The market for Business Process Outsourcing (BPO) is growing, and it is growing fast. Global revenues for business process outsourcing in 2011 represented around 60 billion USD, with India taking the lion’s share out of this with approx 35%. It’s become a serious industry, with serious money involved!
Many industries outsource part of their (customer-facing) processes. Insurance companies outsource their claim handling processes. Banks outsource part of their mortgage requests. Telecom companies outsource their customer care and other back-office functions. Multi-national corporations outsource their pay-rolling. A lot of consumers (and employees) in Europe and the US often don’t even realize that the company they are dealing with, is not the same that handles their claims, mortgages, phone connections or pay-roll sheet. And why should they?
Research shows that companies can reduce costs between 40% and 70% on their standardized business processes if they outsource these. Not only because these processes are usually outsourced to low-wage countries, but especially because the organizations to which the work is outsourced to, are doing the work at a much higher efficiency rate than could have been achieved by the outsourcing company itself. Training, standardization of processes and a highly automated way of working all contribute to this gain in efficiency.
Besides cost savings, BPO increases the flexibility of companies. Outsourcing business activities adds a flexible layer around companies that can absorb fluctuations in demand, both up and (with the current economic downfall) down as well. It also allows companies to better focus on their core activities.
Successfully outsourcing your business processes requires you to keep an eye on the following 5 success factors:
- Define a set of KPIs.
Measure, analyze, draw conclusions and adjust where necessary. Create a simple dashboard where you can constantly monitor the effects of BPO on your cost and revenue structure.
- Select your BPO vendor carefully.
Ask for references. Look for growth, as growth is an important signal that a BPO vendor is doing its work well. Visit the vendor prior to signing the BPO contract, to get a feel if the culture matches or aligns with your own corporate culture. If not, look for another BPO vendor.
- Make an impact analysis.
Carefully draw a map of what will be the impact on your own personnel, and what other business risks may be involved if you decide to outsource parts of your processes. Also consider time zone differences and differences in language (if any) – are your own employees capable of explaining or discussing in-depth their work details in a non-native language?
- Draw clear process boundaries and make these explicit.
Make a very detailed write-up of what the BPO vendor should do versus what parts of the process you will continue to handle yourself, and share this upfront before starting to outsource anything. What input data will the BPO vendor receive, and what output do you expect back? What to do in case of exceptions? It is extremely important to reduce all unclarity, vagueness and fuzz about who should do what.
- Don’t outsource what you don’t control!
Probably the most commonly made mistake is that companies decide to outsource a process they don’t yet fully oversee nor control themselves. This is the ideal recipe for disaster. If you don’t know exactly how things should be done, don’t start outsourcing it!
That being said, outsourcing usually will be an important management approach to further reduce costs, streamline workflows and increase your own effectiveness.