Description
Introduction to Business Process Outsourcing
Introduction to Business Process Outsourcing (BPO)
IT Outsourcing Growth Stages
• IT Outsourcing
– Body-shopping for system development – Remote system development
• IT-enabled services outsourcing
– Medical transcription – Call centers operations – Content development
• Application Service Provision (ASP) • Business Process Outsourcing (BPO)
Introduction to BPO 2
Business Process Outsourcing
• Delegating the ownership, administration, and operation of a business process to a third-party service provider. • With the global telecommunication infrastructure now well established, BPO initiatives often include shifting work to international service providers (offshore BPO).
Introduction to BPO
3
Business Process Outsourcing
(contd.)
• “BPO goes further than technology infrastructure or even applications. The outsourcing provider takes primary responsibility for ensuring that the process works, interfaces effectively with other company functions, and delivers the outcomes intended.”
- The Accenture Institute for Strategic Change
Introduction to BPO
4
BPO Drivers
Broadband Internet Business Specialisation Educational Attainment The BPO Revolution Inexpensive Data Storage Online Analytic Processing (OLAP) Data Mining
Introduction to BPO
Internet Security
BS 7799 ISO 17799 HIPAA
5
IT Outsourcing versus BPO
• IT or IT-enabled services outsourcing is undertaken to control or reduce the development/operation costs. • IT outsourcing is largely a technical activity. • BPO is often undertaken to improve a process and to assure that it will run efficiently.
• BPO is not merely a technical activity, but a socio-technical activity.
Introduction to BPO
6
BPO as a socio-technical business innovation
• BPO is a socio-technical business innovation that provides a rich source of competitive advantage. It requires skillful management of people and technology. • BPO initiative left solely in the hands of technical experts, is likely to fail for lack of paying attention to the soft issues of human relationships, change management and organisational culture. • On the contrary, BPO initiative left solely in the hands of non-technical managers, it is likely to fail for unrealistic expectations about the potential and limitations of the enabling technologies.
Introduction to BPO 7
Human/ Social Factors in a BPO Initiative
• Developing various teams to manage the BPO initiative throughout its life cycle • Reassuring staff of their role in the company • Training people on the new way of doing business • Dealing with job loss and/or reassignment • Keeping morale high throughout the change process • Encouraging people to participate in decision making • Understanding cultural differences between the organisation and BPO service provider
Introduction to BPO
8
Technological Factors in a BPO Initiative
• Compatibility of systems between the BPO client and vendor • Data and system security • Backup and recovery procedures in case of a system failure (business continuity and disaster recovery) • Data interface challenges and strategies • Software and database compatibility challenges • Data and knowledge management
Introduction to BPO
9
Issues in Process Outsourcing
• Movement of business processes from inside the organisation to external service providers means monitoring procedure and process performance.
Process 4Ps of a Business Process
Procedure
Purpose
Introduction to BPO
Performance
10
Role of Process Architecture in BPO
• Clients can often identify which process to outsource but often may not know how that process, once outsourced, will relate to those not outsourced. Also how much that process currently costs and how it is performing. • Business process architecture provides overview of all processes, including process strategies, costs and resources. • It shows what processes are currently supported and how each is related with each of the company’s other processes.
Introduction to BPO
11
Business Process Types
• Critical: Very important to a company’s core business activity. • Key: Important to the organisation’s pursuit of its core business, but are not tightly coupled to the overall pursuit of excellence in the core business. • Support: Essential to the operation of the business but will never become the organisation’s core competence. Routine and fault-tolerant processes.
Introduction to BPO 12
BPO: European Scenario
(according to Gartner)
• BPO is continuing to gain strength in Europe and will grow 4.5% in 2004 to reach €25 billion. • It is now the fastest growing segment within IT-enabled services, and is expected to grow at a compound annual growth rate (CAGR) of 6.8% to reach €33 billion in 2007. • Use of offshore resources as an alternative to domestic BPO is also starting to take off, and by 2007 offshore BPO will account for 14% of the total BPO market compared with only 1% in 2003.
Introduction to BPO
13
Reasons for Adopting BPO
• • • • • Cost savings Acquiring third-party expertise Increased market flexibility Improved scalability Reduced time-to-market
Introduction to BPO
14
Benefits from BPO
• Reduced costs
– E.g. 50 to 60% of total costs in financial sector.
