essay business process outsourcing

Everything You Need to Know about Business Process Outsourcing

By Kate Eby | January 17, 2017

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In today’s connected world, a successful business is often an efficient one, and the difference can come down to smart, innovative processes, with suitably adept management to match. Novel, modern process management techniques can take your business from good to great. One outgrowth of BPM, business process outsourcing (BPO), can enable just such a change if enacted in a careful, conscientious manner and with a quality vendor.

This article has everything you need to know about business process outsourcing: what it is, what types of processes and functions BPO vendors support, the current state and future outlook of the industry, and how to choose a vendor that’s right for your company. Along the way, BPO experts weigh in, and we even provide a vendor scorecard template to make that decision easier for you.

What Is Business Process Outsourcing?

Business process outsourcing (BPO) is the practice of contracting a work process or processes to an external service provider. BPO fills supplementary business functions like payroll, accounting, telemarketing, data recording, social media, customer support, and more.

From fledgling startups to massive Fortune 500 companies, businesses of all sizes outsource processes, and the demand continues to grow, as new and innovative services are introduced and businesses seek advantages to get ahead of the competition. BPO can be an alternative to labor migration, allowing the labor force to remain in their home country while contributing their skills abroad.

BPO is often divided into two main types of services: back office and front office. Back-office services include internal business processes, such as billing or purchasing. Front-office services pertain to the contracting company’s customers, such as marketing and tech support. BPOs can combine these services so that they work together, not independently.

The BPO industry is divided into three categories, based on the location of the vendor. A business can achieve total process optimization by combining the three categories:

Offshore vendors are located outside of the company’s own country. For example, a U.S. company may use an offshore BPO vendor in the Philippines.

Nearshore vendors are located in countries that neighbor the contracting company’s country. For example, in the United States, a BPO in Mexico is considered a nearshore vendor.

Onshore vendors operate within the same country as the contractor, although they may be located in a different city or state. For example, a company in Seattle, Washington, could use an onshore outsourcing vendor located in Seattle, Washington, or in Huntsville, Alabama.

Why Do Businesses Outsource Processes?

Outsourcing is a part of many successful business models, especially for companies who do not have the resources and services they need available internally. Businesses often outsource to decrease costs, expand their presence, or increase flexibility.

Some people believe that businesses are only after the tax break associated with outsourcing jobs, or “shipping jobs overseas” as some political ads claim. According to PolitiFact , this is a flawed notion. PolitiFact concedes that there are tax breaks for a company when it relocates, whether out of country or to a different state, but there is no specific tax break or loophole in the U.S. tax code related to outsourcing.

What is relevant to this argument, however, is that the U.S. corporate income tax is one of the highest in the developed world (39.1 percent). Therefore, U.S. companies benefit from outsourcing operations to countries with a lower income tax because businesses pay the rate of their host country. In addition, businesses cite many other reasons to engage in outsourcing:

To decrease costs : Outsourcing cuts down on costs for in-house labor, particularly for staffing and training, and for the work space to accommodate local employees. An outsourcing company physically located in a developing country leverages lower-cost labor markets. Finally, outsourcing enables businesses to use variable-cost models, like fee-for-service plans, instead of fixed-cost models that are required when retaining local employees.

To concentrate on key functions : Outsourcing allows businesses to hone in on their main offerings instead of company functions that aren’t directly tied to their core processes. For example, when outsourcing, the company won’t have to monitor the payroll accountant’s performance. Rather, it can focus its energies on highlighting its business differentiators and maximizing overall growth. In turn, these actions can boost a company’s competitive advantage and enhance its interactions with the value chain. Ultimately, the company can enjoy improved customer satisfaction and increased profits.

To achieve better results in noncore functions : Outsourcing companies specialize in what are considered noncore functions of other businesses, delivering world-class capabilities for its clients. In fact, an outsourcing company that invests in specialized processes and technologies can deliver cutting-edge breakthroughs to its clients. For example, a gaming design company may not want to pay for the latest payroll program on the market, but an outsourcing business that offers payroll services would likely make that investment to benefit its own performance, as well as that of its clients.

To expand their global presence : Some outsourcing companies can serve customers in multiple languages, around the clock, thus relieving the local company of the responsibility. Outsourcing companies can leverage their presence in multiple countries and keep the local company’s redundant divisions to a minimum. For example, WNS Global has 37 “delivery centers” across the world and specializes in business process management.

To enable flexibility : Companies that outsource their noncritical functions can act more quickly and more efficiently when managing the risks associated with introducing new products or services. They can also reassign their internal resources to more critical functions to help ensure better coverage and allocate responsibility.

To improve speed and efficiency : Companies that outsource processes are opting to let specialists handle those tasks, thus saving time, improving accuracy, and increasing their capacity. For example, a BPO that specializes in records management can automatically index documents, making them available for retrieval and keeping a company in compliance with legal requirements. This replaces manual data entry and storage.

Ryan Fitzgerald, owner of and realtor at Raleigh Realty , has extensive experience with BPOs. He says, “There are both pros and cons to creating an outsourcing process for your business. The obvious pros are that it saves you time and effort, which likely saves you money. There are only so many hours in a day, so you will want to focus the limited time you have on the work that makes you the greatest ROI (return on investment) on your best work.

“Another pro is that there is a good chance the person you're outsourcing your projects to is armed with a better skill set for the specific goal you're trying to accomplish. By outsourcing your work, you allow yourself the opportunity to be more productive and grow your business faster.

“One of the biggest cons is that you leave yourself exposed if you don't do the work yourself. What happens if the person you're outsourcing to moves away? What if they take your ideas and give them to other businesses you're competing against? We had an instance where we bought a lot of video marketing equipment and decided to outsource our projects to a video professional. That video professional is now reaching out to our competitors to ask if they would like the same work done. That means one of our competitive advantages is potentially lost if other real estate companies see the value.

“There are a lot of benefits to business process outsourcing, but make sure you keep an eye on how it could come back to hurt you as well.”

What Types of Services Do Outsourcing Companies Support?

BPO providers support a number of services to help fill gaps within companies. Some of the participating industries include healthcare, pharmaceuticals, energy, business services, retail and e-commerce, telecom, automotive, utility companies, banking, supply chain, capacity solutions, and asset management.

In fact, the growth in BPOs has resulted in the emergence of subspecialties, including everything from information technology-enabled services (ITES) to travel:

Information technology-enabled services (ITES) BPO : This form of BPO leverages information technology (IT) over the internet or data network to deliver services. Some examples of ITES BPO jobs are service desk analyst, production support analyst, and IT analyst.

Knowledge process outsourcing (KPO) : KPO has changed BPO a bit. Some KPO vendors support functions that are considered core in business, although they may not be core functions in the particular business that hires them. KPO firms offer more than process expertise; they may also provide business and domain-based expertise. Some examples of KPO services include research, analysis, or Microsoft Word and Excel work. KPOs may be capable of making low-level business decisions if they do not conflict with higher-level business policies, but those decisions may be undone easily. KPO vendors are usually linked to the business’s value chain, and they hire people who are competent in a specific field.

Legal process outsourcing (LPO) : LPO is a subset of KPO and encompasses a huge range of higher-level legal work, not merely lower-level legal transcription. LPO firms can draft patent applications and legal agreements, as well as perform legal research. Some LPO firms even advise clients. In-house legal departments usually retain LPOs. Experienced paralegals using industry-standard databases do the work.

Research process outsourcing (RPO) : A subset of KPO, RPO specializes in research and analysis functions. RPO companies perform research and analysis work that supports business, investment, biotech, and marketing firms.

Travel : This pertains to all the operations a business needs to support its travel logistics, from reservations to hotel and vehicle bookings. Travel BPO saves money for the company because it cuts costs while increasing customer satisfaction. Airline and travel companies also engage in BPO for either front- or back-office process streamlining. For example, an airline could outsource its ticketing process.

Each BPO company will specialize in specific services. They may be grouped as follows:

Customer interaction services : The BPO company would cover a business’s voicemail services, appointment schedules, email services, marketing program, telemarketing, surveys, payment processing, order processing, quality assurance, customer support, warranty administration, and other customer feedback.

Back-office transactions : This includes check, credit, and debit card processing; collection; receivables; direct and indirect procurement; transportation administration; logistics and dispatch; and warehouse management.

IT and software operations : These technical support functions include application development and testing, implementation services, and IT helpdesk. For example, manual data entry can be replaced with automated data capture, increasing data intake and reducing cycle time.

Finance and accounting services : These functions include billing services, accounts payable, receivables, general accounting, auditing, and regulatory compliance.

Human resource services : BPOs can help address workforce challenges. They can also cover payroll services, healthcare administration, hiring and recruitment, workforce training, insurance processing, and retirement benefits.

Knowledge services : These higher-level processes may include data analytics, data mining, data and knowledge management, and internet and web research, as well as developing an information governance program and providing the voice of customer feedback.

The Risks of Business Process Outsourcing

The global market size of services outsourced from the United States was $88.9 billion in 2017 and is expected to hit $140.3 billion by 2022, as reported by Statista and The BPO Services Global Industry Almanac 2017 Company Report . This was after steady growth of 4.4 percent compounded annually from $45.6 billion in 2000. For U.S. companies, India and the Philippines perform a large portion of the outsourcing services. India in particular is a leader in BPO for the United States because its labor force is highly skilled, educated, English-speaking, and economical.

Not only are these countries geographically disparate, they are different cultural entities as well, which may constitute a risk for the contracting company. In fact, hiring any outside vendor to perform business processes for your company comes with inherent question of efficiency and quality. This is especially concerning because the industry has seen reported shortages in skilled workers, increased trade protectionism, and gridlocks due to political issues. Other risks include the following:

Security : In outsourcing, especially when information systems (IS) are involved, companies face communication and privacy risks. Security is more difficult to maintain when the business taking care of your IS is not in the same country, especially one with different security requirements. Potential data privacy breaches and vulnerability disclosures are a real threat, particularly with the current prevalence of hacking. The internet, which makes BPO for IT feasible, also may offer a portal through which hackers enter.

Underestimating the costs of services : Companies that employ BPO vendors often underestimate the running costs, especially in upgrades and contract renegotiation. Other hidden costs include vendor selection, currency fluctuations, hardware and software upgrades, internal transitions, layoffs, and the potential decrease in individual worker productivity.

Overdependence on service providers : Once a company designates a vendor for specific processes, the vendor becomes a part of the workflow. The company can incur extraneous costs and decreased productivity when the vendor encounters problems or lapses in its work — for example, when the cost of hiring workers increases. Vendors often replace veteran employees with less experienced workers to keep costs down, and quality suffers as a result.

Communication issues : Language barriers can limit activities when your company hires individual service providers spread across the globe. This can result in delays in new processes and curbs on feedback from different departments, and it can potentially magnify current problems in your business operations. Further, customer-facing services may present language barriers to third-party vendors.

When outsourcing your processes and parts of your business, you face significant risks, depending on the type and structure of your company. For example, in very large segmented companies, outsourcing only the back data entry can carry a low risk. But for a small business that is reliant on BPO as part of its manufacturing, the risk increases. Other possible risks associated with outsourcing include:

Data breaches

Quality control

Operation restoration

Nonlocal employees

Maintenance of strategic alignment

Political instability

Changes in technology and exposure to hacking

Specialization to the point that the niche demand is no longer necessary

On the other side of the equation, BPO companies face risks as well. These include:

Robotic process automation (RPA) : RPA uses bots or artificial intelligence (AI), a form of cognitive computing. These robots operate on a user interface in the same way a human worker would. Due to the demand for increased cost efficiency and innovation, robots are becoming more widespread. According to the Institute for Robotic Process Automation , RPA creates 25-50 percent cost savings. Robots cost between one-fifth to one-ninth of a full-time equivalent (FTE) worker in the United States, and about one-half of an FTE in a developing country. Some experts postulate that BPOs may adopt RPA in limited use or that BPOs will still have contracts, but their role will change to become more of a consultant.

