Business Process Outsourcing

“Outsourcing is more like a marriage than a transaction. The key to

success is confidence, trust and relationship. BPO results in win–win
situation. The Company gets excellent service at reasonable cost while
contractor/service makes a fair profile.” No contemporary business
organization can ignore the power of BPO (Business Process
Outsourcing). Most companies adopt outsourcing of various processes as
one of the key strategy including remaining.

a) Cost competitive.

b) Flexible organization.

c) Less capital intensive.

d) Focused Attentive in the core area.

“Outsourcing has become a useful tactic to power Cost and gain

competitive advantage”. By Elmuty D Kithawala (1998).

With a view to have maximum flexibility and trimmed and slim

workforce, modern business in this global are adopts outsourcing as a
strategic decision – rather than only cost compulsion. While own
employees are deployed on key areas; tradition and non-traditional areas
are outsourced. Such contracts are usually intended to last for longer
period say 7 to 8 years.

This powerful and much talked about tool need to be handled

carefully.

Importance of Outsourcing

Outsourcing is more like a marriage than a transaction. The key to

success are confidence, trust and relationship. Successful BPO results in
win-win situation. The Company get excellent services at reasonable cost
while contractor/service provider makes a fair profile.

“Outsourcing system allows companies to contract for services that

are not with in the scope of their expertise, so that they can focus their
time, money and energy on wasting valuable resources trying to gain
understanding of areas that are somebody else’s example’.
 By A. Campbell and K.S. Luchs in Core Competency Based
Strategy.

The modern management thinking in the global area, puts

Outsourcing as one of he key strategy to remain cost leader in the
Industry. All the core areas are manned by own employees whereas other
areas including non-conventional area for outsourcing are taken care of
through contractors.

What is to be outsourcing?

1. Conventional Areas:

a) House keeping of Building and work areas.

b) Security of Plane and Township.

c) Car pool…

d) Catering, Hospitality and Canteen.

e) Horticulture establishment and Maintenance.

2. Non – Conventional Area:

a) Maintenance of Critical and Specialized Equipments.

b) Crane Maintenance.

c) Internal Material Handing with equipment/ manual.

d) Quality Lab Operations.

e) Packing of HR Coils.

f) Refractory Lining and Management.

g) Annual Maintenance Contract for Computers.

h) Annual Maintenance Contract Telephones.

i) Safety and Fire Fighting Team including operation of fire

tender.

j) Commando type Maintenance Team specialized in shut down

activities.
 k) Environment Mortaring on specified parameters.

l) Waste Handling.

m) Health Management.

3. Emerging Areas:

i) Procurement activities.

ii) Accounting activities.

iii) Human Resource Functions.

iv) Management/total solution contracts.

Why performance evaluation is necessary ?

For a business organization the continuation of various activities is

key to survival and sustenance. Every company has a right to strive for
efficiency and continuously improve to become a world class company.

One of the popular management tool is Plan, Do, Check, and

Act(PDCA).

Based on about tool, Performance Appraisals are made to

determine.

• The quality and quantity of actual performance viz-a-viz

provided in the contract.

• Adequacy and effectiveness of policies and

• Approaches deployed by the contractor

And thus identify the action necessary to get continual improvement

evaluation of outsourcing contractors including fabric of workers
deployed by them specifically from Industrial point of view is of
paramount importance for an organization where various activities are
outsourced.

Performance Evaluation helpful in many ways:

 1. Able to classify good contractors from the one who are below
performing below normal can be either pulled up or weeded
out.

2. Outsourcing various activities followed by performance

evaluation helps in effective outsourcing and thus remaining
flexible. Despite being big organization which are thin. The
best example of flexibility in the steel company was ability to
take up billet production (value added production) through
outsourcing during a temporary period when main product
sale was difficult.

3. Performance Evaluation helps in development of contractors to

take up new and challenging jobs. The reliable contractors are
partners and prove back bone for today’s business
organizations.

4. When contractor is aware that the performance is being

evolution he tries for best efficiency. This helps in
improvement in the overall performance and value addition.

5. Specific advice can be given to contractor for improvement in

the ar4eas of job performance, industrial relations, safety,
statutory compliances, industrial hazards training to their
employees etc. thus avoiding of subsequent magnified
problems threatening to the complex fabric of business
activities.

6. Help in better understanding and thus building good

relationship of trust and confidence. If also helps in future
assessments of contractors for new works at tender stage.

