By FocusCore Group with Raj Alagendran, MBA
Global Business Process Outsourcing Consultant
Raj is an Innovative leader with an MBA in Shared Services and Outsourcing. 15+ years of experience in Project Management, Restructuring & Transformation, and Logistics & Supply Chain.
Q 1: What is a BPO and what can be outsourced?
Business process outsourcing (BPO) is an element of outsourcing, when the operations and responsibilities of a specific business process are contracted out to a third-party service provider. But I would like to focus also on the term Back office Process “office”: This is a place where you can consolidate your operations under one roof. It can be set up within the company borders or outside the company borders.
There are two main options - with the first option the services can be set up as “Captive” shared services. This means creating a bespoke shared resource office and this is owned by Company. This shared services office is an extension of the main company, with access to the same corporate HR, IT etc. I will detail in a moment the services that can be provided by this solution. The other option is outsourced BPO. This means “Outsourcing” your activity to an external BPO company. It is important to understand these two options and how they differ.
To make this difference clearer, let me explain with an example. Over the last 10 years I was involved in creating a shared services office in India. This specific Captive example is for a Telecommunications company. The employees were from the Telecommunication company itself, a multi function services office. This same company later outsourced some of the back office functions to another Company, while still managing their core activities out of the Captive center.
What can be outsourced?
Normally, the non-core activities of an organisation can be outsourced. For example, if we use a mining company as an example, the core activity would be mining operations and sales. Non-core activity could be IT, HR and Finance and any other departments that provide supporting operations. If we look across all sectors of industry and services this could include:-
Data entry services
Order to bill and Procurement to pay services
Complete marketing solution
Call centre services – incoming and outgoing calls
Medical transcription - Doctors have large transcription demands.
Healthcare - scanning, blood tests, data entry of results.
There is a large demand for these medical reports to being written, verified, prior to being sent to the client.
Finance and accounting. For example, for one client we have 180 staff covering accounts payable and account receivable.
Administration Facilities. Travel bookings, PA services, “Virtual Personal Assistants”.
A growing service: Web Analytical Skills, Analysing web metrics –can help a company read and maximise their understanding of their web site metrics with expert views and commentaries: Who viewed the site? Which products were selected? A dashboard of results can be provided that the CEO can review easily. A web site can be interactive, as demand to view can vary and analysis can tell the Board what is happening on their site. A company can use these services to analyse their web site activity and make their site more effective.
Q 2: Why do businesses set up BPO’S?
A shared BPO is setup to optimise on efficiency and leverage on industry best practices. With the latest technologies a BPO can be set up in any part of the world. One of the primary drivers for a BPO solution is cost. Savings can be shown every year for the client company, with best practise, latest technologies and optimum pricing so it lowers the annual company running costs.
Often new clients have experienced or heard of bad experiences in BPO with quality of service being an issue, in the past. This I review in a forthcoming question but let me say now it is the reason we always keep up to date with industry best practise. For example, I attend seminars around the world focussed on this subject to make sure we can provide the latest and best practises to our client, wherever they are located.
Q 3: What are the risks?
One of the primary concerns is losing control of the processes managed in a BPO. For example, the client CFO may have concerns on quality control and data accuracy. The other factors are data integrity and data security. This can be tackled by focusing on both and introduce continuous improvements. The CFO may have found when with his own staff he can introduce changes easily and therefore adopt and adapt. It is imperative to use skilled management specialists continually to recommend improvements andimplement these improvements, if opportunities arise and to identify the routes to improvements whenever possible.
Regular review of ISO guidelines for IT security is a must. For example when we work for Governments or clients in the Finance Sector we have to conform to their additional IT Data Security demands. With the shared services model we can provide these top levels of IT security but not the top costs! Costs can be mitigated with the shared model.