The Business Process Outsourcing Industry

Globally, the BPO sector is worth over $300 billion. BPO vendors employ more than 3 million people in India, and more than 1 million people in the Philippines. Millions more are employed by BPO companies in Europe and the United States. BPO vendors are located all over the world, especially in developing nations with low income tax. South Africa has shown recent dominance in the BPO market, notably in call centers.

In the past five years, the BPO industry has exploded due to shifts in social media use and the concurrent demand for multichannel communication. Consumer behavior has changed too. Browsing social media is now the third most popular online activity, and 81 percent of the U.S. population has at least one social media account.

Before 2000, companies provided customer service through websites and by transferring calls via interactive voice response, and the BPO industry was primarily composed of call centers. But with the growth of social media and, according to Rightscale , the majority (95 percent) of small to medium-sized businesses’ dependence on cloud technologies, BPOs now provide more professional and technical services such as web design, human resources, and accounting services. This has led to increased investment in BPO, with $462 million poured in by startups in 2014.

Another iteration of the BPO industry is business transformation outsourcing (BTO). BTO offers strategy consulting services, not only in-the-box, traditional supportive business functions. BTO consultants help businesses revamp their processes through outsourcing. In other words, BTO consultants review your business as part of their services and find the opportunities to implement BPO where it makes sense and is most beneficial for the company.

The Future of Business Process Outsourcing

The future of BPO is similar to that of many industries in that automation will be key. Many experts point to RPA as the main avenue through which BPO will change. For example, data entry work and image recognition can be automated easily. However, experts report that certain functions, like handwritten data and telemarketing, will resist automation.

All industries, including BPO, will likely leverage emerging technologies, such as cloud services, social media, and machine learning, to reduce costs and accelerate growth. One business model, the productized service, combines software and an outsourced staff member. An example of productized services is a package that bundles cutting-edge accounting software and accounting services, with both services billed to the contracting company monthly. Startups in particular are becoming more dependent on this type of service, so there is mutual dependence with BPOs.

The trend of providing and supporting improvements in social media management tools is expected to continue. Investments in cloud computing will also persist, as it becomes a more mature platform. In addition, BPOs will invest in diversifying their workforce. As BPOs get more competitive and are forced to lower their prices, they will move to lower-cost alternatives such as software automation and AI. With the threat of losing workers to AI and automation, governments and business leaders are educating them so they can meet the newer demand for highly skilled positions.

With businesses expecting BPOs to fill their gaps or even becoming dependent on them, BPOs are required to be more transparent so that they may build and maintain trust. In the 2016 U.S. presidential election, BPO providers were concerned that they would lose their ability to work for U.S. companies if the new administration changed policies on trade, tax laws, and visas. However, experts do not believe that changing political tides will negatively affect BPO or KPO. Because KPO in particular requires higher-level skill sets or higher education, experts believe that individual country politics will be less apt to disrupt the businesses.

Our experts weigh in and provide their opinions of the future of BPO, and some have recommendations for hiring BPO vendors:

According to SEO expert and business advisor Alex Genadinik, Founder and CEO of Problemio.com , “Moving forward, I fear that there will be a decline of quality as the market saturates with more and more companies and freelancers that do essentially the same relatively low-quality work. The challenge is that if you hire high-quality companies, they typically do great work, but are costly. As a business owner, this means that you must either get to the point where you can hire costly companies on a long-term basis or allocate resources to SEO in-house. If done intelligently, it doesn't have to require many resources, but at least you will have control and transparency of what the SEO work is being done. This ensures that your employees are not cutting corners or doing something that will get your website penalized by Google.

“I have experience outsourcing to a BPO for my business Problemio.com, and I have been hired by SEO marketing agencies to train their staff. What I can say is that if you are hiring on a budget, you will get very low-quality work. Only the top tier of the BPO companies actually do good work that I as an SEO expert would deem acceptable. So for the long term: Hire high quality or don't hire at all.”

Thomas Wooldridge, who specializes in web design, social media, and PR at Relamark Web Design & Marketing, advises, “BPO is something that will never go away. It's like saying you want to bring back encyclopedia books or Blockbuster videos. Our world has never gone backward from technology. The internet has made it much easier to bring the whole world together.

“There will always be a need for low-skill and low-wage workers who would be difficult to hire in the West, although many countries such as India, the Philippines, or China will gladly do it on your behalf. On the other hand, the same country you used to hire the low-wage workers will eventually get smarter. The local economies and workers’ skills will improve to where they are demanding higher pay. So then you have to look into another third-world-type country to attract.

“For example in the 1990s, India was the prime location for BPO services. Because of this, education and middle-class incomes rose to the point that they have nearly surpassed that of workers in the United States. Now U.S. companies have to nearly import those same workers to take the jobs that Americans couldn't fill. That is why there is a tremendous growth in Indian medical doctors and IT people in the United States.”

Pete Abilla, Lean Six Sigma expert turned entrepreneur and owner of FindATutorNearMe , a tutoring marketplace with over 100,000 private tutors, says, “During my career, I've spent a lot of time improving the processes of clients. One trend I'm seeing is that organizations are more interested in training their own employees in the techniques of Lean manufacturing and Six Sigma. However, for some processes, such as call centers and primarily back-office operations, it might be more cost effective to outsource those to a BPO entity. Another trend I'm seeing is that BPO organizations are best to use for departments that are primarily cost centers and not revenue generators for the company.”

Ben Walker, the CEO of Transcription Outsourcing , LLC, says, “We work with all kinds of companies, small, medium, large, public, private, and many different government agencies, on a daily basis. They use my company because they don’t have the internal personnel to do what we do for them. Transcription is not something a lot of people do any more, so by utilizing us and our teams of transcriptionists we can help them get what they need much faster and cheaper than they could do it themselves. I don’t think companies like mine will be going anywhere any time soon because we do highly specialized work that you can’t replace at the drop of a hat and start filling cubicles next week.”

Derric Haynie , CEO of Vulpine Interactive , says, “By the end of 2017 or early 2018, I'm planning on opening up my own counterpart agency in Asia (Bali or the Philippines are front-runners right now). The reason I'm doing this is because my business relies heavily on systems and processes, things that technology can't quite do, but doesn't require significant strategy or high-level employees either. By opening up our own business, we can ensure quality and continuity while simultaneously keeping costs very low.

“While I don't think all companies will move toward this model, I do see it as highly viable and would expect more ‘outsourcing’ to actually be done in-house as even small companies like mine can open up their own in-sourced shop in another country.

“In the short term, I see BPO being easier to access and utilize by all companies, but I also see AI and technology eliminating many BPO jobs in the short- and long-term future. It's the same venture, not a new venture. We will just be opening an office in Asia to handle all of our low-level processes. I imagine there will be many problems starting a business in another country. I have yet to assess all of them properly. I’m not looking forward to that.”

FInally, the new BPO destinations expected to emerge in 2018 include Bulgaria, Romania, Egypt, Mexico, and Columbia. Due to fierce BPO competition, oversaturation, and reduced business growth, these five countries may become alternate low-cost locations.

Business Process Outsourcing Commercial Providers

Below you’ll find links to lists of BPO companies throughout India, Asia, the U.S., the U.K., Australia, and Europe. A BPO company usually specializes in one service or group of services, such as back-office support or, in the case of RPOs, biotech research. These lists are not comprehensive, as new companies crop up weekly, and companies frequently merge.

You can also try service companies that can help you find the right BPO vendor for your needs. Through the contracting process, these service companies can help ensure that all of your needs are covered. Many also use e-procurement services (supplier exchange) to keep the costs constant. E-procurement is a system that allows business-to-business management of services. Here are some useful resources:

eBook directory through the IT and Business Process Association of the Philippines

A commercial company lists of BPO contact information

BPO service providers listed by region and functional area through 123outsource

How to Choose a Business Process Outsourcing Vendor

It’s no easy task choosing a vendor to support your outsourcing needs, but you’ll need to review many details prior to settling on one company and getting an appropriate agreement in place. Experts recommend a formal, extensive process to choose a vendor that has the best outsourcing experience and can meet your company’s goals. The following is a list of tasks to perform in sequential order for companies considering hiring a BPO vendor:

Define your requirements and review potential vendors : Start by defining your key stakeholders, and engage them in the process from the beginning. Set all key stakeholder expectations early and engage them often. During this step, your company must also figure out the key objectives, risks, and scope for BPO. This is your business case scenario, so this step should take the longest and include a full review of your company processes, not only those initially considered for outsourcing. During this step, you should start to source potential vendors and develop a scorecard to determine the most important criteria. You can find a template for developing a scorecard here.

‌ Open Vendor Selection Scorecard Template - Google Sheet

Put together a request for proposal (RFP), and source vendors : In concert with your company stakeholders, determine the most crucial elements of a BPO provider. Develop and send out an RFP from your market research. At this stage, define what service management model your company will use.

Choose the right vendor for your company : Evaluate the proposals. Start analyzing the change that will result from contracting with a third-party vendor. What are the risks and benefits determined from the shortlist of potential vendors?

Negotiate the contract : This is the most important step in the process of acquiring a third-party service provider. Both parties must reach an agreement not only on the service parameters, but also on the contract schedule. It’s critical to ensure buy-in and agreement by all stakeholders.

Transition the work and processes to your chosen vendor : This is the actual “go” step. Develop and put in place a plan for transitioning to the new model. Ensure that your business has open communication internally and with the service provider.

Manage your relationship : Verify proper governance during the life of the contract with your service provider. Performance monitoring is key for ensuring that your company reaps the expected benefits of outsourcing. Expect a collaborative relationship and plan to renegotiate your contract and its scope at the end of its term.

Additional tips that can help you choose the right BPO:

A good outsourcing company should help you decide which parts of your business you need to keep in-house. Beware of a company that tries squeezing core processes out of you.

A good outsourcing company values the work of every employee. This enables a better connection between their company and your organization and can help increase productivity.

A good BPO company’s objective is to help your organization boost sales without consuming too much money.

Choose your BPO company carefully. Look for evidence that it can deliver the task well and on time.

Ask two questions when looking for a BPO service provider: (1) How can I find the right candidate? and (2) How do I manage the outsourcer after I settle their contract?

The key to a successful BPO experience is to do your research beforehand, lay out clear expectations and deliverables with your selected vendor, and stick to what both parties agreed upon.

Overall, the company should choose a BPO vendor carefully and conscientiously. The relationship should be defined formally, and managed and considered regularly.

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Business Process Outsourcing in Walmart

Introduction, issues in outsourcing, observations, the impact of outsourcing on management of risk, impact of outsourcing on business continuity, relations with outsourcing companies.

Outsourcing is not a one-day process and takes time to be completed. Outsourcing is a procedure that takes stages before fully implementation. It is beneficial if it will lower costs of production of goods and services and delivering them to customers as noted by John, Halvey and Melby (2005). Even though it causes loss of jobs to locals, offshore companies provide the same or better services at lowered costs. This is important since it might lower the product prices. In choosing a company to outsource with, the firm should be aware of the firm’s reputation and systems to ensure easy back sourcing once the contract is over. The best outsourcing depends on good relationships with vendors besides the contract. A good reputation shown to the vendors makes them take responsibility and market the products beyond the terms of the contract. Any management of a company aspiring to make it big in the market should consider outsourcing.

