Business Process Outsourcing

Today we are going to discuss the Out sourcing Services, the ultimate
benefit of e-Commerce and e- Business.
Our entrepreneurs are doing very great job in developing outsourcing
business concepts and dominating all over the world in outsourcing
business service.
What Is Outsourcing?
Outsourcing is the business practice of hiring a party outside a
company to perform services and create goods that traditionally
were performed in-house by the company's own employees and
staff.
Outsourcing is a practice usually undertaken by companies as a
cost-cutting measure. As such, it can affect a wide range of jobs,
ranging from customer support to manufacturing to the back office.
 Examples of Outsourcing
Outsourcing's biggest advantages are time and cost savings.
 A manufacturer of personal computers might buy internal components for its
machines from other companies to save on production costs.
 A law firm might store and back up its files using a cloud-computing service
provider, thus giving it access to digital technology without investing large
amounts of money to actually own the technology.
 A small company may decide to outsource bookkeeping duties to an
accounting firm, as doing so may be cheaper than retaining an in-house
accountant.
 Other companies find outsourcing the functions of human resource
departments, such as payroll and health insurance, as beneficial.
 When used properly, outsourcing is an effective strategy to reduce expenses,
and can even provide a business with a competitive advantage over rivals.
A simple example of outsourcing :-
 Suppose you are a student staying as a paying guest in a residential complex. So
you have to cook your own food daily. But cooking takes lot of your valuable
time .
 So what will you do, just you prepare only rice and remaining all the curries you
will purchase from curry point located near to your room.
 That will save lot of time and energy for you. Like that every one depends on
outsourcing services knowingly or unknowingly.
Examples:-
 1. Laundry service for washing and ironing of your clothes
 2. Barber shops for your hairdressing services
 3. Hotels and Restaurants for your Lunch and Dinner needs.
 4. House maids for cleaning your utensils and floors of the house.
 5. Electrician for repairing your electronic gadgets in the house.
 A simple example of outsourcing :-
• 6. Car servicing centres, Painters, Carpenters,
Goldsmiths.
• 7. Travel agents for booking your Bus, Rail, Flights
tickets
• 8. RTA agents in assisting you to get Driving Licence
• 9. Insurance Agents helps you in finding good policy
for your needs.
• 10. Tuition centres, Xerox Operators, e-seva, Swiggy,
Zomato, Etc
 Resources Required for Successful
e-business Implementation
• Setting up of any business requires money, men, and machines
(hardware).
• For e-business, you require additional resources for developing,
operating, maintaining, and enhancing a website where ‘site’ means
location and ‘web’ means world wide web (www).
• Simply speaking, a website is a firm’s location on the world wide
web.
• Obviously, a website is not a physical location.
• Rather, it is an online embodiment of all the content that a firm may
like to provide to others.
 OUTSOURCING: CONCEPT
• 1. Outsourcing involves contracting out:
• 2. Generally, non-core business activities are outsourced:
• 3. Processes may be outsourced to a captive unit or a third party:
 OUTSOURCING: CONCEPT
1. Outsourcing involves contracting out:
Literally, outsourcing means to source from outside what you have
hitherto been doing in-house.
For example, most companies have so far appointed their own
sanitation staff for maintaining neatness, cleanliness and overall
housekeeping of their premises.
That is, sanitation and housekeeping functions were being performed
inhouse.
But of late, many companies have started outsourcing these activities,
i.e., they have entrusted outside agencies to perform these activities for
their organizations on a contractual basis.
 OUTSOURCING: CONCEPT
• 2. Generally non-core business activities are outsourced:
• Sanitation and housekeeping functions are noncore for most organizations. Of
course, for municipalities and sanitations services providers, these activities
comprise the core of their business activity.
• Housekeeping is a core activity for a hotel. In other words, depending upon what
business a company is in, there will be some activities that are central and critical
to its basic business purpose.
• Other activities may be regarded as secondary or incidental to fulfilling that basic
purpose.
• The purpose of a school, for example, is to develop a child by means of curricular
and co-curricular activities.
• Clearly, these activities comprise the ‘core’ activities. Running a cafeteria/canteen
or a book store is non-core activity for a school.
The Bharat Vikas Group has its presence across 850 companies and areas, including airports, corporates, and ambulance services,
alongside Parliament House, Rashtrapati Bhavan, and more. It works in housekeeping, facilities management, gardening, medical
and agriculture sectors that benefit millions of lives every day.
 OUTSOURCING: CONCEPT
• As the organizations venture to experiment with
outsourcing, they may initially outsource only the
noncore activities.
• But later on, as they become comfortable with
managing interdependencies, they may start getting
even the core activities performed by the outsiders.
• For example, a school may tie-up with some computer
training institute to impart computer education to its
students.
 OUTSOURCING: CONCEPT
3. Processes may be outsourced to a captive unit or a third party:
Think of a large multinational corporation that deals in diverse products and markets them to
a large number of countries.
A number of processes such as recruitment, selection, training, record and
payroll (Human Resources), management of accounts receivable and accounts
payable (accounting and finance), customer support/grievance handling
/troubleshooting (marketing) are common to all its subsidiaries operating in
different countries.
If these processes could be centralized and parceled out to a business unit created especially
