Consultative Business Process Outsourcing (BPO)

Many organizations are outsourcing their transactional processes to other countries, this is called business process outsourcing. This process has proven to be an effective way for companies to reduce costs and boost profits. Consultative business process outsourcing (BPO) is a form of BPO that involves sharing knowledge, not just contracts. When an organization outsources its transactional processes, it can open up more time for managers and employees in the company to focus on more strategic issues.

Business process consultants help with the transition by assisting with cultural sensitivity training and software localization, among other things. This helps the companies running the BPO keep their processes as similar as possible to their home country's culture. The consultants are also responsible for providing training for workers on how to interact with customers, how to utilize new processes and computers, and how to get along with new colleagues.

BPO involves a broad set of technologies and business processes that vary according to the size and nature of an outsourcing contract. Most BPO contracts include:

Financial processes, including billing cycles, process of internal credit cards, collection of receivables, invoicing procedures and so forth.

Workflow management systems (WFS) that link workers who perform functions such as assigning customers to certain steps in order to determine pricing schedules.

Business process reengineering (BPR) to evaluate steps in a process and re-engineer them to be more efficient.

Offline data capture that can include any of the following:

The main advantage of outsourcing work is that companies are able to reduce costs by having others do the work for them. The factors that lead to cost savings, however, depend on the type of organization involved and what type of work is being outsourced. In addition, outsourcing is not an immediate solution for companies' problems, but more a long term strategy. Companies should plan to keep their core processes where they are located, then evaluate and outsource other processes that can be done more cheaply elsewhere. The main problem of outsourcing is communication problems. Outsourcing all business processes does not mean that a company can simply outsource any process. In order for it to work, there has to be a clear and concise set of expectations between the company and the outsourced company. This means that companies need to plan on how they will communicate with each other if they choose to outsource their processes. It is important that both companies do their research so they know what processes are most important, how they will be executed and what technology needs to be used in order for it to work effectively.

Outsourcing has become an increasingly important part of business strategy in recent years. The advantages include cost reduction, access to market expertise and growth opportunities.

Some common arguments against outsourcing are:

Some argue that the threat of job loss is more a political issue than an economic one. "What the real issue is, the main political issue, is not outsourcing in itself, but globalization — the volume, velocity and variety of cross-border investment flows that have increased at breakneck speed in recent years" says John Reinsch, president of the National Foreign Trade Council. "These flows have accelerated to a torrent in recent years as a result of ever-expanding trade agreements and new communications technologies like e-mail". The trade community has called for more government regulation of such flows. 

One argument against outsourcing jobs is that it is easier for these companies to relocate labor and therefore cheaper to outsource more costly work than it is to hire new employees. Many organizations have been moving toward more strategic practices in their business, typically involving a wider range of solutions from which the consumer can choose. Outsourcing allows the organization to move away from the headquarters and focus on the individual customer or client, instead cutting out the middle man, who traditionally took responsibility for understanding customers requirements, proposing various solutions and managing costs. All this could be done much faster by outsourcing some or all of these functions.

Outsourcing is a way for organizations to save on operational expenses, by reducing the number of employees it is necessary to have. Many companies have decided to outsource many of their functions, often because they are no longer interested in running those processes themselves or are looking for a more cost-effective way of doing so. The main advantage of outsourcing is the ability to reduce costs at a rate that does not impact profits too terribly quickly, thereby allowing the organization to expand with little concern for profitability.

The main drawback of outsourcing is that not all business functions can be outsourced. The most common functions that are outsourced are the transactional processes that an organization does not want to run itself, such as accounts payable, customer service and collections. While it is possible to outsource some of these functions, others do not lend themselves well to outsourcing and may not offer any potential savings.

See also: competitive advantage, comparative advantage, division of labor

Surveys of the Business Process Outsourcing (BPO) industry in India show gross revenues rising at a compound annual rate of 23 percent between 2003 and US$19.2 billion in 2007. In 2005 alone, the industry expanded by 18% over the previous year. The industry grew 43% between 2006-2007.

In 2009–2010, the industry slowed down to a growth rate of 5–6% CAGR due to the global economic climate and increasing competition, but this has not stopped the industry from being estimated as a US$100 billion industry by some analysts.

The BPO industry in India employs 1 million people, with a further 1 million hired annually. The BPO industry alone makes up 4% of India's IT-BPM revenues and contributes 40% of India's US$72 billion export earnings in IT-BPM. The National Association of Software & Services Companies (Nasscom) estimates that the number of employees in this sector will increase from 2.8 million in 2012 to 3.8 million in 2017.

The industry is expected to continue to grow at a pace of 8% and contribute 10–15% to India's GDP by 2015. A major reason for this growth is the opening of the services sector in the Indian economy by 2014. According to a report by PricewaterhouseCoopers, this will have a positive impact on BPO and IT-BPM growth rates in India and raise revenues by 8% which should increase BPO revenues from US$25 billion (33 billion INR) in 2012 to US$37 billion (47 billion INR) in 2014.

In 2008, the US Congress unanimously passed a bill to protect workers who lose their jobs due to outsourcing.

Conclusion: This is a brief summary of outsourcing. As you can see, the arguments both for and against outsourcing are large and in-depth topics that require more research. 

Bremner, Robin (2000). "Outsourcing and Management: The Challenge of Risk." British Journal of Management 11(3): 233-243. <http://dx.doi.org/10.1046/j.1467-8551.2000.00070.-1p0313a><br>

Truger, Rolf; Hein, Carolin (2010). "The strategic use of IT for outsource service providers: An exploratory study." Service Industries Journal 30(4): 545-564.