Walmart is an international corporation that has established itself in the global market. With over 8500 stores in 15 countries according to Fisherman (2005), the corporation is the world’s largest firm today. After the launching of the largest private satellite communication in 1987, the firm has upgraded its information systems to be among the best in the world (Westermen 2000). Most IT-related operations in Walmart have been in its headquarters in Bentonville, USA, but in recent years, the firm has been outsourcing the same for efficiency. This is an illustration of good information system management is because of its supporting decision makers. China has been the biggest beneficiary of outsourcing processes in Walmart mainly because it contributes 80% of the total supplies for Walmart. In 2009, Walmart changed from its in-house information technology trend, to sign a business process outsourcing contract worth $ 300- 500 million in India (Eltschinger 2007). Walmart has not felt the full impact of outsourcing. This report addresses issues relating to outsourcing and gives recommendations for the same.

Wal-Mart recorded profits worth 13.4 billion in the fiscal year that ended in 2008. The main reason for outsourcing in 2008 was globalizing its information technology sourcing initiatives and not lowering costs as would be the priority for most companies. Even though outsourcing in India will lower costs as observed in other companies like Tesco, which save up to $ 60 million annually, the company will incur extra expenses in streamlining the new systems to be in line with the one in use today. The outsourcing will see non-core processes of procurement, finance, merchandising and payroll done in India for the first time in its retail history as observed by McNurlin, Sprague and Bui (2009).

The process will face challenges one of them being increased expenditure. The company’s management reported its intention to expand staffing in line with IT application, maintenance and development to help in the remote sourcing model in India. This is in line with proper operation management that will ensure quality service and security of the firm. The company is in a paradox following yet another announcement that it will not cut down its staffing in the US. According to Mishra (2009), over 500,000 employees had been slashed and their back-office work was given to vendors through outsourcing. Outsourcing in India lowered costs of operation by half compared to the United States. The non-core processes done by vendors will replace some staff in the U.S, therefore, making a loss of jobs for some employees inevitable.

The company has set up a group aimed at identifying potential IT partners, rather than collaborating with one huge IT firm. The group, Remote Service Management, will be part of Wal-Mart’s in-house IT arm, Information System Division (ISD). Mishra (2010) observes that having multiple partners will be expensive for the company. Having already incurred over $ 200 million in contracts signed with Wipro and Collabera, the firm will part with over $ 1 billion if it engages in partnership with other vendors in India. This is not only expensive but it raises security issues. The involvement in many contracts with different companies will compromise the firms’ information systems because they will be handling some special information including financial and payroll. Even though the organization form will remain intact, the IT architecture will have trouble because different companies use different information systems.

Disintegrating the non-core process into so many parts will cause difficulties in back sourcing for systems used are very different. The multi-partnering also raises issues of quality of services. According to Ghimire (2006), “selecting an offshore partner must consider past performance, references and compatibility with the company.” Most Asian tigers are implicit in communication unlike companies in the U.S, which are explicit. This difference in cultures can be a major drawback in the success of outsourcing. This is the major reason behind knowing a company’s history.

Outsourcing is a good tool for cutting costs and improving services in Walmart. It helps in globalizing the company that increases its income revenues. However, the choice of vendors should consider the costs incurred security to the firm and compatibility with the firm’s system both during the partnership and after (O’Brien 2003). The firm should contract with one or two partners since this is the first IT outsourcing process in its history. This will be cheaper and a better pilot model upon which core processes can be outsourced in the future. It will also enhance data security for the firm will be in a position to monitor all data closely between the vendor and the firm. Such a mechanism is easy to back source once the contract is over.

Walmart has been in partnership with offshore countries for its businesses. Carmel and Tjia observe that (2006) China has been in outsourcing partnership for years controlling over 80% outsourcing done in Walmart. This has come with its own risks for most companies based in Asia have accessed the firm’s information systems in the processes of fulfilling the contracts. This has caused unique enterprise systems and improvement in information systems development.

In 2006, Walmart launched a website through which producers and vendors are able to access the company’s inventory data. In doing this the suppliers were able to know what was available and at what price as well as who supplied. McNurlin, Sprague and Bui (2009) observe that the website, web2.0, exposed the firm’s information systems, some of which were sensitive. The security system of the company was upgraded to protect it from hacking and other malpractices that could lead to data loss. In achieving this, the company automated its performance metrics used to capture and record processes on its website. The company also purchased programs aimed at monitoring the information accessed by vendors and controls the processes they have on the website.

Outsourcing has led the company to invest heavily in its information technology department. The department is useful in tracking improper conduct that might lead to loss of information or improper use of information. The company has also revised its policies to help it protect uncalled-for expenses due to negligence. To improve its risks management, the firm has policies that ensure partners disclose as much information as possible and pay huge transactions fees besides signing terms and conditions forms.. An example of such is the Risk Analysis Track introduced to track processes in market trends, foreign exchange and information procedures.

In 2005, the company improved its instruments for hedging and non-trading processes in the management of exposure to interest and foreign exchange. These instruments help in protecting market and credit risks. Simulation is used to model and value the growth of companies, which helps in sampling multimodal functions and applications to the market. In so doing, the capital invested in outsourcing undergoes optimization and the risks from losing it or from catastrophic incidences are eliminated as observed by Bouwman (2005).

Outsourcing has had different impacts on different stakeholders in operations for Walmart. The company must ensure the presence of business continuity plans to ensure continuity in its operations. To the companies based in the United States, business has not been as usual. Outsourcing aims at lowering costs and most Asian companies offer the same or better services as those offered in the U.S at half the price. Most companies have lost their position in products and service providers to their Asian counterparts. Despite the presence of a program to support goods manufactured in the U.S, Walmart has gone ahead to purchase goods worth $ 20 billion from its 6000 supplies in China. This has caused some companies based in the United States to transfer their operations to China where production costs the company $ 0.25 an hour per employee compared to $13 in the U.S. (Eltschinger 2007).

Most companies in Asia incur low expenses in production, which make most Asian tigers reap from exports. In producing at lower costs and selling goods at cheaper prices, the companies have enabled Walmart to access products at cheaper prices thereby selling goods at low prices. This is the major competitive advantage Walmart has over competitors and has expanded its business operation not only in America but also around the Globe.

A SWOT analysis on good relationship outsourcing and comprehensive contracts indicates that good relation outsourcing has more strengths. A comprehensive contract has benefits in that both the vendor and the outsourcing firm are bound strictly by contract terms. The vendor has no other business rather fulfilling the terms. The weakness in this is that the vendor is not accountable for services beyond the ones on the terms and customer relations are not a priority. Even though gives the vendor future opportunities to serve the vendor, it threatens the number of customers if the vendor’s culture is not in line with the firm’s.

Relation based outsourcing is beneficial for both the client and the vendor. While the vendor is certain of futures contracts based on performance, the client (outsourcing company) is sure not to lose its customers base to rival companies. This is because the vendor will present the companies needs under all costs thereby acting as the company’s representative. The only threats to the firm are the costs, which are higher when compared to comprehensive contracts (Ghimire 2006).

Observations from Wal-mart’s success story, good relationships with outsourcing providers are fundamental to achieving organizational objectives and goals. Walmart treats its vendors and suppliers with utmost respect so that they reciprocate the same in situations where they present the firm. This has enabled the firm to have few legal battles with suppliers and ensure overall support by a majority of locals where it operates.

IBM and Wipro have had a long-term relationship with Walmart mostly because of the relation they have had. IBM, for instance, signed a contract in 1975 to supply IBM 370/135 computers Thirty years later, IBM still has contracts with Walmart, a recent one in 2006, that upgraded the firm’s IT system. IBM has benefited extensively from contracts with Walmart not because the contracts have the best of terms but because in maintaining the firm’s culture of cheaper services, IBM has produced the best systems at affordable prices. In return, Walmart has always rewarded IBM with contracts as observed by Cleland and Gareis (2006).

Outsourcing based on comprehensive contracts alone is not beneficial for the firm in the long run. Comprehensive contracts require the vendors to provide goods and services strictly based on the terms of the contract. The vendor company is not liable for activities out of the contract outline. Unlike in relation-based outsourcing, the vendor company relies on limits of benefits from the cooperation besides the contract as observed by Gottschalk and Solli-Saether (2006). The vendor company does not commit itself beyond the contract terms. It does not prioritize the client’s reputation or image neither. This is most cases result in improper service delivery, which has no emphasis on the client’s culture.

In terms of costs, relation-based outsourcing is cheap expensive for the contracting company. While comprehensive contract outsourcing is between vendors with the cheapest terms, relation-based contracts are expensive. Outsourcing with Hp and IBM cost Walmart $ 590 Million for IT services in 2005 while the same services would be accessed at the cost of $ 389 million in India (Malaga 2005). Though expensive, services from relation-based outsourcing can be relied on in the future for products made by IBM are HP to be used by Walmart are customized and easy to back source in future.

Walmart has portrayed some of the best outsourcing strategies in recent years. Expanding its outsourcing partners to India to include IT outsourcing will enable the company to expand its operations while at the same maintaining low costs. This has its extra costs which compared to the benefits will be worth the consideration. The company, however, can reduce these costs by reducing the number of outsourcing companies to about two in number.

Bouwman, H 2005, Information and Communication Technology in Organizations: Adoption, Implementation, Use and Effects, Sage, London.

Carmel, E & Tjia, P 2006, Offshoring Information Technology: Sourcing and a Global Workforce, Cambridge University Press, United Kingdom.

Cleland D & Gareis, R 2006, Global Project Management Handbook: Planning, Organizing and Controlling International Projects, Second Edition: Planning, Organizing, and Controlling International Projects, McGraw-Hill Professional, New York.

Eltschinger , C 2007, Source Code China: The New Global Hub of IT (Information Technology) Outsourcing, Wiley, San Francisco.

Fishman, C 2005, The Wal-Mart Effect: How the World’s Most Powerful Company Really Works–and How It’s Transforming the American Economy, Penguin, London.

Ghimire, B 2006, ‘Issues to Consider before Outsourcing’, American Chronicle , Vol 32 No.1 pp. 11-34.

Gottschalk, P & Solli-Saether H 2006, Managing Successful IT Outsourcing Relationships, IRM Press, Hershey.

John K, Halvey J & Melby B 2005, Information Technology Outsourcing Transactions: Process, Strategies, and Contracts, Wiley, San Francisco.

Malaga, R 2005, Information Systems Technology, Prentice Hall, New Jersey.

McNurlin B, Sprague H & Bui T 2009 , Information Systems Management In Practice, Prentice-Hall, New Jersey.

Mishra, P 2009, ‘Wal-mart Mulls IT Outsourcing’, The Economic Times , Vol. 23 No. 12 pp. 56-67.

O’Brien, J 2003, Introduction to Information Systems – Essentials for the e-Business Enterprise , McGraw-Hill Irwin, New York.

Westerman, P 2000, Data Warehousing: Using the Wal-Mart, Morgan Kaufmann, Massachusetts.

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What is outsourcing? Definitions, benefits, challenges, processes, advice

Outsourcing can bring big benefits, but risks and challenges abound when negotiating and managing outsourcing relationships. here’s what you need to know to ensure your it outsourcing initiatives succeed..

Outsourcing definition

Outsourcing is a business practice in which services or job functions are hired out to a third party on a contract or ongoing basis. In IT, an outsourcing initiative with a technology provider can involve a range of operations, from the entirety of the IT function to discrete, easily defined components, such as disaster recovery, network services, software development, or QA testing.

Companies may choose to outsource services onshore (within their own country), nearshore (to a neighboring country or one in the same time zone), or offshore (to a more distant country). Nearshore and offshore outsourcing have traditionally been pursued to save costs.

Outsourcing services

Business process outsourcing (BPO) is an overarching term for the outsourcing of a specific business process task, such as payroll. BPO is often divided into two categories: back-office BPO, which includes internal business functions such as billing or purchasing, and front-office BPO, which includes customer-related services such as marketing or tech support.