for this purpose, this would result in avoidance of duplication of resources, realization of
efficiency and economy’s performance of same activity on a large scale at one or a few select
locations, thereby resulting in substantial reduction in costs.
Clearly, therefore, if the task of performing some activity internally is sufficiently
large, it may be beneficial for the firm to have a captive service provider, i.e., a
service provider set up for providing services of a given kind to only one firm.
 OUTSOURCING: CONCEPT
• General Electric (GE) is, for instance, the largest captive BPO unit in India for
providing certain kinds of services to the parent company in the United States as
well as to its subsidiaries in other countries. Or else, these processes may be
parceled out to third party service providers who operate independently in the
market and provide services to other firms too.
 Scope of Outsourcing
Outsourcing comprises four key segments:
1. Contract manufacturing, 2. Contract research, 3. Contract sales and 4.
Informatics (see Figure 5.4).
The term outsourcing has more popularly come to be associated with IT-
enabled services or Business Process Outsourcing (BPO).
In fact, even more popular term is ‘Call Centers' providing customer-oriented
voice based services.
About 70 per cent of the BPO industry’s revenue comes from call-centers, 20
per cent from high-volume, low-value data work and the remaining 10 per cent
from higher value information work.
‘Customer Care’ accounts for the bulk of the call center activities with 24 hrs.' ×
7 days handling of in-bound (customer queries and grievances) and out-bound
(customer surveys, payment follow-up and telemarketing) traffic. Figure 5.5
outlines various types of outsourcing activities.
 Need for Outsourcing
•Necessity, they say, is the mother of all
inventions:
•Focusing of attention:
•Quest for excellence:
•Cost reduction:
•Growth through Alliance:
•Fillip to Economic Development:
 Need for Outsourcing
Necessity, they say, is the mother of all inventions. This can be said to
be true even in case of the idea of outsourcing.
As discussed in the introduction to the chapter, global competitive
pressures for higher quality products at lower costs, ever demanding
customers, and emerging technologies are the three major drivers
causing a rethink or re-look at business processes.
These may be regarded as factors responsible for the continuing
emergence of outsourcing as a mode of business.
In fact, today outsourcing is being resorted to not out of compulsion,
but also out of choice. Some of the major reasons (and also benefits)
of outsourcing are discussed below.
 Focusing of attention:
• You may be good at doing so many things in academics and extra-curricular
activities, yet you would be better off by focusing your limited time and
money on just a few things for better efficiency and effectiveness.
• Likewise, business firms are realizing the usefulness of focusing on just a
few areas where they have a distinct capability or core competence, and
contracting out the rest of the activities to their outsourcing partners.
• You are aware, that, in order to create utilities or value, a business engages
in a number of processes, viz.,
• 1.Purchase and 2.Production, 3.Marketing and 4.Sales, 5.R&D,
6.Accounting and 7.Finance, 8.HR and 9.Administration etc. Firms
need to define or redefine
 Quest for excellence:
You are aware of the benefits of division of labor and
specialization. Outsourcing enables the firms to pursue
excellence in two ways.
One, they excel themselves in the activities that they can do
the best by virtue of limited focus.
And, they excel by extending their capabilities through
contracting out the remaining activities to those who excel in
performing them.
In the quest for excellence, it is necessary not only to know what you
would like to focus on, but also what you would like others to do for
you.
 Cost reduction:
Global competitiveness necessitates not only global quality, but also
global competitive pricing. As the prices turn southwards due to
competitive pressures, the only way to survival and profitability is
cost reduction. Division of labor and specialization, besides
improving quality, reduces cost too. This happens due to the
economies of large scale accruing to the outsourcing partners as
they deliver the same service to a number of organizations.
Differences in prices of factors of production across the countries are also a
factor contributing to cost reduction.
For example, India is a preferred destination for global outsourcing of Research
and Development, manufacturing, software development and IT enabled
services (ITES) because of large scale availability of required manpower at
lower costs.
 Growth through Alliance:
To the extent you can avail of the services of others, your investment
requirements are reduced, others have invested in those activities for you. Even
if you may like to have a stake in the business of your outsourcing partners, you
profit from not only the low-cost and better quality services provided by them
to you but also by virtue of a share in the profit from the overall business they
do.
Therefore, you can expand rapidly as the same amount of investible funds result
in creation of a large number of businesses. Apart from financial returns,
outsourcing facilitates inter organisational knowledge sharing and collaborative
learning. This may also explain the reasons why the firms today are outsourcing
not only their routine, non-core processes, but also seeking to benefit from
outsourcing such strategic and core processes as Research and Development.
 Fillip to Economic Development:
Outsourcing, more so offshore outsourcing, stimulates
entrepreneurship, employment and exports in the host
countries (i.e., the countries from where outsourcing is done).
In India in the IT sector alone, for example, there has been
such a tremendous growth of entrepreneurship, employment
and exports that today we are the undisputed leaders as far
as global outsourcing in software development and IT-enabled
services are concerned.
Presently, we have 60 per cent of the $150 billion (1 billion =
Rs. 100 crores) global outsourcing share in the informatics
sector.
 Concerns over Outsourcing

