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Vendor organizational risks

The risks associated with the BPO vendor’s organization are perhaps the most difficult to accept because they are not easy to control. This risk is also enhanced when the vendor is offshore.

The risks associated with the vendor organization can range from business practices to authenticity of certification and reference claims.

Vendor business practices can vary greatly around the world. Practices that are clearly prohibited or considered highly questionable in the United States can be routine in the vendor’s home country.

The problems of bribes, kickbacks, on money exchanged under the table have affected U.S. businesses abroad in a wide range of industries.

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Legal risks

Legal risks associated with offshore outsourcing are legion, and their threat is made worse by the relative lack of legal precedent.

For instance, there currently are no clear legal rules governing the extent to which remedies can be extracted from a business process outsourcing (BPO) vendor in the case of a security breach on other gross malfeasance. Countries differ in their laws for foreign firms seeking damages from private enterprises.

This governing document provides a framework for the buyer-vendor relationship. Today, many law firms and, consultancies specialize in assisting BPO buyers in developing contract terms that are favorable and enforceable.

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Intellectual property risks

Most businesses have a significant amount of sensitive information, including trade secrets, business plans, and proprietary business knowledge.

Safeguarding critical business information is a concern, even in the United States. Threats to information security, such as theft by company insiders, former employees, and computer hackers, abound.

Offshore outsourcing presents different and in some cases more potent threats than the domestic variety.

Legal standards and business practices governing whether and how sensitive information should be guarded vary around the world.

Some industry groups, such as banks and financial services firms, have developed stringent guidelines for organizations to follow to secure their proprietary information.

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Project risks

Project risks are defined as the potential that the business process outsourcing (BPO) initiative may not provide the cost savings, strategic advantages, on productivity improvements anticipated.

The reasons for this potential risk are too numerous to list. Unexpected incompatibilities between software infrastructures could prove intractable and lead to delays, cost overruns, and lost business.

The cultures of the two companies may pose unyielding challenges that become more trouble than they are worth. Changes in U.S. or foreign labor laws could upend the cost equations that had been the primary reason for the offshore outsourcing.

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Business process outsourcing (BPO): Training and support infrastructure

Most of the problems employees will experience during a BPO project will not be related to the hardware or software infrastructure associated with BPO.

They will more likely be related to failures in understanding new workflows, work procedures, and work responsibilities.

From the apocryphal user who cannot find the “Any” key (“Press any key to continue”) to the individual struggling to find data that, without warning, now appears under a new field name, there are always problems with human adaptation to new systems.

When the buyer and vendor system architectures come together in a BPO project, there will be workflow and responsibility changes.

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Human capital risks

Change management is a human resource issue, involving a well-understood pattern of overcoming resistance, instituting changes, and reestablishing standard operating procedures.

Some change management consultants have expressed this as unfreezing-moving–refreezing the organization.

In this section we are not addressing the risks associated with change management; rather, we focus on the technical risks involved with the thorny issues of equal employment, immigration, and foreign trade regulations.

Each of these topics touches the BPO project on the margins and must be understood and managed.

Onshore outsourcing usually has minimal human capital risks because it is strongly in the domestic BPO vendor’s interest to understand and comply with all U.S. employment laws and regulations.

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LDV Integrates Its Systems with Gedas to Improve Performance

LDV started out as a division of British Leyland. When the U.K. manufacturing giant closed its doors, many industry observers believed that LDV, which builds commercial vehicles, would soon follow suit.

But LDV was saved by a management buyout and today employs more than 1,000 people at its Birmingham factory.

LDV has extensive expertise in the automotive market, but its niche also presents management with significant challenges.

“We specialize in custom-designed vehicles, and rely heavily on our supply chain applications, which run on IBM mainframes,” stated Chris Linfoot, LDV’s IT director.

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Business process outsourcing (BPO): Knowledge infrastructure

We have already discussed the data and information infrastructure that is important part of any BPO relationship.

Competitive businesses are data driven, and in many cases a large part of their overall value is derived from industry and market data they have collected, stoned, and analyzed.

A company’s knowledge infrastructure is even more important because knowledge refers to the practical application of the analyzed data and information.

The knowledge infrastructure of the BPO buyer refers to several components, some of which are directly affected by the BPO relationship.

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Software infrastructure underlying the business process outsourcing (BPO) project

Software compatibility is often a difficult issue within an organization. Compatibility issues are amplified iii a BPO relationship when attempting to bring buyer and vendor applications into alignment.

Database issues will confront nearly every BPO relationship, as data sharing is the backbone of most BPO projects.

This book is not intended to be a treatise on how to get disparate databases to talk to one another, hut BPO project managers should be alert to the difficulties often encountered when two systems attempt to connect at the database level.

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Hardware infrastructure underlying the business process outsourcing (BPO) project

The first issue to consider with respect to the hardware infrastructure underlying the BPO project is whose systems to use.

Because providing high levels of service in the specific business process is the vendor’s core competence, their hardware capabilities usually outstrip those of the buyer.

Despite this common circumstance, the decision to use the vendor’s hardware system should not be based on technology maturity alone.

Buyer and vendor must also consider other factors when determining whether to shift processes to the vendor’s hardware.

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