Hackers never give up and companies always have concerns about the cost of IT security. Latest IT security standards can be provided and when on a shared services model then of course the data centres and security costs are shared
Normally the BPO should be ISO certified and have certified professionals managing the BPO operations. Making sure appropriate and skilled management is in place to maintain conformity, integrity and efficiency. IT security, as I have said, is a key concern for all companies. Governments have the same control issues with their tougher security rules. IT security needs to be audited regularly by reputable IT and Data Audit organisations. Many companies say with cost as the issue they reduce security but with outsourcing top levels of IT security can be provided on a share operating model - i.e. if three countries are served for the same company with one data centre, a major plus point – this is obviously backed up to allow business continuity and service resilience.
Q 4: What are the advantages?
All support functions can be placed under one roof. Industry best practices can be leveraged upon and have continuous process Improvements
If the client has been running a department for many years they may not have had the time to explore, review or test the latest best practices. When business is outsourced, you bring in the global best practice. I recently helped a client company migrate from EXCEL to a better, more modern solution. Latest tools can be provided to optimise cost, efficiency and accuracy.
Manage Budgets with ease.
With your own centre you have a target budget per year. But if suddenly staff leave, for example long term leave, and you need contractors, or new systems are needed, added costs arise and your budget goes through the roof. With outsourcing costs are FIXED. There are a host of issues that can arise with your operational costs but with outsourcing the costs are known and furthermore the services will not come to a stop if there is any form of natural or manmade disaster. All the sites can be replicated to take business continuity to its highest level. You can finally control with certainty your headcount and staff and overhead costs.
Q 5: Can you build a BPO one headcount at a time
Yes of course. CFO and CEO expectations are that with outsourcing or insourcing a BPO should have volume or a number of people. In an insourcing option we require a minimum number. However, if you are planning an outsourced model there are a lot of companies, who started with just one outsourced headcount. If required they can quickly ramp up to the numbers required by the client, at any time. With the captive offering it does not make sense to start with one, but on a shared services model you can start with 1 to 5 staff with also an emergency ramp up solution – there is flexibility to do this: e.g. add 50 to 100 people people in a very short time period until the crisis or business requirement is over.
Q 6: What are the major risks for CFO?
Cutting it too loose too early – make sure the transition time allowance is adequate and realistic
As an example, with one client, we had been called in and the staff had already been told they would have to leave as the Processes was being Outsourced. The permanent staff had left the company. This created some knowledge black outs and contractors are normally not committed to the organization this caused issues when mapping existing processes.
There are well-tested process that includes these steps:-
- Initiate the “Solution Design Workshop” – this reviews current processes
- Present proposed services solutions to the client
- Identify current and future risks etc.,
- Obtain agreement and sign off on the service model proposed
- Knowledge transfer. Train the Trainer. This is a training phase and to produce the desktop processing manuals, employee procedures, noting and explaining all the different processes.
- Interface Transition – training on the job for all parties.
- Test transition.
This may take 3 to 12 months so it is important the time is available for the process and also have a client site co-ordinator for the client and the outsource office to take this call.
Therefore, when planning the transformation activity the CFO needs to give extra allowance on the timelines and headcount. If a transition is planned from a mature country to a low cost country and expect performance to be maintained at same level, it may not be realistic without going through well tested preparatory procedures, in the necessary timescales.
A minimum of 1:1.5 head count needs to be approved. Once process is streamlined it it should be able to show process optimisation of 1:1 within 6 months.
The cost savings on salary will by itself cover some of this cost. This will ensure a better transformation path with low or minimum business interruption. The cost savings on salary alone is over 60% and savings continue year on year.
It is, therefore, important to keep the identified SME for a minimum of 6 months to one year. Again this can be paid off on the salary cost savings on the first year. This will also allow the CFO to show year on year savings for minimum of 3 years.
It is important to get the buy-in of all of the Executive Committee and also with the first level senior management reports, it should be made clearly visible that it has been a successful transition so as to continue to get this buy-in from the Board. Cost savings can regularly surprise us. There are those who try to break efforts of a BPO, so its important to work hard to get all on board as the policy should be "together we can do a lot more".