IT outsourcing is a subset of business process outsourcing, and it falls traditionally into one of two categories: infrastructure outsourcing and application outsourcing. Infrastructure outsourcing can include service desk capabilities, data center outsourcing, network services, managed security operations, or overall infrastructure management. Application outsourcing may include new application development, legacy system maintenance, testing and QA services, and packaged software implementation and management.

Today, however, IT outsourcing can also include relationships with providers of software-, infrastructure-, and platforms-as-a-service. These cloud services are increasingly offered not only by traditional outsourcing providers but by global and niche software vendors or even industrial companies offering technology-enabled services.

For more on the latest trends in outsourcing, see “ 7 hot IT outsourcing trends — and 7 going cold .”

Outsourcing pros and cons

The business case for outsourcing varies by situation, but the benefits and risks of outsourcing often include the following:

IT outsourcing models and pricing

The appropriate model for an IT service is determined by the service provided. Most outsourcing contracts have been billed on a time and materials or fixed price basis. But as outsourcing services have matured to include strategic transformation and innovation initiatives , contractual approaches have evolved to include managed services and outcome-based arrangements.

The most common ways to structure an outsourcing engagement include:

Outsourcing vs. offshoring

The term outsourcing is often used interchangeably — and incorrectly — with offshoring, usually by those in a heated debate. But offshoring is a subset of outsourcing wherein a company outsources services to a third party in a country other than the one in which the client company is based, typically to take advantage of lower labor costs. This subject continues to be charged politically because offshore outsourcing is more likely to result in layoffs.

Outsourcing of jobs

Estimates of jobs displaced or jobs created due to offshoring tend to vary widely due to lack of reliable data. In some cases, global companies set up their own captive offshore IT service centers to reduce costs or access skills. Some roles typically offshored include software development, application support and management, maintenance, testing, help desk/technical support, database development or management, and infrastructure support.

In recent years, IT service providers increased investments in IT delivery centers in the US, according to a report from Everest Group. Offshore outsourcing providers have also increased their hiring of US IT professionals to gird against potential increased restrictions on the H-1B visas they use to bring offshore workers to the US to work on client sites.

Some industry experts point out that increased automation and robotic capabilities may actually eliminate more IT jobs than offshore outsourcing.

Outsourcing risks and challenges

The failure rate of outsourcing relationships remains high, ranging from 40% to 70%. At the heart of the problem is the inherent conflict of interest in any outsourcing arrangement. The client seeks better service, often at lower costs, than it would get doing the work itself. The vendor, however, wants to make a profit. That tension must be managed closely to ensure a successful outcome for both client and vendor. A service level agreement (SLA) is one lever for navigating this conflict — when implemented correctly . An SLA is a contract between an IT services provider and a customer that specifies, usually in measurable terms, what services the vendor will furnish. Service levels are determined at the beginning of any outsourcing relationship and are used to measure and monitor a supplier’s performance.

For more on outsourcing contracts, see “ 11 keys to a successful outsourcing relationship ” and “ 7 tips for managing an IT outsourcing contract .”

Another cause of outsourcing failure is the rush to outsource as a “quick fix” cost-cutting maneuver rather than an investment designed to enhance capabilities, expand globally, increase agility and profitability, or bolster competitive advantage.

Generally speaking, risks increase as the boundaries between client and vendor responsibilities blur and the scope of responsibilities expands. Whatever the type of outsourcing, the relationship will succeed only if both the vendor and the client achieve expected benefits.

See also: “ 9 IT outsourcing mistakes to avoid ” and “ 10 early warning signs of IT outsourcing disaster .”

Types of outsourcing

Many years ago, the multi-billion-dollar megadeal for one vendor hit an all-time high, but wholesale outsourcing proved difficult to manage for many companies. These days, CIOs have embraced the multi-vendor approach , incorporating services from several best-of-breed vendors.

Multisourcing, however, is not without challenges. The customer must have mature governance and vendor management practices in place. In contract negotiations, CIOs need to spell out that vendors must cooperate or else risk losing the job. CIOs need to find qualified staff with financial as well as technical skills to help run a project management office or some other body that can manage the outsourcing portfolio.

The rise of digital transformation has initiated a shift away from siloed IT services. As companies embrace new development methodologies and infrastructure choices, many standalone IT service areas no longer make sense. Some IT service providers seek to become one-stop shops for clients through brokerage services or partnership agreements, offering clients a full spectrum of services from best-in-class providers.

How to select a service provider

Selecting a service provider is a difficult decision, and no one outsourcer will be an exact fit for your needs. Trade-offs will be necessary.

To make an informed decision, articulate what you want from the outsourcing relationship to extract the most important criteria you seek. It’s important to figure this out before soliciting outsourcers, as they will come in with their own ideas of what’s best for your organization, based largely on their own capabilities and strengths.

Some examples of the questions you’ll need to consider include:

What’s more important to you: the total amount of savings an outsourcer can provide you or how quickly they can cut your costs?
Do you want broad capabilities or expertise in a specific area?
Do you want low, fixed costs or more variable price options?

Once you define and prioritize your needs, you’ll be better able to decide what trade-offs are worth making.

Outsourcing advisers

Many organizations bring in a sourcing consultant to help establish requirements and priorities. Third-party expertise can help, but it’s important to research the adviser well. Some consultants may have a vested interested in getting you to pursue outsourcing rather than helping you figure out if outsourcing is a good option for your business. A good adviser can help an inexperienced buyer through the vendor-selection process, aiding them in steps like conducting due diligence, choosing providers to participate in the RFP process, creating a model or scoring system for evaluating responses, and making the final decision.

For more advice, see “ Outsourcing advisors: 6 tips for selecting the right one .”

Negotiating the best outsourcing deal

Balancing the risks and benefits for both parties is the goal of the negotiation process , which can get emotional and even contentious. But smart buyers will take the lead in negotiations , prioritizing issues that are important to them, rather than being led around by the outsourcer.

Creating a timeline and completion date for negotiations will help rein in the process. Without one, discussions could go on forever. But if an issue needs time, don’t be a slave to the date.

Finally, don’t take any steps toward transitioning the work to the outsourcer while in negotiations. An outsourcing contract is never a done deal until you sign on the dotted line, and if you begin moving the work to the outsourcer, you will be handing over more power over the negotiating process to them as well.

Outsourcing’s hidden costs

Depending on what is outsourced and to whom, studies show that an organization will end up spending at least 10% percent above the agreed-upon figure to manage the deal over the long haul. Among the most significant additional expenses associated with outsourcing are:

the cost of benchmarking and analysis to determine whether outsourcing is the right choice
the cost of investigating and selecting a vendor
the cost of transitioning work and knowledge to the outsourcer
costs resulting from possible layoffs and their associated HR issues
costs of ongoing staffing and management of the outsourcing relationship

It’s important to consider these hidden costs when making a business case for outsourcing.

The outsourcing transition

Vantage Partners once called the outsourcing transition period — during which the provider’s delivery team gets up to speed on your business, existing capabilities and processes, expectations and organizational culture — the “valley of despair.” During this period, the new team is trying to integrate transferred employees and assets, begin the process of driving out costs and inefficiencies, while still keeping the lights on. Throughout this period, which can range from several months to a couple of years, productivity very often takes a nosedive.

The problem is, this is also the time when executives on the client side look most avidly for the deal’s promised gains; business unit heads and line managers wonder why IT service levels aren’t improving; and IT workers wonder what their place is in this new mixed-source environment. The best advice is to anticipate that the transition period will be trying, attempt to manage the business side’s expectations, and set up management plans and governance tools to get the organization over the hump.

Outsourcing governance

A highly collaborative relationship based on effective contract management and trust can add value to an outsourcing relationship. An acrimonious relationship, however, can detract significantly from the value of the arrangement, the positives degraded by the greater need for monitoring and auditing. In that environment, conflicts frequently escalate and projects don’t get done.

Successful outsourcing is about relationships as much as it is actual IT services or transactions. As a result, outsourcing governance is the single most important factor in determining the success of an outsourcing deal. Without it, carefully negotiated and documented rights in an outsourcing contract run the risk of not being enforced, and the relationship that develops may look nothing like what you envisioned.

For more on outsourcing governance, see “ 7 tips for managing an IT outsourcing contract .”

Repatriating IT

Repatriating or backsourcing IT work (bringing an outsourced service back in-house ) when an outsourcing arrangement is not working — either because there was no good business case for it in the first place or because the business environment changed — is always an option. However, it is not always easy to extricate yourself from an outsourcing relationship, and for that reason many clients dissatisfied with outsourcing results renegotiate and reorganize their contracts and relationships rather than attempt to return to the pre-outsourced state. But, in some cases, bringing IT back in house is the best option, and in those cases it must be handled with care .

For more on repatriating IT, see “ How to bring outsourced services back in-house .”

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What Is Business Process Outsourcing (BPO), and How Does It Work?

Investopedia / Michela Buttignol

What Is Business Process Outsourcing (BPO)?

Business process outsourcing (BPO) is a method of subcontracting various business-related operations to third-party vendors .

Although BPO originally applied solely to manufacturing entities, such as soft drink manufacturers that outsourced large segments of their supply chains, BPO now applies to the outsourcing of various products and services.

Key Takeaways

Business process outsourcing (BPO) utilizes third-party vendors or subcontractors to carry out certain parts of their business operations.
BPO began with large manufacturing companies to aid with supply chain management,
Today BPO has grown to include all sorts of sectors, including services companies.
BPO is considered "offshore outsourcing" if the vendor or subcontractor is located in a different country; for instance, in the case of customer support.
BPO today is an industry unto itself, with companies specializing in facilitating BPO to companies around the world.

Understanding Business Process Outsourcing (BPO)

Many businesses, from small startups to large companies, opt to outsource processes, as new and innovative services are increasingly available in today's ever-changing, highly competitive business climate.

Broadly speaking, companies adopt BPO practices in the two main areas of back-office and front-office operations. Back office BPO refers to a company contracting its core business support operations such as accounting, payment processing, IT services, human resources, regulatory compliance, and quality assurance to outside professionals who ensure the business runs smoothly.

By contrast, front office BPO tasks commonly include customer-related services such as tech support, sales, and marketing.

The breadth of a business' BPO options depends on whether it contracts its operations within or outside the borders of its home country. BPO is deemed "offshore outsourcing" if the contract is sent to another country where there is political stability, lower labor costs, and/or tax savings. A U.S. company using an offshore BPO vendor in Singapore is one such example of offshore outsourcing.

BPO is referred to as "nearshore outsourcing" if the job is contracted to a neighboring country. Such would be the case if a U.S. company partnered with a BPO vendor located in Canada.

A third option, known as "onshore outsourcing" or "domestic sourcing," occurs when BPO is contracted within the company’s own country, even if its vendor partners are located in different cities or states.

BPO is often referred to as information technology-enabled services (ITES) because it relies on technology/infrastructure that enables external companies to efficiently perform their roles.

Companies are often drawn to BPO because it affords them greater operational flexibility. By outsourcing non-core and administrative functions, companies can reallocate time and resources to core competencies like customer relations and product leadership, which ultimately results in advantages over competing businesses in their industry.

BPO offers businesses access to innovative technological resources that they might not otherwise have exposure to. BPO partners and companies constantly strive to improve their processes by adopting the most recent technologies and practices.

Since the U.S. corporate income tax is among the highest in the developed world, American companies benefit from outsourcing operations to countries with lower income taxes and cheaper labor forces as viable cost reduction measures.

BPO also offers companies the benefits of quick and accurate reporting, improved productivity, and the ability to swiftly reassign its resources, when necessary.

Some Disadvantages of BPO

While there are many advantages of BPO, there are also disadvantages. A business that outsources its business processes may be prone to data breaches or have communication issues that delay project completion, and such businesses may underestimate the running costs of BPO providers.

