Business Process Outsourcing – Not a Fairy Tale Any More

The term Business Process Outsourcing or BPO has been in favored usage for a good part of two decades and more. No other business process has been in dominance in corporate and technology circles in a very long time. However after many years of ‘being in the news’, it is experiencing a downward trend globally of late. But it will not completely become irrelevant is evident from the benefits it still affords companies and continues to still be a viable business option.

The concept of outsourcing may have been around for many decades, but it was accorded formal recognition as a strong business strategy only in the late 1980s. In the ensuing years different forms of outsourcing came about in the business world, each with its unique strategies and accompanying terminologies. Business Process Outsourcing soon became a key sub-category of the concept of outsourcing and gained immense growth through the 1990s and into the New Millennium. The numbers of companies embracing BPO business models and third party vendors providing strategic services simply multiplied overnight.

As we know, BPO refers to the delegation or contracting of key operational areas of a business to a third-party service provider. These functions included specific critical operational areas such as Accounting, Finance, Procurement, HR, Front Office Customer Service, IT Operations and many others.

The concept quickly flourished globally when businesses realized that they were in a position to free non-critical business functions to third party service providers in offshore locations at much less contracted rates compared to paying local workforces, thus saving on costs incurred in staffing, infrastructure, technology, systems etc. They were also in a position to make effective use of conducive geographical locations to do business and enjoy benefits both locally and globally without having to set up roots everywhere.

Expectations not met?

However, it soon became evident that this new business process was not meeting the expectations of companies and businesses, for various reasons. Corporate circles today are wary of the subject of BPO despite the significant benefits it provided and the attention it generated over the last few decades. Business Process Outsourcing was touted as the mantra to achieve organizational efficiency at all levels; however, in many well publicized instances, it did not quite deliver the desired results and fell well short of the expectations of many business houses.

In the US especially, outsourcing became a national issue because jobs sent offshore to low-cost destinations resulted in huge numbers of local people unable to keep their jobs or find suitable employment.

It’s not hard to see why BPO failed to meet the high expectations; there are several very obvious reasons for that.

• Ill-defined contracts between service providers and businesses with many gray areas
• Unspecified and unclear goals and targets leading to constantly changing schedules
• Completely contracting out competence and intelligence specific areas to third parties resulting in disastrous consequences and loss of capabilities to parent company
• Inactive management and control over the relationship
• Ineffective process alterations
• Substandard service delivery
• Delayed milestone deliveries
• Quality assurance failures, etc.

Benefits are certain

The BPO may be slowly losing relevance in today’s competitive marketplace; however, the concept of BPO is not entirely without business drivers and benefits especially for small and medium sized businesses in several areas, the most important of all being the significant cost savings when compared to conventional business models. But to gain these significant savings, companies have to be involved in the BPO set up and management, more so in areas such as staff training, networking infrastructure, communications and technology, quality initiatives, conforming to required standards etc. BPOs can certainly provide companies with nearly 40% savings in infrastructural and operational costs provided the business model is sound, the processes are specifically defined and implemented and the relationship between company and vendor is managed well. The savings to companies accrue in the areas of process reengineering, process improvement and optimization and reduction of operating costs.