Various Recommended Aspects of Performance Evaluation:

Suggested Model and criterion for evaluation:

a) The contractor/service Provider 100 points

b) Work Performance 500 points

c) Safety Aspects 100 points

d) Industrial Relations 100 points

e) Environmental Obligations 100 points

f) Statutory compliances 100 points

Total 1000 point

1. The Contractor/Service Provider: 100 points

The details regarding the persons who are behind the form,
their qualifications and previous experience of handling the jobs
or similar assignments. Their approach deployment towards
day to day problem solving, balancing needs, expectations,
pressures and requirements. Personal involvement of their key
person\el in the contractual activities. Easy accessibility
through various communication means and their response
time. Participation in professional bodies, conferences,
seminars relevant to their work or general management.
Identification of critical success factors, sharing best practices
and knowledge. Promoting social and cultural activities.

Dimensions of Performance Evaluation

• The Contractor

• Work Performance

• Safety Aspects

• Environment Compliance

• Industrial Relations

• Statutory Compliance

2. Work Performance: Ability to understand the objectives:

Whether the contractor and their staff understand the objectives

and goals of the contract. In some cases where outsourcing has
failed, the survey revealed that “they did not understand what they
were supposed to do”

Required Skills and Behavior:

Whether the staff deployed by contractor have required

qualification, experience and skills to do the given job. During Review, it
is always better to have complete profile of workers on the job. In some
cases, no new entrant is allowed unless interview is taken and he is
exposed to various training related to job, safety and environment.

Actual Work :

Whether the quantity and quality of work/service delivered as per

the agreement. This becomes more important in case contract provides
for fixed monthly charges.

In case of maintenance, whether maintenance schedules have been

followed. Service indicator such as

• Whether average mean time between to maintenance is increasing

or decreasing,

• Total asset life cycle performance assessment versus cost,

• Productivity of equipments under maintenance cont4ract need to be

assessed.

The performance evaluation system emphasizes the importance of

defining the goals and objectives associated with any major outsourcing
initiative prior to choosing a supplier and signing a contract. Obtaining
the right advice, learning from the experience of others, and developing
and applying appropriate benchmarks to the initial evaluation process
are all-important steps. Benchmarks must reflect what is important to
the concerned organization; they underpin the process of regular
assessment of an outsourcer’s performance and can be a most valuable
element in ensuring that the company continue to benefit from cost-
effective, competitive, and high-quality service throughout the life of an
outsourcing contract.

Jan Duffy, group vice president of Solutio9ns Research, says that

“Benchmarks may be difficult to develop and administer, but they can

play a major role in sustaining a satisfactory relationship between buyer
and supplier in an outsourcing situation. However, they do not replace the
trust, confidence, and goodwill that are the foundation of every successful
outsourcing partnership”

In case of critical movement of materials, whether timely movement

has taken place and has not affected the smooth production.

Proactive Behavior and responsiveness:

 At various occasions, how the contractor and their employees have
behaved and how fast6 is their response to emergent needs.

Humber of complaints against the contractor relating to the work:

Number and type of complaints from the user department received

during the review period.

Health of the Equipment/Tools and Tackles relating to contractor:

a) Whether the contractor has the system of breakdown

maintenance of their equipments/Tools and Tackles.

b) Whether any preventive maintenance scheduled has been kept

and being adhered to.

c) The age of the equipments/Tools and Tackles owned and used

by the contractor.

d) Any standby arrangement to meet the emergency breakdown.

e) Arrangement with the diesel/fuel suppliers for ensuring

continued availability in working condition.

f) Stock holding of urgent and critical spares.

Use of Material:

a) If the contract provides that material to be procured and

used by contractor, the quality of material is to be assessed.

b) Determine whether contractor is optimizing the use of

materials.

c) Proper material accounting is made and scraps if any is

returned to the company.

d) Minimum inventory is kept-to avoid any stock out and thus

threatening the stoppage of work.

Knowledge Management:

Methodology adopted for collecting of various information and

sharing the same with the company

Image:
 Any appreciation received;’ Suggestion given by the staff. General
image of contractor.

Loyalty:

Duration of the relationship with the company. Number and value

of orders obtained during the review period.

Price Competitiveness:

Sharing of information on various aspects of expenses, cost

analysis, innovative methods to reduce cost. Sharing of savings, Bonus,
Penalty clauses agreed in the contract.