• Comparable or improved service levels
– Higher education levels, higher availability and lower turnover in professional services in many developing countries such as India
• Variable computing capacity and pricing • Increased strategic focus. Companies discover new business opportunities
– e.g. GE Capital, Hughes
Introduction to BPO 15
Components of BPO
• Business process management
– Process ownership, performance monitoring and improvement.
• Business process operations
– Process operations, performance measurement and reporting.
Introduction to BPO
16
BPO Life Cycle Model
Initiative Decision Feedback Transition
Operations
Management
Outcome
Introduction to BPO
17
Forms of Outsourcing
• Onshore outsourcing: outsourced work performed locally. • Nearshore outsourcing: outsourced work performed in other countries that are in roughly the same time zone, e.g. U.S.A. and Mexico or Canada. • Offshore outsourcing: outsourced work is performed in countries that are many time zones away or a long distance away. • Offshore insourcing: an organisation establishes a wholly owned subsidiary in another country and hires local people, e.g. EDS in India. An extended form of this model is the “Build-OperateTransfer (BOT)” model, in which a joint venture is formed with a local partner, operate them jointly for some time, and then transfer it to internal control (insourcing).
Introduction to BPO 18
Models of BPO Service Provision
1. Onshore third-party BPO service provision
European Client Organisation European Service Provider
2. Offshore third-party BPO service provision
European Client Organisation Indian BPO Service Provider
Introduction to BPO
19
Models of BPO Service Provision
(contd.) 3. Onshore third-party BPO service provision with offshore captive centre
European Client Organisation European Service Provider BPO Service Provider’s Captive Centre in India
Onshore outsourcing
Offshore insourcing
2. Offshore insourcing through a joint-venture BPO service provision company
European Client Organisation Joint Venture Service Provider in India
Introduction to BPO
20
Offshore Insourcing BPO Example
Metropolitan Life Insurance Inshore outsourcing Insurance claims Affiliated Computer Services (ACS) Dallas, USA U.S.A.
Insurance claims
Offshore insourcing
ACS, Ghana
ACS, Mexico
ACS, China
ACS, Guatemala
Captive
Centres
Introduction to BPO
21
Reverse Outsourcing
• Conversion of a business competence into a revenue-generating business service. • Example: Amazon.com, online retailer known mainly for discount books, announced the formation of Amazon Services Inc., a provider of outsourced e-business solutions.
Introduction to BPO
22
Business Transformation Outsourcing (BTO)
• A long-term relationship through which an outsourcing vendor assists the client in stimulating continuous business change while achieving operational effectiveness.
Introduction to BPO
23
Key Differences between BPO & BTO
• • • • •
BPO Operational focus Focus on cost cutting Impose tight controls Fixed-bid fee Offload non-core functions
• • • • •
BTO Business focus Focus on value creation Manage uncertainty Performance-based fee Create business change
Introduction to BPO
24
So what is Business Process Outsourcing/ Offshoring (BPO)?
It is
Distributed Process Sourcing
of
Process Management
and
Process Operations
between the client and the service provider
Introduction to BPO 25
Unfortunately BPO has either been studied from the client perspective by client organisations or has been studied from the vendor perspective by the service provider organisations, but has never been studied holistically as strategic partnership to realise the business goals of both the client and the service provider.
Introduction to BPO 26
Choices in Process Sourcing
• Business Process Management
– Total process management by client (Process owner) – Total process management by vendor (Process owner) – Shared process management by both !!!!
• Business Process Operations
– Total process operations by client (no outsourcing) – Total process operations by vendor (third-party outsourcing) – Shared process operations by both (jointly owned captive centers)
Introduction to BPO 27
BPO Perceptual Gaps between the Client & the Service Provider
• The client may perceive BPO as Business Function Ownership outsourcing, but the service provider may perceive it as Business Function Transaction Processing.
Introduction to BPO
28
BPO as Strategic Partnership
A Conceptual Framework
Win-Win Value Addition
Risk Management by Client & Vendor
Relationship Management by Client & Vendor
Client & Vendor Competencies
Introduction to BPO 29
Outsourcing Risks
• Business risk
– For vendor, the risk of upgrading the infrastructure for the new business but failing to get it.
• Relationship risks
– Risk encompassing the uncertainty about the long-term viability of the contractual arrangements.
