READING2

What's BPO Chapter 5 Outsourcing

Activity 1:

In groups of 2 people read the whole document.

Activity 2:

Individually, read the text in green and listen to the recording at the same time. Check the
pronunciation of difficult words. Then, record your own voice reading that extract. Imitate the
rhythm, accent and pronunciation. Record your voice and send it via whatsapp to our general
chat.

Activity 3:

In groups of 2 people, look for the meaning of those words in yellow and write 1 sentence for
each one.

5.1 Outsourcing

Outsourcing is contracting with another company or person to do a particular function.

Almost every organization outsources in some way. Typically, the function being outsourced is
considered non-core to the business. The outside firms that are providing the outsourcing
services are third-party providers, or as they are more commonly called, service providers.
Although outsourcing has been around as long as work specialization has existed, in recent
history, companies began employing the outsourcing model to carry out narrow functions,
such as payroll, billing and data entry. Those processes could be done more efficiently and
therefore more cost- effectively, by other companies with specialized tools and facilities and
specially trained personnel.

Currently, outsourcing takes many forms. Organizations still hire service providers to handle
distinct business processes, such as benefits management. But some organizations outsource
whole operations. The most common forms are Information Technology Outsourcing (ITO) and
Business Process Outsourcing (BPO). Business process outsourcing encompasses call center
outsourcing, Human Resources Outsourcing (HRO), finance and accounting outsourcing, and
claims processing outsourcing. These outsourcing deals involve multi-year contracts that can
run into hundreds of millions of dollars. Frequently, the people performing the work internally
for the client firm are transferred and become employees for the service provider.

The process of outsourcing generally encompasses four stages:

• Strategic thinking, to develop the organization's philosophy about the role of

outsourcing in its activities•
• Evaluation and selection, to decide on the appropriate outsourcing projects and
potential locations for the work • to be done and service providers to do it
• Contract development, to work out the legal, pricing and Service Level Agreement
(SLA) terms•
• Outsourcing management or governance, to refine the ongoing working relationship
between the client and • outsourcing service providers.

In all cases, outsourcing success depends on three factors: executive-level support in the client
organization for the outsourcing mission; ample communication to affected employees; and
the client’s ability to manage its service providers. The outsourcing professionals in charge of
the work on both the client and provider sides need a combination of skills in such areas as
negotiation, communication, project management, the ability to understand the terms and
conditions of the contracts and Service Level Agreements(SLAs), and, above all, the willingness
to be flexible as business needs change.

The challenges of outsourcing become especially acute when the work is being done in a
different country (offshored), since that involves language, cultural and time zone differences.

5.3 Benefits of Outsourcing

The following are some of the benefits of outsourcing:

 Cost savings: The lowering of the overall cost of the service to the business. This will
involve reducing the • scope, defining quality levels, re-pricing, re-negotiation, cost re-
structuring.
 Improve quality: Achieve a step change in quality through contracting out the service
with a new Service Level • Agreement.
 Knowledge: Access to intellectual property and wider experience and knowledge.•
 Contract: Services will be provided to a legally binding contract with financial penalties
and legal redress.•
 Operational expertise: Access to operational best practice that would be too difficult
or time consuming to • develop in-house.
 Staffing issues: Access to a larger talent pool and a sustainable source of skills.•
 Time zone: A sequential task can be done during normal day shift indifferent time
zones- to make it seamlessly • available 24x7. Similar can be done on a longer term
between earth’s hemispheres of summer/winter.
 Increase in business: Benefit of outsourcing is seeing a big increase in your profits,
productivity, level of quality, • business value, business performance and much more.
 Concentrate more on your core business: One of the benefits of outsourcing is that
your organization will be • free to concentrate on your core business. By outsourcing
all your non-core functions, your employees can be put to better use and you will be
able to see a huge growth in your core business.
 Make faster deliveries to customers: Another benefit of outsourcing is that you can
make quicker deliveries to • customers. Your outsourcing partner will be able to
provide faster deliverables and you in turn will be able to make quick deliveries to your
customer. Faster deliveries can also help you save on time.
 Improved customer satisfaction: With timely deliveries and high-quality services you
can impress your customers. • Outsourcing can help you benefit from increased
customer satisfaction and your customers will remain loyal to your organization.

5.4 Disadvantages of Outsourcing

The disadvantages of outsourcing are as follows:
• Loss of control•
• Quality problems•
• Slow response time•
• Can’t understand foreign accents•
• Slow resolution times•
• Can’t produce desired results•
• Reduced sales•
• Irritated customers•
• Irritated employees, unions, people within community•

5.5 Types of Outsourcing

Given below are the types of outsourcing:

5.5.1 Nearshoring

Nearshoring is one of the forms of outsourcing, where an organization outsourcers its business
processes to an outsourcing partner who provides cheaper services. The main differentiator
between offshore outsourcing and nearshore outsourcing is that the outsourcing partner in
nearshore outsourcing is located geographically closer than the outsourcing partner in
offshore outsourcing. The term “Nearshore” has been taken from the fishing industry and now
it is used widely in the world of outsourcing.

