The global economy is dependent on an ever increasing and dynamic network of suppliers and service providers, sourcing skills and resources from a variety of locations. The outsourcing and BPO industries are a key enabler for modern businesses and organisations to meet the expectations of their customers and drive value through their supply chains.
There are quite a number of definitions for BPO (Business Process Outsourcing) as a subset of outsourcing and it’s delineation from other business practices such as shared services and IT outsourcing. The ability to define the terms BPO and outsourcing, since they first became popular in the nineties, has actually become more complex and diverse as the industries associated with those terms have evolved and the relevant service providers have branched into other areas of business, industry and professional services.
In the general minds of the business community and the public, outsourcing and BPO are equated purely with offshoring, where companies based in developed economies send operations and jobs to low cost locations where wages and input costs are substantially lower. It is sometimes referred to as ‘Lift & Shift’ and is a labour arbitrage play. Off-shoring has certainly been a feature of BPO and outsourcing, particularly to such locations as India and the Philippines, but a substantial part of the industry utilises on-shoring and near-shoring.
Outsourcing is the contracting out of a business process, which an organisation may have previously performed internally or has a new need for, to an independent organisation from which the process is purchased back as a service.
Though the practice of purchasing a business function—instead of providing it internally—is a common feature of any modern economy, the term outsourcing became popular in America near the turn of the 21st century. An outsourcing deal may also involve transfer of the employees and assets involved to the outsourcing business partner.
Business process outsourcing (BPO) is a form of outsourcing that involves the contracting of the operations and the responsibilities of specific business functions (or processes) to a third-party service provider. Originally, this was associated with manufacturing firms, such as Coca Cola that outsourced large segments of its supply chain. In the contemporary con- text, it is primarily used to refer to the outsourcing of services.
If company A employs company B to manage its payroll or customer service functions, where company B manages the operations and employs staff locally that’s an instance of outsourcing that does not involve offshoring.
The traditional concepts underlying BPO and outsourcing are being redefined by a range of trends including, cloud computing, social media, and crowd sourcing. To some extent the term outsourcing itself is becoming redundant.
These days most organisations form part of a network of suppliers and service providers that contribute to the final service or goods being delivered to the end-customer.3 It’s about sourcing the right resource at the right time for the best cost.
Off- Shoring, Near- Shoring and On- Shoring
Off-shoring involves shifting work to a foreign, distant (Out of Home Country) organisation in order to reduce production costs. Off-shoring is subject to several different constraints, however, such as time lag between the parties, differences in local employment laws and practices and cultural challenges.
Near-shoring is the transfer of business or IT processes to companies in a nearby country, (i.e. USA to Canada or Australia to New Zealand) often sharing a border, where both parties expect to benefit from one or more of the following dimensions of proximity: geographic, temporal (time zone), cultural, linguistic, economic, (i.e. NAFTA) political, or historical linkages.
Captive vs Third Party
Third-party outsourcing is the typical client-vendor relationship governed by contractual obligations and service level agreements over a certain period of time. In the past it was mainly driven by motives such as short- term cost savings and staffing flexibility. In recent years the focus has shifted towards relationships that allow for innovation and contribute strategic value to the client organisation. For example, Vested Outsourcing (also known as “Vested”) is a hybrid business model in which both parties (company and the service provider) in an outsourcing or business relationship focus on shared values and goals to create an arrangement that is mutually beneficial to each.
A Captive model means that customer organisation creates its presence in a lower cost location and conduct work there as a part of its own operations. ie Their own ‘back office’. The activities are performed remotely, but they are not outsourced to a vendor. Thus the customer is able to retain full control and mitigate respective risks associated with intellectual property and other sensitive business information.
Organisations that want to establish captive centres have similar goals as those deploying shared services operations.
Delegating a job to someone within a company, as opposed to someone outside of the company (outsourcing). One reason for insourcing to occur is if a company had previously outsourced a certain task, but was no longer satisfied with the work being done on that task, so the company could therefore insource the task and assign it to someone within the company who they believe will do a better job. A variation of this model in the Virtual labour hire model.
Shared Services refers to the provision of a service by one part of an organisation or group where that service had previously been found in more than one part of the organisation or group. Thus, the funding and resourcing of the service is shared and the providing department effectively becomes an internal service provider.
Crowdsourcing is a form of outsourcing, where tasks, traditionally performed by employees or contractors are given to an undefined, large group of people or community through an open call for submissions. Businesses such as Vegemite and Telstra have used crowd sourcing to tap into the ideas of a mass audience and customer base to come up with product, service and branding idea.
Rightsourcing is selecting the best way to procure a service and deciding whether a company is best served by performing a business requirement in-house or contracting it out to a third-part service provider. Rightsourcing literally means “choosing the correct source.”