3. Safety Aspects:

Company requires that the contractor will at all times work in a

safe manner and not put themselves, company employees, any human
being or materials at risk. The contractor and its staff is to be fully
aware of the company policy on Safety.

a) Whether contractor is qualified engineer or employs qualified

personnel to take care of the safety of various workmen employed.

b) Whether contractor is providing the personnel protective to each

workmen and the records are being maintained for safety items
like Shops Helmets, Goggles, Belts, Jackets, Dust Protectors,
LegGuards etc.

c) Whether the contractor and their employees are exposed to the

safety trainings.

d) Whether the contractor follows work permit system, hot work

permit system as prevalent in the company.

e) Special precautions for working in confined space and at

heights. Medical check up of employees working in such
condition

4. Industrial Relations

a) Whether contractor has kept a qualified personnel to take

care of Industrial Relation aspects of his employees.

b) Whether contractor is paying at least the minimum wages

as per State Government stipulations.
 c) Whether the contractor has system to handle the grievances
of employees, i.e. the Grievance Committee having some
members amongst the employees is in place.

d) Whether payment of wages are being made on due date.

e) In case of critical work, whether the staff is residing nearby

area.

5. Compliance to Environmental Obligations:

a) Whether the contractor is aware of various hazards in

their work area and given suitable instructions to their
employees.

b) Whether the contractor is aware of various areas earmarked

for disposal of industrial waste (relevant to his work)

c) Whether the contractor / their staff has obtained adequate

Training.

6. Statutory Compliances by the Contractors;

a) Registration under the labour laws.

b) Payment of minimum wages.

c) Payment of wages latest by 7th of each month.

d) Prohibition of employing anybody below 18 year of age.

e) Provision of Safety items like helmet, shoes and safety belts.

f) Provision is leaves to their employees.

g) Provision of uniform to employees.

h) Keeping of various statutory records.

i) Registration under Provident Fund Act.

j) Payment of Provisional Taxes.

k) Employees are covered by workmen compensation Insurance

Policy.
 l) Submission of various returns and forms to the statutory
authorities in time.

m) Compliance of provisions of Payment of Bonus Act and Gratuity

Act.

n) Provision of first and facility.

Ways in Which Outsoaring Management Can Improve Productivity

Market Gains

• Improved response

• Economic of Scale

• Improved sales

Outsourcing Increased

Management Profits

Reduced Costs

..Increased productivity

..Lower rework/scrap costs

..Lower warranty costs

..Improved Service

Implementation Aspects;

Evaluation Committee:

This committee will have representations from Contract Cell, User

Department, Safety Department, HR Department and Environment
Department.

Periodicy of Appraisal:
 As a matter of procedure, Performance review need to be done once
in a year, could be January every year” However , in case of poor
performance, the periodicity can to basis.

Benchmarking / Trends:

Over the period of time benchmarking to be set in. The performance

data wherever possible to be converted in numerals and records kept for
understanding the trend.

Best BPO Partner Award;

The instituting of best outsourcing contractor award and its

announcement in terms of improvement and efficiency. The best
contractor may become the role modal for others to follows.

Feedback:

A feedback system need to be evolved to communicate all the

outsourcing contractors who have been reviewed, about the areas for
improvement.

Business process outsourcing some

Implementation issues

Outsourcing is the buzzword in these days. Outsourcing is nothing

but allowing someone else to do your work for you so that you are able to
devote your time to more important jobs. This concept is relevant in all
areas, as today one can also outsource some routine chores to some
other person. Outsourcing is a smarter way of doing business. It is a
huge business opportunity today. In today’s fast moving business
scenario, business firms are contemplating various methods in achieving
greater success. More and more firms are looking at new ways to reduce
costs and meet the pressures of increasing accountability post-Enron.
They are looking for more tasks that can be outsourced. And if possible
off shored to high-quality, low-cost locations. Hence the reason why
many firms are outsourcing some of their processes in reducing their
burden and concentrating on core competent areas. Business process
outsourcing became the trend and almost all companies are moving in
this direction. Everything from technology support to payroll to travel to
financial services to customer care is being outsourced to specialists big
and small, known and unknown.
 The possibility that this opportunity make an enormous impact
has even caught the imagination of politicians. Many states are trying to
lure big BPO outfits. Some are even willing to change policies for that.
Karnataka has changed its labour rules to allow women to work in night.
Andhra Pradesh is willing to change school and college curricula.

