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To business process outsourcing or not business process outsourcing? A strategic question

21 Comments · Business outsourcing

Business process outsourcing (BPO) has managers around the world asking what it can do for them and what it might do to them.

They are excited about the potential for BPO to help them manage costs and improve their balance sheets.

Under constant pressure from analysts to control headcount, outsourcing back-office activities to contract laborers in remote corners of the world can provide welcome and quick relief.

Whether the labor source is in India, Pakistan, China, or some other international port, the prevalence of high-speed Internet provides opportunities for real-time back-office support regardless of location.

At the same time as these new possibilities are opening up as a result of the BPO revolution, new questions are being asked and new challenges in organizational design and leadership are arising.

Many organizational leaders remain skeptical about BPO because of the lingering aftereffects of the tech bubble burst. Their memories are still fresh with images of the “change the world” mentality of the tech bubble and its dismayingly rapid crash.

The very thought of investing in new business models right now – especially those with a technology or Internet component – is very difficult for many managers and executives.
Many leaders are also concerned about the risks of BPO.

They are unsure about the information security issues associated with outsourcing back-office processes.

For instance, in order for a BPO vendor to assist a client in managing employee benefits, the vendor must have access to some of the most sensitive and mission-critical information the organization possesses.

The thought of shipping this data overseas to be managed and used by individuals who are not bound by the organization’s formal and informal controls is enough to keep a manager awake at night.

BPO is based on the fundamental proposition that organizations should focus on what they do best and outsource everything else.

If your company markets and sells sporting goods, it should spend substantially all of its time doing that and as little time as possible managing its accounting, customer service, and employee benefits plans.

In theory, the concept makes a great deal of sense. In practice, it still seems to invite a new set of challenges that may cost more than the problems that are supposed to be solved.

It is critical to point out that BPO is not a technology or a technology system; it is a business strategy.

In that regard, to BPO or not to BPO is a question nearly anyone who manages a business process must now confront.

As a strategic choice, the BPO option is a live one for anyone with a budget, limited resources, and decision rights over a business unit. In the Executive Viewpoint insert, Mr.

Lalit Ahuja, CEO of outsourcing vendor Suntech Data Systems in Bangalore, India, notes the growing ranks of small-to medium-sized enterprises (SMEs) using BPO.

For some managers, the decision may even involve the continued existence of their own departments and their jobs.

No one is likely to decide to eliminate his or her own job, so managers must learn to understand how BPO may fit into their overall responsibilities and develop the skills to manage the BPO transition and maintain it once it is up and running.

Taking advantage of business process outsourcing will be a challenge for managers in all types of organizations and at all levels within those organizations.

As we move into an age of greater accountability among organizational leaders, boards of directors, and others with fiduciary responsibility, it is imperative for those leaders to ask the question of whether the firm could perform better by adopting new business models like BPO.

Moreover, as firms within an industry adopt BPO, other will be forced to consider it as the traditional cost structure of their industry comes under pressure.

The competitive and regulatory pressures that will compel managers to take a serious look at their BPO options are only beginning to be felt in some industries, but the revolution is upon us, and its will is relentless.

Competitive forces that drive each industry to seek the most effective cost-control measures are as irresistible as a river of water seeking its level.

No earthen structure has yet been proven to be able to hold off a persistent river, and no management or organizational structure will be able to hold off the BPO revolution. This means that adoption of BPO in whatever industry you are in is virtually inevitable.

Managers must prepare for the changes that are coming by understanding the factors that go into making a sound BPO decision.

In addition to the basic choice of whether to use BPO, a host of technological, business process, and HR issues follow in the wake of an affirmative decision.

The technological issues will range over the type of electronic infrastructure that will be required to communicate effectively with BPO partners to the integration of new technologies with legacy systems throughout the organization.

These difficult issues require the skillful assembly and management of a team of diversely talented individuals.

Because BPO is fundamentally a strategic issues, managers cannot simply call upon their firm’s CIO or systems administrators to decide how to achieve an outsourcing relationship.

The web of relationships that make up successful BPO initiatives will be based on a range of managerial actions and skills that is unlikely to be present in any single manager or executive.

Notes
? Business process outsourcing (BPO) is simply the movement of business processes to the highest-skill/lowest-cost provider.

? There are talent hot spots around the world, including India, China, Mexico, the Philippines, and the United States.

? BPO is a socio-technical revolution in that it is both a social shifting of jobs and a technology-based method of doing so.

? BPO is an emergent phenomenon to the extent that it is a result of several driving factors, none of which was intended to create the potential for BPO.

? There are six primary driving factors of the BPO revolution: educational attainment, broadband, data storage, analytic software, Internet security, and business specialization.

? To BPO or not to BPO is a strategic decision for organizations.

? A BPO initiative requires both technical and nontechnical managers in order to implement it properly.

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