•Confidentiality:
•Sweat-shopping:
•Ethical concerns:
•Resentment in the home countries:
 Concerns over Outsourcing
Confidentiality:
Outsourcing depends on sharing a lot of vital
information and knowledge.
If the outsourcing partner does not preserve the
confidentiality, and, say, for example, passes it on to
competitors, it can harm the interest of the party that
outsources its processes.
If outsourcing involves complete processes/products,
there is a further risk of the outsourcing partner
starting up a competitive business.
 Sweat-shopping:
As the firms that outsource seek to lower their costs, they try to get
the maximum benefit from the low-cost manpower of the host
countries.
Moreover, it is observed that whether in the manufacturing sector or
the IT sector, what is outsourced is the kind of components or work
that does not much build the competency and capability of the
outsourcing partner beyond the skills needed to comply with a
rigidly prescribed procedure/ method.
So, what the firm that goes in for outsourcing look for is the ‘doing’
skills rather than the development of the ‘thinking’ skills.
 Ethical concerns:
Think of a shoe company that, in order to cut costs,
outsources manufacturing to a developing country
where they use child labor/women in the factories. Back
home, the company cannot do so due to stringent laws
forbidding use of child labor.
Is cost cutting by using child labor in countries where it is
not outlawed or where the laws are ‘weak’, ethical?
Similarly, is it ethical to outsource the work to countries
where there exists wage-discrimination on the basis of
the sex of the worker?
 Resentment in the home countries:
In the course of contracting out manufacturing, marketing, Research
and Development or IT-based services, what is ultimately contracted
out is ‘employment’ or jobs.
This may cause resentment back in the home country (i.e., the
country from which the job is being sourced out) particularly if the
home country is suffering from the problem of unemployment. The
aforementioned concerns, however, do not seem to matter much as
the global outsourcing continues to flourish.
As India emerges as a global outsourcing hub, the industry is forecast
to explode at exponential rates — from 23,000 people and $ 10
million per annum in 1998 to over a million people and revenues in
excess of $ 20 billion by 2008.
Security and Safety of e-Transactions
 SECURITY AND SAFETY OF e-TRANSACTIONS: e-BUSINESS RISKS