The Need for outsourcing:

A business firm needs to perform various functions in carrying out its

business. Of these various functions it performs certain functions which
are not its core areas. A manufacturing firm’s core area is the process of
manufacturing and its allied areas. But however, traditionally it performs
various other processes like HR functions, Accounting & Financial
functions which requires less thrust. In today’s competitive world one
needs to have more efficient and effective way of functioning. So, the firm
may concentrate on its core competent area i.e. manufacturing and
achieving greater success in manufacturing a product. The other
functions may be outsourced to some specialists who are not part of the
oraganisation. By this way it can reduce it costs on those processes. This
kind of outsourcing gave a new scope of business and many independent
companies are emerging

and offering its specialized services to firms who are outsourcing their
jobs.

BPO in India:

Nasscom-McKinsey report advocated the “India offshore model”, which

very much signifies the role India is playing in this business. Indian
business process outsourcing (BPO)

and call centre companies- or –ITES – are coming of age. Even as a

debate rages in the US on the pros and cons of outsourcing, a “new supply
chain of expertise” links the west to India and other outsourcing centres.
From Philippines to Singapore, Malaysia, Brazil and Carribbean, says
Ravi Aron, Professor of Information and operations management at the
Wharton school of the University of Pennsylvania. For Indian BPO
companies, the new phenomenon offers a route to participation in core
US business processes. If they are able to steadily move up the value
chain, they will become more like business partners and less like mere
suppliers of services to US and other global companies.

India’s BPO sector is growing so fast that even Nassocom-

McKinsey, which in 1999, had estimated that BPO
will be worth $17 billion in India by 2008, revised its estimate to
$21billion- 24 billion. Another report on the BPO industry by ICICI
securities has projected India’s share of the global process outsourcing
services to rise from 1.2 per cent of a $75 billion market in 2002 to 8.7
percent of a $103 billion market in 2007. The bottom line is that India
offers huge cost advantages that few can ignore. In US and UK, contact
centre services cost around $22 to $ 30 per hour. In India the rate is $12
to $16 per hour. The main drivers of outsourcing, according to the ICICI
Securities report are: Cost. Quality, Technology and Reliability.

Outsourcers basically outsource non-core areas (functions) like,

HR, Finance, IT, Logistics, Facilities management, Marketing & Sales.
Some of the major BPO firms operating in India are EXL Service (Noida-
based), Spectramind (Wipro), Daksh (Gurgaon-based), WNS, v Customer,
Tracmail, HCL e-serve, Epicentre, ICICI onesource (Bangalore-based).
GTL, Progeon (INFOSYS), Smartserve (NIIT).

Cellular company, Airtel, promoted by Bharti group has developed

a network of more than 100 outsourcing partners who manage a host of
activities from payment collections, bill printing, cash management,
customer service and distribution. The company wants to come out of
almost everything other than three core activities: business planning,
networking planning and market planning. LG Electronics, Samsung
Electronics India Information and Telecommunication, Pfizer India,
Philips India and Max New York Life are leading the pack of outsourcers.
Pfizer India, which has been in India for over 60 years outsources 40% of
manufacturing to 20 companies, all building maintenance (at the
Mumbai corporate office) is done by Knight Frank, corporate travel is
outsourced to Cox & Kings, payroll to India Life Hewitt and cash
management to Deutsche Bank.

Objective

In the backdrop of above discussions this paper makes an

attempt to outline the implementation issues in BPO.

Implementation Issues in BPO :

The effective implementation of any outsourcing decisions rests on

critical consideration of the following

7 C’s:

Core competency
 The first basic issue to be addressed is by identifying its core
competence area, which the firm can’t afford to outsource because of
strategic reasons. However, some processes of the core competence can
also be outsourced to derive the benefits of the specialists’. For ex. The
designing and engineering skills for automobiles. Choosing the areas to
be outsourced.

The next thing to be done is to identify the areas which the firm
can outsource. Here the firm should concentrate upon the available
resources, the know-how, and the importance of the area in the context
of the firm’s image, the cost and the specific requirements of the firm.

The above variables should be evaluated thoroughly to decide

whether a particular function can effectively be outsourced. Even if a
function yields positive results after evaluation the peculiar
characteristic of the function and the business may not permit the
outsourcing of that function.

For ex. HRM functions. “HR in one company is always different

from another. Culture, personality, characteristics and values are specific
to company. HR is eventually a relationship and, hence difficult to
outsource completely, barring routine or mechanical functions like payroll
processing,” says Madhukar Shukla, Professor at Xavier’s Labour
Relations Instiutute, Jamshedpur.