Another disadvantage could be customer backlash against outsourcing if they perceive this to be of inferior quality or at the expense of domestic employment.

A Career in BPO

Business process outsourcing is a fast-growing sector of the economy, which makes it attractive as a career path or startup opportunity. According to industry research, the BPO market was valued at nearly $250 billion in 2021, and is projected to grow at 9% per year over the next decade.

According to data from Zip Recruiter, BPO jobs in America pay an average of $91,100 as of 2022.

What Is the Goal of BPO and What Are Its Types?

BPO is the abbreviation for business process outsourcing, which refers to when companies outsource business processes to a third-party (external) company. The primary goal is to cut costs, free up time, and focus on core aspects of the business. Two types of BPO are front-office and back-office. Back-office BPO entails the internal aspects of a business, such as payroll, inventory purchasing, and billing. Front-office BPO focuses on activities external to the company, such as marketing and customer service.

What Are the Advantages of BPO?

There are numerous advantages to BPO. One of the primary advantages is that it lowers costs. Performing a certain job function internally costs a specific amount. BPO can reduce these costs by outsourcing this job to an external party, often in a less cost-intensive country, reducing the overall cost of performing that job function.

Other advantages include a company being allowed to focus on core business functions that are critical to its success, rather than administrative tasks or other aspects of running a company that are not critical. BPO also helps with growth, particularly in global expansion. If a company is interested in opening an overseas branch or operating overseas, utilizing a BPO company that has experience in the local industry and that speaks the language is extremely beneficial.

What Are the Types of BPO Companies?

There are three primary types of BPO companies. These are local outsourcing, offshore outsourcing, and nearshore outsourcing. Local outsourcing is a company that is in the same country as your business. Offshore outsourcing is a company that is in another country, and nearshore outsourcing is a company that is in a country that is not too far from your country.

What Is a BPO Call Center?

A BPO call center handles outsourced incoming and outgoing customer calls on behalf of other businesses. Many BPO call centers will have agents that can individually handle customer complaints or inquiries standing in for a number of different companies, often within a particular specialty. For instance, one call center agent may be able to field tech support phone calls for a variety of vendors or manufacturers.

Business process outsourcing (BPO) utilizes third-party specialists to carry out some part of a business process or operation (as opposed to outsourcing the entire production). BPO can lower a company's costs, increase efficiency, and provide flexibility. At the same time, the BPO industry is rapidly-growing, which means that in our increasingly global economy, process outsourcing is not going anywhere.

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Business process outsourcing studies: a critical review and research directions

Research Article
Published: 27 September 2011
Volume 26 , pages 221–258, ( 2011 )

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Mary C Lacity 1 ,
Stan Solomon 1 ,
Aihua Yan 1 &
Leslie P Willcocks 2

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Organizations are increasingly sourcing their business processes through external service providers, a practice known as Business Process Outsourcing (BPO). Worldwide, the current BPO market could be as much as $279 billion and is predicted to continue growing at 25% annually. Academic researchers have been studying this market for about 15 years and have produced findings relevant to practice. The entire body of BPO research has never been reviewed, and this paper fills that gap. We filtered the total studies and reviewed 87 empirically robust BPO articles published between 1996 and 2011 in 67 journals to answer three research questions: What has the empirical academic literature found about BPO decisions and outcomes? How do BPO findings compare with Information Technology Outsourcing (ITO) empirical research? What are the gaps in knowledge to consider in future BPO research? Employing a proven method that Lacity et al. (2010) used to review the empirical ITO literature, we encapsulated this empirical literature on BPO in a way that is concise, meaningful, and helpful to researchers. We coded 43 dependent variables, 152 independent variables, and 615 relationships between independent and dependent variables. By extracting the best evidence, we developed two models of BPO: one model addresses BPO decisions and one model addresses BPO outcomes. The model of BPO decisions includes independent variables associated with motives to outsource, transaction attributes, and client firm characteristics. The model of BPO outcomes includes independent variables associated with contractual and relational governance, country characteristics, and client and supplier capabilities. Overall, BPO researchers have a broad and deep understanding of BPO. However, the field continues to evolve as clients and suppliers on every inhabited continent participate actively in the global sourcing community. There is still much research yet to be done. We propose nine future paths of research pertaining to innovation effects, retained capabilities, environmental influences, global destinations, supplier capabilities, pricing models, business analytics, emerging models, and grounded theory development.

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Review of the Empirical Business Services Sourcing Literature: An Update and Future Directions

Review of the empirical business services sourcing literature: an update and future directions.

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Similarly, ‘(00)’ or ‘(0)’ indicate multiple tests of an independent variable which found no significant relationships 80% or more times for ‘(00)’ or 60–80% more times for ‘(0)’. For example, in Appendix C , the independent variable Industry was examined 10 times as a determinant of BPO Outcomes, but it was found insignificant six times and is thus indicated as a ‘0’. Relationships that were repeatedly found to be insignificant were not included in Figure 1 , but we do write about them in the Discussion section.

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Willcocks, L. and Lacity, M. (2012). Outsourcing Practices Reconsidered: From IT to cloud services, London: Palgrave Macmillan.

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Master codes

Absorptive capacity – Client : A client organization's ability to scan, acquire, assimilate, and exploit valuable knowledge (e.g., Grimpe and Kaiser, 2010 ; Reitzig and Wagner, 2010 ).

Absorptive capacity – Supplier: A supplier organization's ability to scan, acquire, assimilate, and exploit valuable knowledge (e.g., Luo et al., 2010 ).

Access to expertise/skills: A client organization's desire or need to access supplier skills/expertise (e.g., Currie et al., 2008 ; Lam and Chua, 2009 ).

Access to global markets: A client organization's desire or need to gain access to global markets by outsourcing to suppliers in those markets (e.g., Van Gorp et al., 2007 ).

Adaptability: The extent to which a party is able to adapt a business process to meet changes in the environment (e.g., Sia et al., 2008 ).

Asset specificity : The degree to which an asset can be redeployed to alternative uses and by alternative users without sacrifice of productive value ( Williamson, 1976 ; Sia et al., 2008 ).

Business process management capability – Client : The ability of a client organization to efficiently and effectively manage a business process using in-house resources (e.g., McIvor et al., 2009 ).

Business process management capability – Supplier : The ability of a supplier organization to efficiently and effectively manage a business process (e.g. Saxena and Bharadwaj, 2009 ).

Business process performance improvement : A client organization's desire or need to engage a supplier to help improve a client's business, processes, or capabilities (e.g., Gewald and Dibbern, 2009 ).

Business strategic type : An organization's strategy to address three fundamental business problems – entrepreneurial, engineering, and administrative. Categorized under the Miles and Snow typology as Defenders, Prospectors, Analyzers, and Reactors ( Miles and Snow, 1978 ; Shih et al., 2005 ; Kenyon and Meixell, 2011 ).

Career development of employees: A client organization's desire or need to provide better career opportunities for employees (e.g., Lacity et al., 2004 ).

Centralization of department: The degree to which the department's decision-making is concentrated within a particular group or location (e.g., Delmotte and Sels, 2008).

CEO personality: The attributes of a CEO's personality, including conscientiousness, emotional stability, agreeableness, extraversion, and openness to experience (e.g., Nadkarni and Herrmann, 2010 ).

Change catalyst : A client organization's desire or need to use outsourcing to bring about large scale changes in the organization (e.g., Gospel and Sako, 2010 ).

Change management capability : The extent to which a client organization effectively manages change (e.g., Lacity et al., 2004 ).

City size: The size of a city in which a client or supplier is located (e.g., Rajeev and Vani, 2009 ).

Client age : The age of a client organization in years (e.g., Delmotte and Sels, 2008).

Client dependency : The degree to which a supplier depends on a client (e.g., Gainey and Klaas, 2003 ).

Client experience with outsourcing: A client organization's level of experience with outsourcing or offshoring (e.g., Mani et al., 2010 ).

Client experience with multiple governance modes: A client organization's level of experience with multiple governance modes, such as captive centers, offshore outsourcing, etc. (e.g., Hutzschenreuter et al., 2011 ).

Client management capability : The extent to which a supplier organization is able to effectively manage client relationships (e.g., Howells et al., 2008 ).

Client outsourcing readiness : The extent to which a client organization is prepared to engage an outsourcing supplier by having realistic expectations and a clear understanding of internal costs and services compared to outsourced costs and services (e.g., McIvor et al., 2009 ).

Client size : The size of a client organization usually measured as total assets, sales, and/or number of employees (e.g., Wahrenburg et al., 2006 ).

Client/supplier alignment : The degree to which client and supplier incentives, motives, interests, and or goals are aligned (e.g., Sen and Shiel, 2006 ).

Client-specific knowledge required : The degree to which a unit of work requires a significant amount of understanding/knowledge about unique client systems, processes, or procedures (e.g., McKenna and Walker, 2008 ).

Client-supplier interface design : The planned structure on where, when, and how client and supplier employees work, interact, and communicate (e.g., Sen and Shiel, 2006 ).

Coalition : A strategy in which an agent enlists the aid or endorsement of other people to influence a target to do what the agent wants (e.g., Bignoux, 2011 ).

Commitment : The degree to which partners pledge to continue the relationship (e.g., Levina and Su, 2008 ).

Communication : The degree to which parties are willing to openly discuss their expectations, directions for the future, their capabilities, and/or their strengths and weaknesses (e.g., Gainey and Klaas, 2003 ).

Concern for security/intellectual property : A client organization's concerns about security of information, transborder data flow issues, and protection of intellectual property (e.g., Wüllenweber et al., 2008a , 2008b ).

Concern for regulatory requirements: A client organization's concerns about complying with regulations (e.g. Howells et al., 2008 ).

Configurational approach – The client firm matches multiple factors in configurations that maximize their chances of BPO success. For example, matching strategic intent with contractual governance, matching transaction attributes with contractual governance (e.g., Sen and Shiel, 2006 ; Saxena and Bharadwaj, 2009 ).

Conflict resolution : The degree to which clients and suppliers quickly, fairly, and meaningfully resolve disputes (e.g., Wüllenweber et al., 2008a , 2008b ).

Contract detail : The number or degree of detailed clauses in the outsourcing contract, such as clauses that specify prices, service levels, key process indicators, benchmarking, warranties, and penalties for non-performance (e.g., Luo et al., 2010 ; Handley and Benton, 2009 ).

Contract duration : The duration of the contract in terms of time (e.g., Willcocks et al., 2004 ).

Contract flexibility : The degree to which a contract specifies contingencies and enables parties to change contractual terms (e.g., Sia et al., 2008 ).

Contract management capability : The extent to which a client organization is able to effectively manage contracts with suppliers, including the ability to track service levels and verify invoices (e.g., Sanders et al., 2007 ).

Contract size : The size of the outsourcing contract usually measured as the total value of the contract in monetary terms (e.g., Gewald and Gellrich, 2007 ).

Control mechanisms : Certain means or devices a controller uses to promote desired behavior by the controlee (e.g., Daityari et al., 2008 ).

Convenience : A client organization's desire to select a sourcing option based on ease of use, convenience, and less frustration (e.g., McKenna and Walker, 2008 ).

Cooperation : The degree to which client and supplier employees are willing to work together in common pursuit (e.g., Wüllenweber et al., 2008a and 2008b ).

Corporate social responsibility capability-supplier – A supplier organization's ability to behave in a socially responsible way, such as promoting environmental responsibility and promoting fair labor practices (e.g., Brown, 2008 ).

Cost reduction : A client organization's need or desire to use outsourcing to reduce or control costs (e.g., Borman, 2006 ).

Country: Outsourcing outcomes – Success – Offshore : A client organization's general perceptions of success and satisfaction with offshore outsourcing (e.g., Vivek et al., 2008 ).

