Wednesday, 9 July 2008

Business Process Outsourcing, How Alien Is It?

When Business Process Outsourcing (BPO) is mentioned, the first image that would come to most of our mind would be ladies working in call centres, probably somewhere in India. This simplistic perception has caused many entrepreneurs to view BPO with much skepticism.

BPO is simply when a business contracts out its internal processes to a third party. For example, when an accounting firm is engaged to provide accounting services to your company, you are entering into a BPO arrangement. When you hire a headhunter to recruit new staff, you are outsourcing your recruitment process. Therefore, BPO is not something that a business is not familiar with and most enterprises have been involved with BPO, one way or another.
In a competitive business environment, the challenge for any business is to enhance value proposition while at the same time attaining more efficiency. This is where BPO could be one of the choices to be considered.

For example, to improve the distribution of a particular product, companies with wide distribution network could be used as outsourced distribution channels instead of investing in in-house business outlets. Not only capital expenditure could be reduced, access to market could be speed up while economic of scale attained in a short period.

When a company intends to offer e-learning services, it could consider working with a partner with ready platform and contents instead of investing to build its own platform. If a reliable partner is secured, it could focus on business development and market creation initiatives. The two entities could split the revenue depending on the investment and resources involved. In such an arrangement, assets utilisation are maximised, capital requirements reduced and cost of services minimised.

If a business enters into the BPO business by leveraging on low cost, such value proposition may not last long as cost would go up with growth and other players will scale and efficiency could be a substitute when competition becomes more intense. BPO in more strategic areas or arrangements at the higher stage in the value chain such as in research and development would be more difficult to be broken as both the consuming and processing companies are relying on each other to enhance their competitiveness.

As a general rule, the following consideration could be make as guidance when BPO is considered:
  • Identify the desired value proposition and competitive edge;

  • Break up your business processes leading to the desired position into smaller components;

  • Consider processes where your company has edge over competitors and consider improving on that strength;

  • For other processes, consider to contract out the processes to more efficient and competitive outsiders;
  • Develop a strategic relationship with the BPO contractors so that both sides would understand the significant of the business arrangement, setting performance standards, identify and manage risks and develop a win-win value appropriation model.

  • Periodically review the arrangement to cater for changing business environment and changes in the industry.
If an enterprise has multiple products and services, BPO could go to the level of outsourcing the whole business in a particular market. While certain elements of the business such as branding and quality assurance could be retained, such arrangement could free commitment of capital and resources and provides more opportunity to focus on higher value business.
For enterprises which choose to compete via a network of like minded companies, BPO is one of the ways to remain lean but able to provide wider value proposition to the targeted market. As proposed above, BPO is not focused on the processes but includes strategic elements which are shared among the BPO partners.

BPO is not necessarily simple to venture into. However, with changing business landscape, it should not be ruled out without due consideration either. Who knows BPO could allow your business to survive the perfect storm experienced by most companies today.
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