• Transition risks
– Risk in transitioning to changes in one or more IT processes.
• Strategic risks
– Risk of reducing strategic agility because of inability to assemble all the knowledge required to respond to competitive changes.
• Vendor/ technical risks
– For client, vendor going out of business or not being able to deliver promised service levels.
Introduction to BPO 30
Risk Reduction Practices
• Relationship
– – – – Defining clear metrics. Tying metrics to incentives. Involving vendors in IT governance processes. Assigning account managers as single point of contact for client and vendor. – Client taking equity position in vendor. – Vendor and client interacting constantly and jointly working through issues.
• Transition
– Standardised services – Disciplined processes
Introduction to BPO 31
Risk Reduction Practices (contd.)
• Strategic
– Prior understanding of core and non-core services. – Increasingly building capability to apply IT solutions to business needs.
• Technical/ Vendor
– Undertaking Due diligence – Using large vendors as partners to enhance likelihood of vendor survival – Building into contract an option for competitive bids.
Introduction to BPO
32
Traditional BPO Rules
• Outsource non-core activities, • to niche providers who offer best practice processes, • in order to achieve cost savings, and • improve management’s focus on more strategic issues.
Introduction to BPO
33
Present BPO Rules
• Use BPO to drive consistent management practices through global operations, • to start up new operations quickly • to tap new sources of revenue, and • to catalyse organisational change.
Introduction to BPO
34
Traditional BPO Rules
• Outsource non-core activities, • to niche providers who offer best practice processes, • in order to achieve cost savings, and • improve management’s focus on more strategic issues.
Introduction to BPO
35
Present BPO Rules
• Use BPO to drive consistent management practices through global operations, • to start up new operations quickly • to tap new sources of revenue, and • to catalyse organisational change.
Introduction to BPO
36
Today’s Objectives of BPO
• • • • • • • • • • Convert capital into expense. Access to technology. Centralisation and standardisation. Unique expertise. Improved management focus. Capabilities at speed. Lower labour costs. Ability to handle capacity fluctuations. Increased business discipline and transparency. Increased revenues.
Introduction to BPO 37
doc_778153736.ppt
Introduction to Business Process Outsourcing
Introduction to Business Process Outsourcing (BPO)
IT Outsourcing Growth Stages
• IT Outsourcing
– Body-shopping for system development – Remote system development
• IT-enabled services outsourcing
– Medical transcription – Call centers operations – Content development
• Application Service Provision (ASP) • Business Process Outsourcing (BPO)
Introduction to BPO 2
Business Process Outsourcing
• Delegating the ownership, administration, and operation of a business process to a third-party service provider. • With the global telecommunication infrastructure now well established, BPO initiatives often include shifting work to international service providers (offshore BPO).
Introduction to BPO
3
Business Process Outsourcing
(contd.)
• “BPO goes further than technology infrastructure or even applications. The outsourcing provider takes primary responsibility for ensuring that the process works, interfaces effectively with other company functions, and delivers the outcomes intended.”
- The Accenture Institute for Strategic Change
Introduction to BPO
4
BPO Drivers
Broadband Internet Business Specialisation Educational Attainment The BPO Revolution Inexpensive Data Storage Online Analytic Processing (OLAP) Data Mining
Introduction to BPO
Internet Security
BS 7799 ISO 17799 HIPAA
5
IT Outsourcing versus BPO
• IT or IT-enabled services outsourcing is undertaken to control or reduce the development/operation costs. • IT outsourcing is largely a technical activity. • BPO is often undertaken to improve a process and to assure that it will run efficiently.
• BPO is not merely a technical activity, but a socio-technical activity.
Introduction to BPO
6
BPO as a socio-technical business innovation
• BPO is a socio-technical business innovation that provides a rich source of competitive advantage. It requires skillful management of people and technology. • BPO initiative left solely in the hands of technical experts, is likely to fail for lack of paying attention to the soft issues of human relationships, change management and organisational culture. • On the contrary, BPO initiative left solely in the hands of non-technical managers, it is likely to fail for unrealistic expectations about the potential and limitations of the enabling technologies.