Partnership view : A client organization's consideration of suppliers as trusted partners rather than as opportunistic vendors (e.g., Willcocks et al., 2004 ; Sen and Shiel, 2006 ).

Persistence of expectatio ns: ‘The tendency for prior beliefs and expectations to persevere, even in the face of new data or when the data that generated those beliefs are no longer valid’ (e.g., Lewin and Peeters, 2006 ).

Political reasons/influences : A client stakeholder's desire or need to use an outsourcing decision to promote personal agendas (e.g., Maelah et al., 2010 ).

Prior client/supplier working relationship : The situation in which the client and supplier organizations have worked together in the past (e.g., Mani et al., 2010 ).

Prior firm performance – Client : Client firm performance usually measured as net profits, return on assets, expenses, earnings per share, number of patents, and/or stock price prior to an outsourcing decision (e.g., Dunbar and Phillips, 2001 ; Gilley et al., 2004 ).

Prior firm performance – Supplier : Supplier firm performance usually measured as net profits, return on assets, expenses, earnings per share, and/or stock price prior to an outsourcing decision. (e.g., Gewald and Gellrich, 2007 ; Nadkarni and Herrmann, 2010 ).

Proactive sensemaking : The extent to which executives proactively create awareness and understanding in situations of high complexity or uncertainty in order to make decisions (e.g., Sia et al., 2008 ).

Process complexity : The degree to which a task requires compound steps, the control of many variables, and/or where cause and effect are subtle and dynamic (e.g., Ventovuori and Lehtonen, 2006 ; Penfold, 2009 ).

Process integration : The degree to which clients and suppliers are able to integrate processes (e.g. Sen and Shiel, 2006 ).

Process interdependence : The level of integration and coupling among tasks; processes that are highly integrated are tightly coupled and difficult to detach (e.g., Sanders et al., 2007 ).

Process interoperability : The extent to which a business process can operate on many supplier platforms (e.g., Sia et al., 2008 ).

Process standardization : The degree to which a process is standard (e.g., Tate and Ellram, 2009 ).

Public perceptions of outsourcing : The degree to which the public has a negative perception of outsourcing or offshoring (e.g., Sen and Shiel, 2006 ).

Public awareness : The degree to which there is publicly available information about outsourcing or offshoring (e.g., Hutzschenreuter et al., 2011 ).

R&D spend : The amount of money an organization spends on R&D (e.g., Calantone and Stanko, 2007 ; Grimpe and Kaiser, 2010 ).

Rapid delivery : A client organization's desire or need to engage in outsourcing in order to speed up delivery (e.g., Bandyopadhyay and Hall, 2009 ; Lam and Chua, 2009 ).

Relational governance : The unwritten, worker-based mechanisms designed to influence inter-organizational behavior ( Macneil, 1980 ; e.g., Kim, 2008 ).

Relationship quality : The quality of the relationship between a client and supplier (e.g., Sia et al., 2008 ; Saxena and Bharadwaj, 2009 ).

Relationship-specific investment : Specific investments made over time, which discourage opportunism, reinforce signals of the client firms, and create extendedness of the relationships (e.g., Tate and Ellram, 2009 ).

Risk management capability – Client : A client organization's practice of identifying, rating, and mitigating potential risks associated with outsourcing (e.g., Borman, 2006 ).

Risk management capability – Supplier : A supplier organization's practice of identifying, rating, and mitigating potential risks associated with outsourcing (e.g., Borman, 2006 ).

Risk – The extent to which a transaction exposes clients to a chance of loss or damage (e.g., Wüllenweber et al., 2008a , 2008b ).

Scalability : The ability to scale volume of service up or down based on demand (e.g., Currie et al., 2008 ; Redondo-Cano and Canet-Giner, 2010 ).

Security, privacy, and confidentiality capability – Supplier: The proven ability of a supplier to protect client data through investments in technology, training, process controls, audits, and other management practices (e.g., Sen and Shiel, 2006 ).

Senior leadership: The extent to which the senior executives of an organization are effective leaders (e.g., Lacity et al., 2004 ).

Service quality : The quality of a service, frequently measured as a client's perception of a satisfactory service performance by the supplier (e.g., Lewin and Peeters, 2006 ).

Social capital: Cognitive dimension: Social capital arising from the sharing representations, interpretations, and systems of meaning among parties ( Nahapiet and Ghoshal, 1998 ; e.g., Willcocks et al., 2004 ).

Social capital: Relational dimension: Social capital arising from personal relationships people have developed with each other through a history of interactions ( Nahapiet and Ghoshal, 1998 ; e.g., Willcocks et al., 2004 ).

Social capital: Structural dimension : Social capital arising from the patterns of linkages between people or units including network ties, network configuration, and network appropriability ( Nahapiet and Ghoshal, 1998 ; e.g., Willcocks et al., 2004 ).

Social norms : An individual's perceptions of the social pressures put on him or her to perform or not to perform the behavior in question .’ ( Ajzen and Fishbein, 1980 ; e.g., Raman et al., 2007 ).

Sourcing capability – Supplier : Expertise in procurement and the ability to leverage aggregate purchasing power (e.g., Lacity et al., 2004 ).

Stakeholder buy-in : Gaining commitment and support from all parties involved in outsourcing related decisions (e.g., Tate and Ellram, 2009 ).

Stakeholder resistance : The degree to which stakeholders oppose an outsourcing decision (e.g., Ventovuori and Lehtonen, 2006 ).

Strategic flexibility : An organization's ability to precipitate strategic changes and adapt to substantial, uncertain, and rapidly occurring environmental changes (e.g., Nadkarni and Herrmann, 2010 ).

Strategic intent : A client organization's desire or need to outsource for strategic reasons, such as developing new capabilities that can be leveraged in the marketplace (e.g., Sanders et al., 2007 ).

Subcontracting : The practice when the primary supplier engages another supplier for contracted work, either with or without the client's knowledge or approval (e.g., Kuruvilla and Ranganathan, 2010 ; Luo et al., 2010 ).

Supplier age : The age of a supplier firm in years (e.g., Lahiri and Kedia, 2009 ).

Supplier business growth: A supplier increases revenues by extending services to existing clients, obtaining new clients, or through mergers and acquisitions (e.g., Saxena and Bharadwaj, 2009 ).

Supplier competition : The presence of multiple, reputable, and trustworthy service providers, which can provide a range of choices for the clients (e.g., Levina and Su).

Supplier dependency : The degree to which a client depends on a supplier (e.g., Borman, 2006 ).

Supplier employee performance : The client's perception of the performance of individual supplier employees (e.g., Daityari et al., 2008 ; Lam and Chua, 2009 ).

Supplier employee turnover : The percentage of the workers that are replaced in a given time period (e.g., Budhwar et al., 2006 ).

Supplier management capability : The extent to which a client organization is able to effectively manage outsourcing suppliers (e.g., Sanders et al., 2007 ).

Supplier ownership : The supplier's ownership structure; private, public, jointly owned with primary client (e.g., Kuruvilla and Ranganathan, 2010 ).

Supplier reputation : The public's perception of a supplier's capabilities based on past performance and financial status (e.g., Gewald and Gellrich, 2007 ).

Supplier size : The size of a supplier organization usually measured as total assets, sales, and/or number of employees (e.g., Nadkarni and Herrmann, 2010 ).

Switching costs : The costs incurred when a client organization changes from one supplier or marketplace to another (e.g., Wahrenburg et al., 2006 ).

Task structure : The degree of clarity and structure pertaining to tasks (e.g., Daityari et al., 2008 ).

Technical and methodological capability – Client : A client organization's level of maturity in terms of technical or process related standards, and best practices such as component reuse (e.g., Bardhan et al., 2007 ).

Technical and methodological capability – Supplier : A supplier organization's level of maturity in terms of technical or process related and best practices such as component reuse (e.g., Sia et al., 2008 ; Bharadwaj and Saxena, 2009 ).

Time zone differences : The difference in local times between two locations as measured in hours (e.g., Mehta et al., 2006 ).

Top management commitment/support : The extent to which senior executives provide leadership, support, and commitment to outsourcing (e.g., Tate and Ellram, 2009 ).

Training : The nature or extent of supplier employee training by either the client or supplier organization (e.g., Raman et al., 2007 ; Malik, 2009 ).

Transaction costs : The effort, time, and costs incurred in searching, creating, negotiating, monitoring, and enforcing a service contract between buyers and suppliers ( Williamson, 1991 ; e.g., Levina and Su, 2008 ).

Transaction frequency : The number of times a client organization initiates a transaction, typically categorized as either occasional or frequent (e.g., Wahrenburg et al., 2006 ).

Transaction size : The size of a transaction in terms of dollar value or effort (e.g., Luo et al., 2010 ).

Transition management capability – Client : The extent to which a client organization effectively transitions services to outsourcing suppliers or integrates client services with supplier services (e.g., Luo et al., 2010 ).

Transition management capability – Supplier : The extent to which a supplier organization effectively transitions services from a client organization to the supplier or integrates client services with supplier services (e.g., Saxena and Bharadwaj, 2009 ).

Trust : The confidence in the other party's benevolence (e.g., Gainey and Klaas, 2003 ).

Uncertainty : The degree of unpredictability or volatility of future states as it relates to the definition of requirements, emerging technologies, and/or environmental factors ( Williamson, 1991 ; e.g., Mani et al., 2010 ).

Upward appeals : The tactic of invoking the authority and power of higher management; for example suppliers may bypass client liaisons by appealing to client management (e.g., Bignoux, 2011 ).

Virtual teaming: The extent to which the service provider and the client perceive and behave as part of the same team (e.g., Saxena and Bharadwaj, 2009 ).

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Dear [AUTHOR],

We hope this email finds you well. We coded the entire body of empirical (both quantitative and qualitative) Business Process Outsourcing literature from 1996 to 2011. To ensure the accuracy of our codes, we are randomly selecting a subset of the 87 articles we coded for review by authors. You were selected! We are hoping that you will validate how we coded some or all of the relationships in your paper:

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We have a master coding list of over 160 variables used in BPO research. We mapped the variables you used in your paper to our master coding list so we could more easily summarize findings across studies. We were hoping you would indicate the extent to which you think our coding of your study is reasonable.

We also coded the findings between independent and dependent variables. The coding scheme assigns four possible values to the relationship between independent and dependent variables: ‘+1,’ ‘−1,’ ‘0,’ and ‘M.’ We coded a ‘+1’ for positive relationships, ‘−1’ for negative relationships, an ‘M’ for a relationship mattered, and ‘0’ for relationships that were studied but not empirically significant. A more thorough explanation of the codes is included below.

Below you will find what we have coded for your paper at a high level and the relevant descriptions of our master variables below the table. Please tell us the extent to which you agree with our coding for each of the findings from your study listed in the table. Please use the 7-point Likert Scale on the right hand column of the table.

Your checks will go long way toward our initiative and will be much appreciated. Please don’t hesitate to contact us if you have questions. We are hoping you will be able to respond within 1 week's time.

Our descriptions of our master variable names : [HERE DESCRIPITIONS OF RELEVANT INDEPENDENT AND DEPENDENT VARIABLES FOR A STUDY WERE PROVIDED] (see Table B1 ).

