Business process outsourcing is the buzz word across the globe. Many companies are looking at driving the financial growth and operational efficiency by strategically outsourcing either part or whole of their business operations.
From small startups to tech giants like IBM, Microsoft and Accenture, there are many global players that have successfully integrated BPO into their business strategies. Some of the areas which are outsourced include IT, medical transcription, legal services, accounting and finance.
With flexible arrangements now available in outsourcing models, choosing the right type of outsourcing model is the key to ensuring the right growth for the business.
The models of outsourcing depend on the size and nature of the business, but the most crucial consideration obviously has to do with cost cutting.
Countries such as the Philippines have already established themselves as the preferred destinations for outsourcing. The advantages of outsourcing are enormous. An employee in the US needs to be paid eight to ten times more as compared to a worker in the Philippines for the same service. Businesses also benefit from the distinct advantages in operational costs and improving infrastructure in the Philippines. With continued support from the government, the industry is expected to generate 11% of the GDP in the Philippines by 2020, as per the estimation of World Bank.
The comprehensive model of outsourcing is a long-term arrangement between the business owner and the outsourced agency or partner. A comprehensive BPO agreement has a timeline of 5 to 7 years. The partner will then be required to handle various training processes related to the core functions of the business including administration, delivery, content and technology. Each of these core functions has multiple processes that are managed by the outsourced partner. The processes include:
The day-to-day logistics of training processes are managed by the outsourced partner. The administration further involves these processes:
- Planning: Identifying the learning needs to develop the training content in line with the overall business objectives constitutes strategic planning.
- Accounting- The payables incurred in the training and chargebacks are some of the elements of the process of accounting.
- Evaluation – The evaluation process involves testing of the participants in the training programs.
- Vendor Management – The vendor management involves the identification and management of third party vendors for the training process.
- Client relationship management: Identifying the training needs and business objectives of the business define the client relationship management process.
The content process involves the creation of relevant content for the training needs. The process includes portfolio management where the learning curriculum and the resources are identified. Content curation, content refreshment and graphic design are other elements of the content process.
The delivery process includes the actual transfer of information or training content to the receivers. It involves selection of instructors, development and training of instructors and the actual delivery of the training content. Identification of the location of training, day-to-day functions and maintenance of the classroom and course feedbacks are some of the other elements of the delivery process.
Technology involves managing the different forms of technology that comes into play in each of the above processes. Management of the electronic platforms and other learning management systems are the elements of technology process.
In this model of BPO, the client has a contractual agreement with a leasing company for recruitment of the employees. The leasing company is also known as the professional employer organisation or PEO. The provider also handles activities related to administration of the staff, human resource and benefit programs for the offshore staff. The client is able to hand pick the team and personally interview each prospective employee. But the day-to-day functioning, attendance, leaves and so on are managed by the operations manager designate appointed by the provider. With staff leasing, the best advantage for business owners is the reduction in labour costs. Besides, owners do not have to directly deal with the cumbersome issues of handling payroll, risk management, and other HR-related concerns. Although the employees work for the business owner, they are officially the employees of the leasing agency, which means that tax and other legal implications are the responsibilities of the PEO.
Setting up an office or a call centre offshore involves huge amounts of investment and running costs for entrepreneurs. Seat leasing is one of the smart options where a fully functional, well-equipped centre can be leased out by the business owners instead of building it from scratch. The office space includes facilities such as furniture, computers, Internet connections, cabins and other basic necessities required to run the business. Seat leasing not only lets the business owners save on initial investment but also on precious time. The entrepreneurs can instead focus on their business goals and delivery instead of worrying about setting up the office. Seat leasing also allows the start-ups to gradually build the business and expand the office space to match the business growth.
In this form of outsourcing, the business owner or company enters into a contract with an offshore agency to build and operate the business. At a later stage, the business is transferred to the owner. In the building stage, the outsourced agency sets up the infrastructure that includes the office space, personnel, licenses and so on. In the operation stage, the agency handles the functioning, quality, accounts, payroll, human resources, training and development and so on. The transfer to the owner happens at a mutually agreed time when the company is ready to take up the responsibility of running the business. The transfer could happen in phases or all at once. The Build-Operate-Transfer or BOT model of outsourcing can be advantageous to both the owner and the agency. The business owner gets the benefit of the hands-on expertise of the local professionals who are familiar with the prevailing market. Venturing into new markets involves some element of risk, and that is mitigated to a certain extent with the BOT model of outsourcing. The outsourced agency, on the other hand, benefits from both the revenue and employment generation.
In this model, the BPO has the full responsibility for meeting the objectives of the client’s business. Many businesses opt for comprehensive outsourcing models. Convergent Outsourcing, a collections agency based in the United States has outsourced its revenue cycle, management of receivables and other processes. Accenture and JP Morgan and other high-tech companies including software giants like IBM, Oracle and Microsoft, have also opted for comprehensive solutions in BPO.
