Outsourcing or Business Process Outsourcing (BPO) means transferring a firm’s non-core activities to an external provider. It means getting some business activities accomplished through an outside agency. For instance, a manufacturing firm instead of setting up its own advertising department may outsource the advertising work to some advertising agency. The Ad agency can help the client company in fixing the advertising budget, preparing advertising copy, choosing the most appropriate media such as TV, radio, newspapers, magazines and buying media space.
In an outsourcing agreement, there are two parties:
- The outsourced, i.e., the client company which wants to outsource a business process
- The vendor or external provider who provides the service to the company.
Thus, in the above example the manufacturing firm is the client company or the outsourced and the advertising firm is the vendor or the external provider.
Some of the business processes which may be outsourced include accounting and financial services, payroll services, inventory management, advertising services, healthcare and welfare services, market research, courier service etc.
Outsourcing enables a company to concentrate on its core activities by contracting out the non-core and routine activities to outsiders. There is no need for the firm to recruit, train and pay workers on a permanent basis to undertake non-core activities.
Benefits of BPO :
Outsourcing offers the following advantages:
- Outsourcing enables a firm to concentrate on its core activities as the non-core activities are outsourced to an external provider.
- The external vendor is a specialist in performing the outsourced business process and thus can perform the same at a lower cost.
- The firm need not create a separate department to perform non-core business processes and thus lesser investment needs to be done.
- The external vendor provides his expert advice to the client company for better performance of outsourced services.
- The firm has a freedom to choose the external provider who it thinks can perform the business process most efficiently. In case the firm is not satisfied with the performance of the vendor, it can terminate the contract and find a new vendor.
- For certain services which are require temporarily, outsourcing them is the best option.
The Outsourcing Guide :
Outsourcing business processes to an external vendor requires a careful consideration of the following areas:
- Selection of the right activities to be outsourced
- Identification of the right supplier of services
Which activities to outsource?
It is important to identify those activities of the business which an external provider can perform in a more cost efficient way. These are generally the non-core activities of a business. Such activities when outsourced to an external vendor do not require any fixed investment in the form of a separate department to perform these activities. However, the firm must be aware that outsourcing may imply loosing control over its operations.
Identifying the right supplier of services :
Choosing the right company to outsource the jobs is not easy. It is important to identify the key technical and management issues in outsourcing. A few prime factors one has to focus on are:
- The vision and mission of the company in evaluation
- Balance sheets of the previous years
- Client lists
The external vendors are evaluated on these criteria and the best one is chosen with whom the firm will enter into an outsourcing agreement. The more providers there are in the market, the better position the firm is in for negotiating a deal. Besides, it also allows the firm the option to switch, if the need arises.
BPO in India :
India is rapidly emerging as an outsourcing base for multinational corporations. India has low cost but highly qualified English speaking labour. Therefore, business process outsourcing is accelerating quite fast in India. Initially, companies which started experimenting with India as an outsourcing base were MNCs who started company owned back office operations and call centers. Very soon they started outsourcing more complex business processes to India. In India, companies like Infosys, Wipro, HCL Technologies and Satyam have entered BPO operations. With time, the upsurge in BPO has offered Indian companies a route to participate in the core business processes of MNCs and gradually move up the value chain. This would be the time when they will be more like business partners rather than mere suppliers of services to MNCs.