[Explanation of codes followed]

This appendix shows the relationships between independent variables and the three categories of dependent variables (BPO Decisions, BPO Outcomes, Miscellaneous). For each relationship, a ‘1’ indicates a positive and significant relationship; ‘−1’ indicates a negative and significant relationship; ‘0’ indicates a not-significant relationship; ‘M’ indicates the independent variable mattered when operationalized as a categorical variable (see Table 3 for detailed explanations). The relationships that were examined at least five times are boxed. The relationships that were examined at least five times and met the criteria for consistent results as described in the text are marked with ‘++,’ ‘+,’ ‘−−,’ ‘−,’ and ‘0’

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Lacity, M., Solomon, S., Yan, A. et al. Business process outsourcing studies: a critical review and research directions. J Inf Technol 26 , 221–258 (2011). https://doi.org/10.1057/jit.2011.25

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Published : 27 September 2011

Issue Date : 01 December 2011

DOI : https://doi.org/10.1057/jit.2011.25

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Business Process Outsourcing (BPO)

Did you know that in the business world outsourcing is a 6 trillion industry? That’s right. It is one of the biggest service industries in our global economy . In fact, in India, the BPO sector has seen tremendous growth since the early 2000s. Let us learn more about Business Process Outsourcing.

Advantages of a BPO

1. flexibility.

Outsourcing non-core activities to a BPO allows a company to be far more flexible. Firstly, the company does not have to invest in additionally fixed assets and can convert them to variable costs. It also increases flexibility in resource management of the client company and helps in adapting to changes in the environment much faster.

2. Cost Effective

Outsourcing some of the business processes and activities can be very cost effective for the client company. They save on investing in fixed assets and fixed costs. And they can redirect these funds for their core activities.

Also outsourcing to developing countries proves to be very cost saving for these companies. For example, if any large MNC was to outsource their IT services to India, they would save an average of 30% of the company’s expenses. This is quite a significant difference.

One of the biggest advantages of BPOs is that they increase the speed of the business processes outsourced to them. They have a very good response time and the clients can focus on the core activities. This fragmentation of activities speeds up the whole process and is very important in cases like customer service.

4. Skilled Manpower

When you outsource one of your business activities to a BPO, you are insured of exemplary services provided by skilled manpower. So if you outsource your supply chain management, rest assured your supply chain will be handled by skilled supply chain managers who are experts in their field. Same goes for IT services or accounting etc.

Disadvantages of BPOs

There can also be certain general demerits of using a BPO for your non-core activities. The company can take steps to eliminate most of these disadvantages. Let us take a look.

1. Communication Problems

There can be communication gaps between the client and vendor companies due to various reasons. There can be misunderstandings and missed messages. Also, both companies may adhere to different standards of services and this can also create friction between the two.

2. Different Time Zones

This is another logistic problem with the Business Process Outsourcing. The client and the vendor can operate in two different time zones that are far apart. The difference in time can create many problems like online meetings, communication etc. It is usually the vendors that adjust their shifts to match the office hours of the client company.

3. Loss of Control

Due to communication errors, time differences etc. the client company can at times lose control of the project. They may thus feel that the quality of services has suffered. Thus it is very important to have effective communication and transparency with a BPO project.

Solved Question on Business Process Outsourcing

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Ans: Some of the services popularly outsourced are,

Financial Services
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The Business Process: Description of Outsourcing

Business process reengineering involves redesigning the business processes and the process is also called business process change management. It also involves the analysis and design of workflows and processes in a firm and it cannot be studied without defining the term business process. A business process is a set of tasks that are logically linked and the tasks are carried out to achieve a definite business result. The process is a technique that helps organizations to think about how they operate so that they can significantly make improvements in customer service, create a competitive advantage and also reduce the costs of operations. One of the stimuli for reengineering is the use of high-tech information systems and networks where every competitive firm is using technology to support its business processes instead of upgrading the current business processes which may be out of touch with the modern levels of competition in the business world.

Business Process Reengineering is also known as Business Process Redesign, Business Transformation, or Business Process Change Management and it helps firms to improve their operations so that they can be in line with the strategic direction, missions, and visions of the firms. The process starts with an intensive assessment of the strategic goals and missions of the companies and the changing customer preferences. This assessment involves deciding whether the firms need to redefine their missions because success can only be achieved if the strategic goals are aligned with the missions of a firm. This means that the process cannot be taken if the firms have not taken time to rethink what they are doing. Reengineering understands that business processes are usually subdivided into subprocesses and that an individual cannot be responsible for the general performance of the company or organization. Therefore, reengineering operates on the premise that the performance of subprocesses can improve the position of an organization in the competitive market only when the process itself is fundamentally efficient and properly modeled. The business reengineering process, therefore, attempts to redesign the entire process so that the business and the customers can reap maximum benefits.

Reengineering does not focus on incremental or functional improvement; it goes beyond process improvement and focuses on optimization of performance and rethinking of the strategic goals of the company or organization. Information technology is the most important instrument that makes business processes reengineering more efficient because it is now being used in enabling newer organizational formats, newer patterns of collaboration inside and outside a firm. Though it was traditionally used to support the existing business functions, it has now become part of the business functions and is no longer seen as a tool of just improving organizational efficiency (Davenport, 1993). Business process engineering initiatives are driven by business strategy. The process cannot be complete without factoring in the human resources who are the main asset of an organization. The human resource dimension in business process reengineering must therefore deal with aspects such as education of personnel, training of the workers, and improving the way they are motivated and rewarded. All in all, the basic idea of business process reengineering is creating value-added output that will help an organization to achieve a competitive advantage and also achieve higher strategic goals. This means that the process should have process ownership, customer focus, cross-functionality, and value addition as the underlying principles for it to effectively help an organization upgrade its performance and remain competitive in the market.

Davenport, T. (1993).Reengineering through information technology. Boston: Harvard University Press.

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Importance of Outsourcing in Businesses Essay

Various departments of a firm such as the human resource, marketing, IT, finance and even the inventory stores often require outsourcing. Outsourcing is a procedure that involves quest of external expertise on various business functions. The main aim of outsourcing is the need to enhance business operations for maximal profit gain.

The functions of the outsourced company have to be diligent and efficient for consistency. Good outsourcing involves partial hiring of specialized companies that are able to boldly base decisions against all odds with the aim of curtailing on unnecessary costs. The specialist work as casual or part-time enterprises and ensure delivery of business functions in a timely manner besides ensuring customer satisfaction and loyalty.

There is need to engage proper and strategic business plans as a way of maintaining focus on the core business goals. In most instances, businesses outsource those tasks that are technical and are not fundamental to overall management but important and supportive units of the business such as IT departments. Most firms managers prefer to stick to the key business responsibilities and outsource all the other tasks. It is equally common to subcontract a failing sector or department, with the aim of gaining improvement.

Some of the main reasons for outsourcing include the need to reduce running cost of subsidiary departments and focus attention to the key areas of the firm. There are many cons associated with outsourcing including, staffing proceeds. It is logical for a company to cater for four employees at a technical department such as IT, and outsource specialization, other than engage many personnel and soon engage extra social or economic responsibilities of laying-off due to non-performances.

One huge challenge regards the risk involving reduction of managerial control over the outsourced sector. There is also need to analyse performance in relation to the outsourcing expenses. Analysing the proposals presented by outsourcing firms, managers are able to find the best yet economical offers. Managers have a wider view of company’s pricing advantage due to availability.

Majority of the challenges associated with outsourcing are not enough reason to avoid the practice. Clients or customers want to gain access to specialized skills for better and timely product or service delivery.

Other good reasons include but are not limited to better business transactions or processes, flexibility on staff allocation, better workflow, business continuity and ability to focus on key sectors of the business. As professional business analyst, managers must focus on the key reasons for considering outsourcing over the in-house management.

One good reason for outsourcing is the performance threats by potential competitors. The main aim of outsourcing ought to be reducing cost without sacrificing growth or competitive advantages. Replacement of the company’s technical operations with specialized outsourced services is a huge risk over control, but highly reduces on business expenditures. A firm might be able to come back to its strong basis and fight competitors to performance status quo.

The managerial concepts are highly compromised, but comparing the outcome to the status of the firm proves that outsourcing is a better option. The cost of having in-house employees is still higher in comparison to subcontracting, if the former compromises business functionality or performance. Dealing with unprofessional is expensive and inferior.

Outsourced companies are third party providers who have excellent knowledge, skill and experience of how to undertake the proceedings and keep businesses on a competitive edge. Arguably, the employees are equally competent enough but lack the extra expertise to maintain the firm’s endeavours.

Outsourcing would be an automatic guarantee for quality and profitability of a firm especially when the tendered team is competent enough and has good standing in the field. Non-performing businesses are at stake over efficiency, accuracy and quality provisions but outsourced panels or experts can provide the required service to revive them and thus save on reputations.

Outsourced team gives the business a chance to access specialized skills and wider range of products because of its proficiency nature and higher investments. Employees also have the chance of acquiring the skills and advancing to challenge competitors in future. The specialized skills enable the businesses to capture and capitalize on the intended market niche. The business also has the chance for accessing skills to supplement to other fields of operations beside the intended department.

Evidently, considering outsourcing would be more benefiting to a firm since it creates a contractual obligation or liability that is higher, and thus more advantageous to the business compared to the in-house permanent contractions. There is a safer bet when there is a signed contract between the firm and outsourced team.

Arguably, an outsourced team affects staffing issues and reduces control but considering proper management of technical departments in the business that the in-house employees or firm’s input requirements might not be in a position to handle, a firm has the capability to absorb pressure associated with future anticipations.

The function of technical departments also becomes critical in the hands of the providers because of the specialization in strategies of absorbing risks of collapse or mitigation. Today it is equally easy to tie urgent business requirements to specialized groups due to security and rates of returns.

The overall management lose the opportunity of controlling all departments, but enjoy the opportunity lost thereafter. Business functions often overwhelm firms, thus the need for the extra hands. Outsourced management enables the business to meet demands and pressure associated with profits and competition.

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Business Process Outsourcing in India

Categories: India Outsourcing

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Words: 1200 |

Published: Mar 14, 2019

Words: 1200 | Pages: 3 | 6 min read

Why outsource, outsourcing solution, outsource- the benefits.

Accounting outsourcing produces cost investment funds between 30%-half for inland North American organizations. It would be ideal if you allude cost correlation examination for subtle elements
Achieve adaptable staffing levels through accounting and bookkeeping outsourcing
Outsource records to discharge time from exercises like records payables and receivables and concentrate more on basic bookkeeping exercises
Outsource bookkeeping to accomplish better monetary control and enhance the importance, unwavering quality and nature of money related data
Get access to most recent innovation, abilities, and bookkeeping and assessment programming's
Eliminate the troubles identified with enrolling and holding headcount by outsourcing accounting and bookkeeping capacities
Shorter venture conveyance times because of the procedure aptitude and productivity of the bookkeeping outsourcing specialist co-op
Leverage the positive time contrast amongst India and US as India works when US dozes!
Largest knowledgeable English-talking workforce after US
India's extensive base of bookkeepers is a helpful resource in bookkeeping outsourcing process
Access to conservative yet gifted work constrain per bookkeeper cost is around 1/eighth of that in USA and Canada, 1/sixth of that in Europe
Favorable political and business condition for outsourcing – India is the most prestigious bookkeeping outsourcing goal on the planet
Considerable mechanical and foundation updates as of late
Faster web association helps in speedy passage of bookkeeping exchanges in outsourcing process
Advantageous time zone distinction amongst US and India guarantees high efficiency and speedier Case study of organization

Reasons for Outsourcing

High costs associated with hiring and retaining qualified accountants and consultants
Fixed investments in infrastructure and man-power was constraining investments in marketing and new business development
Shortage of staff to manage year-end and tax-season peak loads
High costs of setting up and maintaining the required infrastructure
Inability to expand their high-end services like tax-consulting and financial planning due to existing services like bookkeeping and tax-return preparation
To increase price and service(turn-around time) competitiveness against other CPA firms in the same area

Production and Quality

Establishing the key deliverables for accounting and payroll services. Important parameters agreed upon were turn-around time and error rate in bookkeeping
Non adherence to deliverables as stated in Service Level Agreements would lead to penalty and reduced billing to the outsourcing service provider
All data was housed in dedicated US server at an international data centre to ensure online connectivity
Setting up database for following up the progress on deliverables
Formulating and implementing quality compliance systems
Setting up a three tier review system to ensure timeliness and accuracy of output

Turnaround Time

Establishment of turnaround times for all processes and sub processes. So turnaround time were established for accounts payable, receivable and reconciliation processes for the accounting work
Service timings were changed to ensure two hour over-lap with US counterparts to resolve queries and data-related issues
Reduction of turnaround time through innovative reporting

Responsive Administration

Updating the Client Regional Account Managers on daily production status
Communicating information requirements through missing information lists
Pro-actively following up with the Account Managers and Client Operations Managers on status of information received and setting deadlines so that the client’s minimum production commitments are met
Updating the online database for reporting status of ongoing projects/work

Process Innovations

Customized checklists prepared to map the existing accounting practices of the client to ensure minimum start-up time for a new file
Designing new procedures to reduce processing time and error correction time E.g.: Importing and exporting data between QuickBooks and MS excel
Study, analyze and improve on the various client-reporting formats to reduce processing time and/or to improve quality of output. E.g.: designing and modification of various Key Performance Indicators (KPI) reports, excel schedules & word document reports.

