected to company’s long term business goals. With BPO/ KPO, companies are giving away a process to be managed externally. With this transition, the process knowledge, competence, resources and development plans are also eliminated. It naturally causes a dependency towards the outsourcing partner.
Main strategic risks are as follows (Ernst Young, 2013), (Wharton Business School,2005).
Loss of intellectual rights, confidentiality, data security o Lack of knowledge related to new developments in the outsourced process o Outsourcing of functions which should not be outsourced o Incorrect timing for outsourcing o Multiple BPO partners and complex processes
If strategic risks are realized, these could be interpreted as an outsourcing partner’s opportunistic behavior to get more gains through providing lower quality service. Fraud, data theft, price changes, and understaffing processes are most adverse reflections of strategic risks. Process outsourcing undoubtedly is a strategic move, and companies should carefully plan the transition. Naturally the outsourcing incurs investments. Therefore, correct timing is of essence. As an example, planning a BPO/KPO during a potential growth season could have adverse effects because the funds and resources would have to be turned away from business development activities towards BPO. It would not deliver the expected results from outsourcing. Therefore, timing of outsourcing is essential. Mindful planning and execution, to minimize strategic risks and maintain seamless business operations is of key essence.
Careful attention should be given also in the BPO/KPO partner selection. Strategic level discussions are needed to understand the partner’s capabilities to deliver value and quality services in the long term and confirm ethical and sustainable business practices. As businesses become more globalized, the scalability and reference customer feedback is also of high importance.
- Composite risks
These are long term risks which would hinder the company’s competence and capabilities to manage the business. These also include the risks caused by technological, geopolitical and socioeconomic changes. The primary categories of composite risks are as follows
- Loss of process competence, resources and skills
- Dependency on BPO/ KPO partners
- Risk of changing outsourcing partner due to internal/ external factors
- Intercultural and language attributes
- Instability in the geopolitical or socioeconomic environment
Through long term outsourcing, companies lose the capabilities, know-how, competence and resources to manage business processes in-house. A clear dependency is then created on the outsourcing partner. In the future, if the company decides to take back the process, they will lack the capabilities to effectively do so. It may pose hindrances when new products or services should be launched and process competence is needed. In order to minimize the adverse effects, companies should retain at least minimal control and resourcing for the outsourced processes. They will have the expertise and in-house knowledge on best practices adhering to the company strategy. Furthermore, the selection of the partner location also is of key importance. Geographical and political stability, social status and gaps, micro and macro-economic growth, infrastructure capabilities, intercultural aspects, and future growth forecasts should be carefully considered to mitigate the composite risks.
Overall, careful thought should be given to different risks and the categorization should be done on the risks with highest importance and impact. These should be mitigated first and move on to the next ones. An important insight is that risks have interdependencies. These should also be carefully analyzed and managed.
The weakest links should be handled with urgency, and it will create relative stability. Then the secondary issues are to be addressed to generate growth, and it will eventually contribute to long term BPO excellence. Based on a study conducted by the University of Pennsylvania (Wharton Business School, 2005), majority of risks can be avoided if the best practices of the company are also established at the BPO partner. It will contribute to seamless transition, better understanding of processes and functions ensure compliance according to legal and business standards and provide value to both company and the BPO partner.
It will create a synergy where a sustainable strategic partnership could be established to ensure high quality, cost effective, transparent services. Based on study (Tata consultancy services, 2013), the level of business process competence between companies and BPO partners differ in each area. By adopting a knowledge sharing strategic partnership, these gaps can be
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Figure 2.4. Comparative analysis of business attributes between Company's and BPO partners
Source: (Tata consultancy services, 2013)
The principles in BPO risk management include risk identification, assessment and analysis, management plan creation, execution and monitoring, control and continuous improvements. Therefore, a standardized framework approach should be adopted. With this regard, the following best practices of BPO risk management have been analyzed (Tata consultancy services, 2013).
Success factors in BPO risk management process
1. Contracts, service level agreements (SLA) and operations level agreements (OLA) should be defined to meet and exceed compliance requirements. It will help to minimize the risk of non-conformities. It will generate transparency and increase quality in process excellence.
2. Governance team to monitor and control outsourced processes. It will help to ensure that despite outsourced, the process control and integrity is intact. This will also create opportunities for continuous improvements
3. Selection of BPO partner which adheres to global standards and best practices. This is a strong point in international operations. Strengthening the compliance, it will further enable scalable outsourcing of global processes and generate confidence to companies as state of the art standards will be available through BPO.
4. World class tools for streamlined operations and transparency. These are important factors in the BPO process. Customers need visibility to data and processes, with capability to analyze and made decisions on business operations.
5. BPO staff monitoring procedures. Outsourced processes contain certain levels of manual functions. Human factor risk is prevalent. Steps to minimize human errors, increase data security and personnel monitoring is an important step towards secure BPO.
6. Business continuity management and contingency plans. In case of an unexpected disaster or catastrophe, the services still need to continue. In order to achieve business continuity, careful contingency planning should be done with the BPO partner. This will result in better preparation, functional integrity, and assurance on long term operations. Overall, it will give peace of mind to entrepreneurs, and deliver value beyond monetary terms.