Advantages of nearshore outsourcing are as follows:

• Closer proximity•
• Both the outsourcer and the vendor are in the same time zone•
• Better coordination and communication•
• Similar culture, mindset and language•
• Frequent visits to the outsourcing partner is possible•
• Greater efficiency•

5.5.2 Offshoring

Offshoring simply means having the outsourced business functions done in another country.
Frequently, work is offshored in order to reduce labor expenses. Other times, the reasons for
offshoring are strategic- to enter new markets, to tap talent currently unavailable domestically
or to overcome regulations that prevent specific activities domestically.

5.5.3 Onshoring

Onshore outsourcing (also called domestic outsourcing) is the obtaining of services from
someone outside a company but within the same country. It is the process of engaging
another company within your own country for BPO or ITO services.

Advantages of offshoring and onshoring are as follows:

• Reduce and control operating costs•
• Improve company focus on its core competencies and strategic imperatives•
• Access to world-class capabilities and best of breed technology•
• Re-allocate internal resources to higher-value purposes•
• Address the issue of limited internal resources•
• Accelerate re-engineering/transformation efforts•
• Manage more effectively a difficult or problematic function.•

5.5.4 Information Technology Outsourcing

IT outsourcing occurs when an organization contracts a service provider to perform an IT

function instead of performing the function itself. The service provider could be a third party
or another division or subsidiary of a single corporate entity. Increasingly, organizations are
looking offshore for the means to minimize IT service costs and related taxes. Many times, the
outsourcing decision results in a transfer or sale of the information processing assets and the
people who performed the in-house function to the service provider.
Outsourcing is also a common option for start-up operations and for organizations entering
new business lines. Rather than devoting time, energy and capital to the creation of IT
processing services, organizations feel they can minimize the start-up time required to enter
new markets by contracting a third party to provide those services immediately. IT outsourcing
is an attractive option for many organizations. IT outsourcing should be an integral part of an
organization's overall business strategy, involving senior executives and key IT staff. The
rationale for pursuing outsourcing options involves the strategic, financial and technological
benefits to be gained.

5.5.5 Knowledge Process Outsourcing

Knowledge process can be defined as high added value processes chain where the
achievement of objectives is highly dependent on the skills, domain knowledge and experience
of the people carrying out the activity. And when this activity gets outsourced a new business
activity emerges, which is generally known as Knowledge Process Outsourcing. Knowledge
Processing Outsourcing (popularly known as a KPO), calls for the application of specialised
domain pertinent knowledge of a high level. In fact, it is the evolution and maturity of the
Indian BPO sector that has given rise to yet another wave in the global outsourcing scenario:
KPO or Knowledge Process Outsourcing. The success achieved by many overseas companies in
outsourcing business process operations to India has encouraged many of the said companies
to start outsourcing their high-end knowledge work as well. Cost savings, operational
efficiencies, availability of and access to a highly skilled and talented workforce and improved
quality are all underlying expectations in outsourcing high-end processes to India.

5.5.6 Business Process Outsourcing

Business process outsourcing (BPO) is the contracting of a specific business task, such as
payroll, to a third-party service provider. Usually, BPO is implemented as a cost-saving
measure for tasks that a company requires but does not depend upon to maintain its position
in the marketplace. BPO is the process of hiring another company to handle business activities
for you. Business process outsourcing is the latest thing to affect all the industries in a positive
way. (BPO) Business Process Outsourcing has a common thing for every business. It helps the
businesses take care of certain tasks, which, if done in house, will prove to be nothing but a
waste of time, and both financial and human resources. Every business has various tasks to be
taken care of, both internal and external. These tasks also involve some, not worthy of the
time, money, and manpower, which could be spent on something better and more productive.
But still, these tasks have to be finished. This is where BPO business process outsourcing
comes in handy.

A company can acquire business process outsourcing service for many types of work. But, the
services provided are broadly divided into two groups. The first one is for the internal
operations or tasks, and is called the back office outsourcing. It tackles various operations
within the organization. For instance, a company may hire a business process outsourcing
company for the purpose of hiring or payroll. The other type of business process outsourcing
services deal with the external operations of a company. These could be anything such as
providing customer services, providing technical support to the customers, or anything similar.
Such services are called front office outsourcing.

Benefits derived from BPO can be summarized as follows:

• Productivity improvements•
• Access to expertise•
• Operational cost control•
• Cost savings•
• Improved accountability•
• Improved HR•
• Opportunity to focus on core businesses