Introduction to BPO 7
Human/ Social Factors in a BPO Initiative
• Developing various teams to manage the BPO initiative throughout its life cycle • Reassuring staff of their role in the company • Training people on the new way of doing business • Dealing with job loss and/or reassignment • Keeping morale high throughout the change process • Encouraging people to participate in decision making • Understanding cultural differences between the organisation and BPO service provider
Introduction to BPO
8
Technological Factors in a BPO Initiative
• Compatibility of systems between the BPO client and vendor • Data and system security • Backup and recovery procedures in case of a system failure (business continuity and disaster recovery) • Data interface challenges and strategies • Software and database compatibility challenges • Data and knowledge management
Introduction to BPO
9
Issues in Process Outsourcing
• Movement of business processes from inside the organisation to external service providers means monitoring procedure and process performance.
Process 4Ps of a Business Process
Procedure
Purpose
Introduction to BPO
Performance
10
Role of Process Architecture in BPO
• Clients can often identify which process to outsource but often may not know how that process, once outsourced, will relate to those not outsourced. Also how much that process currently costs and how it is performing. • Business process architecture provides overview of all processes, including process strategies, costs and resources. • It shows what processes are currently supported and how each is related with each of the company’s other processes.
Introduction to BPO
11
Business Process Types
• Critical: Very important to a company’s core business activity. • Key: Important to the organisation’s pursuit of its core business, but are not tightly coupled to the overall pursuit of excellence in the core business. • Support: Essential to the operation of the business but will never become the organisation’s core competence. Routine and fault-tolerant processes.
Introduction to BPO 12
BPO: European Scenario
(according to Gartner)
• BPO is continuing to gain strength in Europe and will grow 4.5% in 2004 to reach €25 billion. • It is now the fastest growing segment within IT-enabled services, and is expected to grow at a compound annual growth rate (CAGR) of 6.8% to reach €33 billion in 2007. • Use of offshore resources as an alternative to domestic BPO is also starting to take off, and by 2007 offshore BPO will account for 14% of the total BPO market compared with only 1% in 2003.
Introduction to BPO
13
Reasons for Adopting BPO
• • • • • Cost savings Acquiring third-party expertise Increased market flexibility Improved scalability Reduced time-to-market
Introduction to BPO
14
Benefits from BPO
• Reduced costs
– E.g. 50 to 60% of total costs in financial sector.
• Comparable or improved service levels
– Higher education levels, higher availability and lower turnover in professional services in many developing countries such as India
• Variable computing capacity and pricing • Increased strategic focus. Companies discover new business opportunities
– e.g. GE Capital, Hughes
Introduction to BPO 15
Components of BPO
• Business process management
– Process ownership, performance monitoring and improvement.
• Business process operations
– Process operations, performance measurement and reporting.
Introduction to BPO
16
BPO Life Cycle Model
Initiative Decision Feedback Transition
Operations
Management
Outcome
Introduction to BPO
17
Forms of Outsourcing
• Onshore outsourcing: outsourced work performed locally. • Nearshore outsourcing: outsourced work performed in other countries that are in roughly the same time zone, e.g. U.S.A. and Mexico or Canada. • Offshore outsourcing: outsourced work is performed in countries that are many time zones away or a long distance away. • Offshore insourcing: an organisation establishes a wholly owned subsidiary in another country and hires local people, e.g. EDS in India. An extended form of this model is the “Build-OperateTransfer (BOT)” model, in which a joint venture is formed with a local partner, operate them jointly for some time, and then transfer it to internal control (insourcing).
Introduction to BPO 18
Models of BPO Service Provision
1. Onshore third-party BPO service provision
European Client Organisation European Service Provider
2. Offshore third-party BPO service provision
European Client Organisation Indian BPO Service Provider
Introduction to BPO
19
Models of BPO Service Provision
(contd.) 3. Onshore third-party BPO service provision with offshore captive centre
European Client Organisation European Service Provider BPO Service Provider’s Captive Centre in India
Onshore outsourcing
Offshore insourcing
2. Offshore insourcing through a joint-venture BPO service provision company
European Client Organisation Joint Venture Service Provider in India
Introduction to BPO
20
Offshore Insourcing BPO Example
Metropolitan Life Insurance Inshore outsourcing Insurance claims Affiliated Computer Services (ACS) Dallas, USA U.S.A.
