Business process outsourcing (BPO) is essentially a business strategy to move back-office functions and services – that is, those services that are not part of an organization’s core competencies, such as call centre operations, technical support, payroll administration, etc – offshore to service providers in lower-cost, higher-value locations. As a strategy, is has revolutionized, and continues to transform, large companies, and, increasingly also small and medium-sized companies.
Internationally, five BPO hotspots have emerged:
- India for technical and engineering services;
- China for technical and manufacturing services;
- Mexico for manufacturing services;
- the United States for analytical and creative functions;
- and the Philippines for administrative services.
From a business process outsourcing perspective, these countries have comparative advantages in these respective services.
Steps in the process
When a company decides that if there are advantages to outsourcing one or more of its services, there are a number of steps which will assist in choosing a suitable outsourcing partner.
In Essentials of Business Process Outsourcing (2005), Thomas Duening and Rick Click describe the process in six steps, as follows:
- Establishing a BPO analysis team, representing the company’s IT, finance, human resources and strategy departments;
- Conducting a current state analysis, which involves mapping a company’s internal business processes;
- Identifying core and noncore activities;
- Identifying BPO opportunities by distinguishing between high-cost and low-cost functions and high-productivity and low-productivity functions;
- Modeling the BPO project by looking at costs and risks; and
- Developing and presenting the business case for outsourcing.
Finding the right outsourcing partner
Finding the right business process outsourcing partner for your company will be crucial in maximizing the potential for BPO success. It is important to realize that the relationship between a company and its outsourcing service provider is typically more intimate than the traditional relationship between a buyer and a supplier. Duening and Click suggest following these steps in finding a service provider:
- Appointing a selection team;
- Establishing the minimal qualifications that the service provider would need to have;
- Developing a long list of between 15 and 20 potential service providers;
- Distributing the Request for Information (RFI) to prospective candidates;
- Distributing the Request for Proposals (RFP) to prospective candidates;
- Evaluating the proposals;
- Selecting a short list; and
- Selecting a service provider.
Take time to choose a service provider
It is important that companies allow enough time for each of these steps in the process. It is suggested, for example, that 30 days be allowed to compile a long list, 60 days be allowed to solicit and review service provider proposals and 30 days be allowed to review shortlisted candidates. All in all, it would be reasonable to allow six months for the entire process of choosing an outsourcing service provider for your company.
What to consider
An important aspect to keep in mind when evaluating proposals is whether a service provider has customized the proposal to the unique needs of the client company. This is already a good indication of whether the BPO provider is customer oriented. The service provider can be asked to provide case studies, copies of the resumes of personnel who will be assigned to the client, copies of industry certifications, references and proof of financial stability. The client may ask how many employees the service provider has, what type of facilities they have and how long they have been in business.
The final step of the selection process should be a face-to-face meeting with the service providers who have been shortlisted. The service providers should be given an opportunity to deliver a presentation and demonstrate their understanding of the client’s business process requirements, workflows and, importantly, process improvement opportunities. After the presentation, the client should have an opportunity to ask questions. If the client still needs clarification, a telephonic consultation or second face-to-face meeting should be arranged before a selection is made and a BPO contract drafted.