Issues and Challenges

Irregular flow of data through the month from clients end resulted in skewed work-loads. We handled it through two ways- maintaining a buffer staffing and breaking the process into sub-parts. So a sub-part such as accounts payables related work (regular and predictable expense transactions) was done earlier.
Use of English- Standardized templates for raising queries meant that the communication skills of the operators was restricted to specifying the factual transaction details with relevant date and amounts. This similarity in transactions significantly reduces the scope for error due to miscommunication

Impact on Client

Significant Cost Reductions
Meeting client Deadlines
Faster turnaround times Average turn-around time for write-up (a specialized accounting service) reduced from 3 days to 2 days.

Research objectives

To identify reasons of outsourcing.
To identify impact of outsourcing on turnaround times especially in bookkeeping outsourcing forms

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Essay on Outsourcing

In an increasingly competitive, business development depends on the effective management of assets, including by the maximum concentration of resources on the core activity of the organization. However, as a rule, any organization is “burdened” with non-core but no less important services for its functioning: IT, accounting, legal department, etc. In order to successfully exist and develop without wasting resources, organization can eliminate non-core business functions to outsource. Nowadays, the popularity of outsourcing is growing and firmly entrenched in the minds of the global business community.

According to the experts of Outsourcing Institute, outsourcing of business process is an emerging view of the optimization of enterprises, with the largest increase observed in the field of finance and accounting. Statistics gathered in 1997 by the American Management Association showed that already 20% of surveyed 600 firms outsource at least some of the financial and accounting operations, and 80% – part of the administrative functions (Spring, 2010, pp.171-172).

Outsourcing is the transfer of non-core business processes to third parties. The first outsourcing services were a bit different, it was an outsourcing of personnel, ie the involvement of employees of another firm to perform some tasks. Today, outsourcing is used in various fields, but most often it is used in warehousing and logistics.

Advantages and disadvantages of outsourcing

Outsourcing has many advantages, it gives a chance to save on different resources. Organization can focus attention on the processes which are directly profitable and reduced overhead costs. Outsourcing saves training costs. Besides, it eliminates the need to increase the number of staff of the company at the expense of non-core business process. Outsourcing allows the company’s management and key employees to concentrate on their core business. With the help of outsourcing, there is a redistribution of organizational resources, previously involved in minor roles and directions. Outsourcing ensures continuous uptime (no holidays and sickness). Outsourcing is a major time savings (you can buy ready-made solutions, infrastructure). Outsourcing involves greater transparency (result matters, not the process). Changing outsourcer is easier than changing personnel. Using outsourcing, a company significantly reduces its risks (sharing them with outsourcer). Outsourcing leads to an increase in quality due to the professionals in the business, their experience in similar projects. At the same time, in addition to the obvious benefits, outsourcing has a number of “traps” or risks (Srabotic, 2012, p. 205).

Risk 1: Customer’s lack of experience of work with outsourcing on the one hand, and declared experience of the Contractor outsourcer – on the other. This problem can be solved by testing outsourcer, using recommendations and trial stages of interaction.

Risk 2: lack of standards and methodology entails difficulties of measuring the results and quality. You can avoid this by breaking the contract on the result, requirement of measurable standards.

Risk 3: lack of organizational involvement. Avoiding is possible by relaying responsibility for the process on the Contractor.

Risk 4: waiting for incredible results.

Risk 5: failure of the implementation of the project (consideration of potential and non-obvious needs of the organization). You can prepare company to the work with outsourcer in advance.

Risk 6: loss of critical business knowledge within the company (outflow of confidential information).

Risk 7: inexperience in conformity procedures. Companies need a controller in service delivery, which will assess the effectiveness of outsourcing services to the overall business strategy.

Risk 8: lack of effective project management.

Risk 9: possible reduction in productivity of its own staff (loss of motivation, assessment of changes as negative).

Risk 10: possibility of termination of the contract with the outsourcer (bankruptcy of outsourcer, returning functions inside the business). Keep in mind possible alienation, documented system or repossession.

Risk 11: unscheduled time costs – success in the interaction (active participation of the customer: functions of tasks’ producer, monitoring and acceptance of work, introduction.)

Risk 12: tax risks. There are increased risk and interest in contracts of services and the complexity of proving economic benefit (Solakivi, 2011, pp.131-132).

However, apart from “traps” of outsourcing for customers, there are “trap” for performers, ie outsourcers themselves:

Outsourcing contract is usually signed for a long period, and this means that there is a risk of future costs and risks, as being dependent on the customer, contractor might work for long period without profit, and sometimes at a loss.
Reorganization of processes within the organization may induce its management to the early completion of the contract and resubmitting maintenance of functions back to internal divisions, but in accordance with the new processes.
Waiting for incredible results.
Changing requirements (awareness of opportunities) during the execution of the contract.
Change of the creditworthiness of the customer with the planned resources and unsaleable unique product (Sauer, 2013, p.8).

Logistics outsourcing

Outsourcing in logistics today for many companies has become the most optimal way to solve logistical problems, such as the delivery of goods or the compilation of transport schemes. It is not possible to debug business processes in logistics without a comprehensive work of highly skilled professionals. Many companies spend considerable sums for hiring a professional to ensure coordination of transport processes, without receiving a good result. That is why currently the most rational decision in this area is considered to be a logistics outsourcing. Services of this kind allow partial or full transfer of organizing business processes to experienced professionals without hiring them to the staff of the company.

It is necessary to clarify that logistics is one of the main tools to improve business efficiency and competitiveness. Its main task is to manage the information, financial and material flow with minimum costs. It is worth emphasizing that the outsourcing services are successfully used in the logistics strategy to minimize investment in logistics, as will significantly reduce the cost of logistics business processes.

The basis of any logistics business lies in an integrated management and optimization of material flows. Therefore, personnel outsourcing allows firms to transfer the logistics function partially or completely. As a result of the release of some of the financial and managerial resources, it becomes possible to focus on core business processes. Thus, outsourcing in logistics helps strengthen the competitive advantages of the company and becomes the key to its future development.

Because of the huge number of offers on the market today, it becomes more difficult to obtain a weighty profit, doing only the development of production and marketing. Outsourcing in logistics enhances profitability by reducing costs. The reduction of logistics costs, if using outsourcing services, is just 1%, which is comparable to 10% increase in sales (Wallenburg, 2010, pp.579-581).

Recently, commercial and industrial companies are increasingly paying attention to the staff outsourcing. The reason is the increasing complexity of conditions and business technologies and the growing importance of its infrastructure components. Naturally, for many industrial and commercial enterprises logistics is not core competencies. Using outsourcing services, such organizations can fully devote themselves to the development of core activities. While the staff outsourcing, who will direct all its potential for development and improvement of logistics processes, ensures the maximum quality of the goods or services of the company.

Many logistics companies that use outsourcing of staff note that finding qualified staff to employ is difficult. The fact that outsourcing allows regular employees not to spend time on ineffective or non-core but necessary processes, provides shortening of time for product development and increase the speed of adaptation to regular changes in market conditions.

Logistics outsourcing services may include the following areas:

Integrated logistics.
Optimization of existing and development of new storage schemes;
Coordination of the procurement and supply of goods, as well as its labeling, packaging, etc.
Registration of customs documentation and freight;
Development of optimal transport schemes;

The expediency of company’s use of logistics outsourcing:

need to focus on what staff members can do the best (“competence concentration”), while outsourcing staff will take care of the rest;
company’s management understands that the company needs a transformation, the concreteness of which can be determined only by organization providing outsourcing services;
emergence of new ideas for the realization of which the company must go through some changes. Outsourcing of personnel can help in implementation;
the need to get a more interesting experience, which can be obtained only through outsourcing staff who will inject new ideas into the company;
need for quick and quality optimization of the logistics department, without any loss on training new employees, outsourcing will avoid decrease in the overall performance of the company;
most effective way to transfer minor cost from permanent to variables is logistics outsource;

As practice shows, the firm that provides outsourcing services has a higher motivation for efficiency than own departments of the company. Logistics outsourcing, as in any other sphere of production, is characterized by the fact that the implementing organization has direct financial obligation for the quality of performed work.

Key benefits and advantages of logistics outsourcing:

reduction of risks associated with the implementation of logistics processes as they are passed on to a company that provides outsourcing services;
decrease in the percentage of capital investments, which often also go to the contractor company;
focus on core competencies promotes the improvement of key processes and gaining additional competitive advantage.

Thus, outsourcing of staff, which will take on the implementation of logistics processes, provides a dynamic development of the company, management of which will deal only with strategic objectives. It can be concluded that logistics outsourcing has a strong potential for the development of the modern market.

Eventually, many companies come to conclusion that it is almost unreal to establish the business processes in the logistics field without the complex interaction of experienced professionals. Some companies invest huge sums on the training and hiring large number of staff responsible for the coordination of transport and storage processes, while others believe that outsourcing in logistics is the best way to solve logistical problems. In the first case, it is not always possible to achieve good results, that is why many companies prefer to transfer all or part of the business processes organization to proven professionals without hiring them to the staff (Zavrsnik, 2011, p. 520).

Classification of operators

Professionals in logistics quite often use specific terminology for judging the competence of a particular logistics operator:

1PL – independent autonomous logistics. Shipper independently performs all necessary operations;
2PL – providing traditional services of warehouse management and transportation;
3PL – standard list of services complemented by other operations, such as: overload, storage, handling, etc.;
4PL – involves integration of all the firms that are involved in the supply chain. Log provider of this class is responsible for planning, management and control of all logistics business processes of the customer, which allows reaching long-term strategic goals and expand the business of the client;
5PL – management of all components included in a single supply chain of products using electronic means of information processing (Hartmann, 2012, pp. 526-527).

Logistics outsourcing means a transfer of logistics processes to a third party. The essence of this service is to reduce the company’s costs, implementation of the supply of products through the involvement of one or more qualified professionals – logistics operators.

Logistics outsourcing services may include the following areas: integrated logistics, optimization of existing and development of new storage schemes; coordination of the procurement and supply of goods, as well as its labeling, packaging, etc.; custom documentation and cargo; development of optimal transport schemes. Outsourcing of logistics services involves transmission of professionals, as part of the functions in this area, and the full scope of authority. When choosing the optimal plan of work for involved specialists, you should take into account the possibility of a private company in organizing logistics. It should be noted that an integrated approach to outsourcing logistics is the most efficient and financially advantageous solution to cope with various tasks in the area of procurement and supply of products.

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Reasons for Outsourcing

Production and Quality