Insurance claims
Offshore insourcing
ACS, Ghana
ACS, Mexico
ACS, China
ACS, Guatemala
Captive
Centres
Introduction to BPO
21
Reverse Outsourcing
• Conversion of a business competence into a revenue-generating business service. • Example: Amazon.com, online retailer known mainly for discount books, announced the formation of Amazon Services Inc., a provider of outsourced e-business solutions.
Introduction to BPO
22
Business Transformation Outsourcing (BTO)
• A long-term relationship through which an outsourcing vendor assists the client in stimulating continuous business change while achieving operational effectiveness.
Introduction to BPO
23
Key Differences between BPO & BTO
• • • • •
BPO Operational focus Focus on cost cutting Impose tight controls Fixed-bid fee Offload non-core functions
• • • • •
BTO Business focus Focus on value creation Manage uncertainty Performance-based fee Create business change
Introduction to BPO
24
So what is Business Process Outsourcing/ Offshoring (BPO)?
It is
Distributed Process Sourcing
of
Process Management
and
Process Operations
between the client and the service provider
Introduction to BPO 25
Unfortunately BPO has either been studied from the client perspective by client organisations or has been studied from the vendor perspective by the service provider organisations, but has never been studied holistically as strategic partnership to realise the business goals of both the client and the service provider.
Introduction to BPO 26
Choices in Process Sourcing
• Business Process Management
– Total process management by client (Process owner) – Total process management by vendor (Process owner) – Shared process management by both !!!!
• Business Process Operations
– Total process operations by client (no outsourcing) – Total process operations by vendor (third-party outsourcing) – Shared process operations by both (jointly owned captive centers)
Introduction to BPO 27
BPO Perceptual Gaps between the Client & the Service Provider
• The client may perceive BPO as Business Function Ownership outsourcing, but the service provider may perceive it as Business Function Transaction Processing.
Introduction to BPO
28
BPO as Strategic Partnership
A Conceptual Framework
Win-Win Value Addition
Risk Management by Client & Vendor
Relationship Management by Client & Vendor
Client & Vendor Competencies
Introduction to BPO 29
Outsourcing Risks
• Business risk
– For vendor, the risk of upgrading the infrastructure for the new business but failing to get it.
• Relationship risks
– Risk encompassing the uncertainty about the long-term viability of the contractual arrangements.
• Transition risks
– Risk in transitioning to changes in one or more IT processes.
• Strategic risks
– Risk of reducing strategic agility because of inability to assemble all the knowledge required to respond to competitive changes.
• Vendor/ technical risks
– For client, vendor going out of business or not being able to deliver promised service levels.
Introduction to BPO 30
Risk Reduction Practices
• Relationship
– – – – Defining clear metrics. Tying metrics to incentives. Involving vendors in IT governance processes. Assigning account managers as single point of contact for client and vendor. – Client taking equity position in vendor. – Vendor and client interacting constantly and jointly working through issues.
• Transition
– Standardised services – Disciplined processes
Introduction to BPO 31
Risk Reduction Practices (contd.)
• Strategic
– Prior understanding of core and non-core services. – Increasingly building capability to apply IT solutions to business needs.
• Technical/ Vendor
– Undertaking Due diligence – Using large vendors as partners to enhance likelihood of vendor survival – Building into contract an option for competitive bids.
Introduction to BPO
32
Traditional BPO Rules
• Outsource non-core activities, • to niche providers who offer best practice processes, • in order to achieve cost savings, and • improve management’s focus on more strategic issues.
Introduction to BPO
33
Present BPO Rules
• Use BPO to drive consistent management practices through global operations, • to start up new operations quickly • to tap new sources of revenue, and • to catalyse organisational change.
Introduction to BPO
34
Traditional BPO Rules
• Outsource non-core activities, • to niche providers who offer best practice processes, • in order to achieve cost savings, and • improve management’s focus on more strategic issues.
Introduction to BPO
35
Present BPO Rules
• Use BPO to drive consistent management practices through global operations, • to start up new operations quickly • to tap new sources of revenue, and • to catalyse organisational change.
Introduction to BPO
36
Today’s Objectives of BPO
• • • • • • • • • • Convert capital into expense. Access to technology. Centralisation and standardisation. Unique expertise. Improved management focus. Capabilities at speed. Lower labour costs. Ability to handle capacity fluctuations. Increased business discipline and transparency. Increased revenues.
Introduction to BPO 37
doc_778153736.ppt