Contract (Duration)

Next is the contract period to be given to BPO firms. The contract

issue, i.e., the duration aspect will depend on the nature of the function
to be outsourced and its competence. The outsourcer has to think how
long he can outsource the functions. Some of the functions can be
outsourced for a

longer period and some other for a short time.

Control

Once a long-term contract is handed out, it has a tendency to grow

roots and embed itself so deeply in the system that controls get
weakened and there is a blurring between the organization and its
contractor. There is a need for close supervision and monitoring of the
work of the contractor. It can go wrong from cost overruns, time
overruns. Setting proper objectives and control mechanisms to direct the
contractors towards the objectives will also gain prominence. If a
company outsourcers the customer care management/customer
relationship management unction to a firm, it needs to see whether the
firm is behaving in the same way as the outsourcing company desires.
Otherwise, the company will lose its image and even loose its customers.
Hence, there should be proper mechanism to control the outsourced
firm.

Credibility

While giving away outsourcing functions, the company needs to

verify the credibility of the firm in fulfilling the operations. Various
processes requires expertise, the claim of firms being expert in those
processes is to be checked. The credibility and trustworthiness of firms
in doing the business is prominent issue which, requires thorough
investigation. Efficiency of BPO firms should be seen before offering
services to them.

Conflict (of interests)

A BPO firm may handle same operations for different

organizations. Conflict of interests arises from firms performing such
functions. Therefore the scope for such conflict has to be avoided by
suitably drafting the SLA (Service Line Agreement) which prohibits the
BPO firm from entering into outsourcing contract with another firm in
the same business as the outsourcing firm is in.

Cost

The cost of outsourcing functions is another important issue in

BPO. Cost is the most important factor in the outsourcing decision. The
outsourcer should certainly compare the cost of outsourcing a function
vis-à-vis performing it by itself. However, the expectation in cost saving
as a result of outsourcing should be reasonable one. Since companies
basically look at cost reduction, the vendor firms may quote very low
cost, which ultimately lead to failure of the contract. Vendor firms quote
least prices to outdo their competitors and only the vendor who has
quoted the least cost will be awarded the contract. Now it is obvious that
the vendor finds it unviable to provide the quality services at such
reduced cost & hence the failure. Therefore it is to be kept in mind by the
companies that they can’t expect huge cost cut and better quality. What
they have to look for is the reasonable savings in the cost without
compromising on quality.

Continuity

This is another issue to be considered while outsourcing. The firms

should be selected on the basis of continual services. Otherwise, the
business gets affected a lot. BPO clients did not want their business to
be disrupted under any circumstances. Outsourcers are clamouring for
multilocational BPO operations and these would throw up new
opportunities. It is with the thought that, in case one place gets affected,
others will come to its rescue. And there would be business continuity.
Clients will not be happy with a BPO outfit that doesn’t have a
contingency plan. Without multilocational facilities and the assurance of
continuity, foreign companies don’t want to outsource mission critical
applications like finance and accounting, human resources,
administration and payment services to Indian companies. Apart from
ensuring continuity there are other advantages to be gained from going
multilocational. Low skill jobs like; data entry could be outsourced to
countries where labour is cheaper than in India. Second, some countries
have data access legislation that prevents databases and information
from crossing geographical boundaries. BPO centers in those countries
could take care of that problem.

Conclusion :

Business Process outsourcing is going to see bigger growth than IT

in this decade. It will reduce transaction costs and allow companies to
disintegrate into process. They would retain their core competency and
outsource even critical processes to specialist firms. Offshoring, infact, is
going to become a new management discipline. Wharton Business School
is already offering courses to equip executives with skills to manage the
new style of functioning. Even big companies are entering into BPO and
new entrants will have to find a niche. The outsourcers looking to
implement outsourcing their non-core functions have to consider the
issues rose above. It will enable them to choose the right kind of vendor
and can look forward to implement the outsourcing job more effectively
and efficiently. But yet, disputes on costs, quality, lack of
communication, lack of streamlining of processes, non-adherence to
SLAs, mismatch on expectations and delivery are the major reasons for
collapsed outsourcing deals. “Outsourcing is a three-legged race, both the
teams have to move at a planned pace. For things to workout, changes
need to be minimized during build-up hase, or requirements need to be
frozen at some stage of the project. An outsourcing relationship fails due to
a disconnect between customer expectations and perceived results”. The
costs of things going wrong are huge on both sides. It can be thus
concluded that, selection of the right activities to outsource,
identifications of the right supplier of the services and the right
governance approach (Service level agreements) for the relationship are
the major thrust areas in BPO.