Many multinational companies resort to staff leasing in the Philippines, including high-tech companies and small businesses. Currently, more than 1.2 million people are employed in the BPO industry according to a report in the ASEAN Today. Companies in the US account for about 70% of BPO business in the Philippines. From lead generation to insurance claim verification, the talented workforce in the Philippines can handle it all. European and American companies are also increasingly outsourcing services that require more skills such as legal contracts, clinical support and research. Legal services are also another such outsourced work. Document formatting and legal transcripts are some of the commonly outsourced jobs in the Philippines. The scenario is unlikely to shift as companies would have to pay eight times more in the US for the same services.
Shared office or co-working space is the new concept in the Philippines as far as seat leasing BPO models are concerned. Many companies such as Ayala Land Inc. are investing in developing office infrastructures for the booming outsourcing business. With the BPO expected to grow in a sustained manner this year as well, real estate giants like Megaworld are looking to increase investment in developing townships for lease. About 70 to 80% of the offices built by Megaworld are leased by the BPO sector.
The government of Philippines was the first one among Asian countries to bring in a BOT law mainly to encourage infrastructure development through public-private partnership. Many business giants such as Capital One, American Express and JP Morgan have adopted the Build-Operate-Transfer model of BPO. The agreement between the GMR Megawide Consortium (GMCAC) and the Department of Transportation and Communication (DOTC) in the Philippines is an example of BOT model. GMR has undertaken to build an international airport in Cebu with this agreement. The Philippines government awarded a BOT recently to the Vibal Group to set up the cloud infrastructure.
Tips on choosing the right outsourcing type
With technology and markets evolving, there are multiple options available as far as outsourcing is concerned. Each model offers a set of benefits and may have some disadvantages as well. Choosing the right outsourcing model for your business helps in better budget control and optimizes return on investment.
While cost is the most important factor in deciding the type and extent of outsourcing, there are other equally important considerations as well. Weighing the pros and cons of handling it internally versus outsourcing with respect to each project may also help you decide what type of outsourcing you would need.
Here are some helpful tips on selecting the right outsourcing type.
Understand the strategic needs of your business
Any business that decides to outsource part of its projects or more needs to first review the business strategies, goals and objectives. The questions to ask to get more insight are:
- What are the short-term and long-term objectives?
- How can I break down the broad objectives into smaller deliverables?
- What is the time frame for each deliverable?
- What are the main areas that can be outsourced and why?
- What talents, skills and infrastructure would be needed to handle the outsourced functions?
Form the team
The team that leads the outsourcing activity has to be comprised of experienced seniors. The decision on the most appropriate outsourcing model needs to be taken collaboratively.
Select the right model
The personnel outsourcing or leasing staff is the basic form of outsourcing which is preferred by many businesses. If you are looking to save manpower costs or to avoid taking in additional staff for your expanding business, consider employee leasing. While you outsource employee leasing, you can still retain the control over the hiring process and the deliverables.
If you need to expand your business offshore, then setting up an entire office from scratch is daunting both in terms of time and costs. Seat leasing saves on both and is a viable option to set up your presence in a new market.
If you would rather concentrate on your core competency and leave the mundane administrative, training and recruitment to others, then consider comprehensive outsourcing. The outsourced agency is responsible for meeting the expectations in terms of deliverables and quality.
If your project is a long-term one, requiring lots of technical and manpower support in the new market segment, opting for Build-Operate-Transfer model may be the best option.
The business process outsourcing models have to match the business needs and the desired objectives. A detailed assessment of the strengths and weaknesses of the outsourcing partner, the projects or processes that need outsourcing will help you reap the benefits of outsourcing. It might always be a good idea to begin small when the business is a start-up or has very little experience in outsourcing. Testing the market with a smaller project will help you scale up your business in the new market.
Checking the credibility of the outsourced partner, the available infrastructure and the skill sets of the workforce will also go a long way in choosing the right type of outsourcing.
Making the expectations clear in terms of standards of quality and deliverables will remove any confusion in the minds of both the business owner and the outsourced partners. Getting a comprehensive service level agreement is important for any outsourced process. Another factor to consider while outsourcing is the impact the model selection will have on the company’s overall success.
It cannot be denied that outsourcing is here to stay and grow in the future. With fast evolving global markets and increased stress on profit margins, businesses have to look at new, flexible approaches to working with outsourced partners.
BPO has been named the sunshine industry in the Philippines. Not surprisingly, from the first call centre set up in 1992, to generating more than 1.3 million jobs by the end of 2016, Philippines has come a long way as the BPO destination. The huge talented pool of workforce, increasing focus on developing specialized skills and cost effectiveness are some of the many attractions in choosing the Philippines to outsource business processes. New reforms, including tax subsidies and data privacy acts that the government brought in will help in making the BPO industry shine more brightly in the coming years.