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Business process outsourcing (BPO): Strategy and competitiveness

49 Comments · Business outsourcing

Experience has amply demonstrated that the early stages of most business revolutions are periods of great innovation, great progress, and great pain.

The total quality management (TQM) movement in the United States, for instance, was characterized by long-overdue advances in manufacturing processes.

Ford Motor Company adopted the “Quality is Job 1” mantra in the early l980s after superior-quality products from foreign automakers had already seriously eroded its domestic and international market share.

The NBC news program “Quality on Else” and the subsequent book of the same title lit a fine under American managers and business school educators, ushering in sweeping changes in business processes and educational curricula.

W. Edwards Deming was the dominant figure of the decade, sermonizing to managers across the land on the virtues of TQM until his last days.

Many companies made major advances by implementing TQM in their operations-often because their processes were in need of major improvements.

Others were less fortunate. Many TQM programs introduced into companies languished and festered, precious resources were squandered, and employee morale was compromised.

The early days of TQM were marked by a good deal of experimentation, and the popular business literature was filled with case studies of companies that did things right and gained advantages and those that did not do things right and wound up disappointed.

In the long nun, the TQM revolution resulted in lasting changes to organizations and is the forerunner to today’s better-known managerial strategies, such as Six Sigma.

People do not talk about TQM as much as they used to because it has become an expected part if doing business.

The personal computer was a remarkable business revolution in its day, but no one pays attention no a business today because it uses a PC-more remarkable would be the firm without one.

The same has occurred with TQM and the quality movement in general: It is a necessary part of business, and a business that lacks quality will stand out-usually in a negative way.

BPO is likely to cover the same business innovation trajectory as that experienced by TQM, the PC revolution, and other business innovations.

We have already stated that early pioneers have made many of the big mistakes with BPO, and there is much to be learned from their examples.

Firms such as GE, IBM, Microsoft, and other giants were the early adopters of BPO, and they agonized through the learning curve.

That they were largely successful in their outsourcing initiatives is one of the main reasons that BPO has become a common part of the daily lexicon.

In his March 21, 2004 syndicated column, noted language watcher William Safire acknowledged that the term outsourcing is here to stay.

BPO will slowly become accepted across the globe and will eventually lose its ability to provide competitive advantage.

As the TQM movement burst on the scene, early adopters were able to gain advantages over laggards.

Eventually, that advantage was eroded as increasingly more firms adopted the TQM approach. Something similar is bound to occur with BPO, but it may take years for that to happen.

Over the next five to ten years, U.S. firms should seek to take advantage of the fact that Indian and Chinese higher education systems are churning out five times as many engineers as U.S. institutions.

Large and even industry-disrupting advantages can be gained by leveraging this inexpensive and high-quality labor pool.

During the early days of TQM, failure to leap on the bandwagon and adopt quality measures within the organization led to steady losses in market share. A similar effect could occur for failure to adopt BPO.

In the long nun, TQM was a market-share-driven business innovation. The cost savings and efficiencies gained by quality management practices eventually found their way to the consumer.

Today’s early adopters of BPO can retain much of the cost savings for themselves because many of their competitors have not adopted outsourcing and have no other compelling inclinations to lower prices to consumers.

Nevertheless, it will not be long before this increased net margin luxury disappears and the savings gained from BPO are reflected in the prices charged to consumers. Early adopters get to reap the windfall. Late adopters will only level the playing field.

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