1. Transaction risks: Online transactions are vulnerable to the

following types of transaction risks:
• Seller denies that the customer ever placed the order or the
customer denies that he ever placed the order. This may be referred
to as ‘default on order taking/giving.’
• The intended delivery does not occur, goods are delivered at the
wrong address, or goods other than ordered may be delivered. This
may be regarded as ‘default on delivery.
• Seller does not get the payment for the goods supplied whereas the
customer claims that the payment was made. This may be referred to
as ‘default on payment’.
 SECURITY AND SAFETY OF e-TRANSACTIONS: e-BUSINESS RISKS
• 2. Data storage and transmission risks:
• Information is power indeed. But think for a moment if the
power goes into the wrong hands. Data stored in the systems
and en route is exposed to a number of risks.
• Vital information may be stolen or modified to pursue some
selfish motives or simply for fun/ adventure. You must have
heard of ‘virus’ and ‘hacking’. Do you know the full form of
the acronym ‘VIRUS?’
• It means “Vital Information Under Siege”. A virus is a
program (a series of commands) replicating itself on other
computer systems.
SECURITY AND SAFETY OF e-TRANSACTIONS: e-BUSINESS RISKS

• The effect of computer viruses can range from the:

• Mere Annoyance in terms of some on-screen display
(Level-1 virus),
• Disruption of Functioning (Level-2 virus)
• Damage to Target data files (Level-3 virus), to
• Complete destruction of the system (Level-4 virus).
• Installing and timely updating anti-virus programmes and
scanning the files and disks with them provides
protection to your data files, folders and systems from
virus attacks.
 SECURITY AND SAFETY OF e-TRANSACTIONS: e-BUSINESS RISKS

3. Risks of threat to intellectual property and privacy:

Internet is an open space. Once the information is available
over the internet, it moves out of the private domain.It then
becomes difficult to protect it from being copied.

Data furnished in the course of online transactions may be

supplied to others who may start dumping a host of
advertising and promotional literature into your e-mail box.

You are then at the receiving end, with little respite from
receiving junk mails.
4. RESOURCES REQUIRED FOR SUCCESSFUL
e-BUSINESS IMPLEMENTATION
• Setting up of any business requires money, men and
machines (hardware).
• For e-business, you require additional resources for
developing, operating, maintaining and enhancing a website
where ‘site’ means location and ‘web’ means world wide
web (www).
• Simply speaking, a website is a firm’s location on the world
wide web. Obviously, website is not a physical location.
• Rather, it is an online embodiment of all the content that a
firm may like to provide to others.
 The 14 Virtues needed for every Student
Justice-The quality of being just or fair Order- a command given by a superior (e.g., a military or
law enforcement officer) that must be obeyed

Silence – Be quite Temperance-The state of being sober and not

intoxicated by alcohol
Cleanliness-Diligence in keeping clean Frugality-Prudence in avoiding waste

Moderation-The trait of avoiding excesses Humility-A disposition to be humble; a lack of false pride

Chastity-Morality with respect to sexual relations Industry-Persevering determination to perform a task

Resolution-Finding a solution to a problem Sincerity-The quality of being open and truthful; not
deceitful or hypocritical

Tranquillity-A state of peace and quiet Empathy-Understanding and entering into another's
feelings
CHAPTER 5
EMERGING
MODES OF
BUSINESS