BPO - What is Business Process Outsourcing?

What is business process outsourcing (BPO)? BPO is the process of hiring another company to handle business activities for you.

BPO is distinct from information technology (IT) outsourcing, which focuses on hiring a third-party company or service provider to do IT-related activities, such as application management and application development, data center operations, or testing and quality assurance.

In the early days, BPO usually consisted of outsourcing processes such as payroll. Then it grew to include employee benefits management. Now it encompasses a number of functions that are considered "non-core" to the primary business strategy.

Now it is common for organizations to outsource financial and administration (F&A) processes, human resources (HR) functions, call center and customer service activities and accounting and payroll.

These outsourcing deals frequently involve multi-year contracts that can run into hundreds of millions of dollars. Often, the people performing the work internally for the client firm are transferred and become employees for the service provider. Dominant outsourcing service providers in the BPO fields (some of which also dominate the IT outsourcing business) include US companies IBM, Accenture, and Hewitt Associates, as well as European and Asian companies Capgemini, Genpact, TCS, Wipro and Infosys.

Many of these BPO efforts involve offshoring -- hiring a company based in another country -- to do the work. India is a popular location for BPO activities.

Frequently, BPO is also referred to as ITES -- information technology-enabled services. Since most business processes include some form of automation, IT "enables" these services to be performed.

An offshoot of BPO is KPO -- knowledge process outsourcing. Considered by some to be a subset of BPO, KPO includes those activities that require greater skill, knowledge, education and expertise to handle. For example, whereas an insurance company might outsource data entry of its claims forms as part of a BPO initiative, it may also choose to use a KPO service provider to evaluate new insurance applications based on a set of criteria or business rules; this work would require the efforts of a more knowledgeable set of workers than the data entry would. The current definition of KPO encompasses R&D, product development and legal e-discovery, as well as a number of other business functions.

Also coming into use is the term BTO -- business transformation outsourcing. This refers to the idea of having service providers contribute to the effort of transforming a business into a leaner, more dynamic, agile and flexible operation.
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Call centre benchmark study demonstrates that outstanding service directly impacts sales

Outstanding customer service has a direct impact upon improved sales and customer retention, as well as brand perceptions and trust. These are the findings of a major new call centre industry benchmarking report, commissioned by the UK’s Top 50 Call Centres for Customer Service, to find out how their customers and the general public think call centres are performing.
The study, which ranks call centres according to their customer service performance, found that the top ten ranking call centres achieved more than double the level of customer satisfaction compared to the bottom ten. Half of customers of the top ten call centres were ‘extremely satisfied’ compared to just 20% in the bottom 10, against an overall average of 33% amongst all of the Top 50 call centres.
The study proves conclusively that satisfied customers have a direct impact on the bottom line: customers of the top ten call centres were more than twice as likely to make a repeat purchase than those in the bottom ten; 38% of callers to the top ten call centres were extremely likely to use the organisation again, as compared to just 17% amongst those in the bottom ten.
In addition, 39% of callers to the top ten call centres were ‘extremely likely to recommend’ the organisation, as against 15% for the bottom ten. The top ten performing call centres are also almost twice as likely to enhance perception and trust, with 56% saying the call enhanced their trust of the brand, compared to just 32% for the bottom 10. Furthermore, 66% of callers to the top ten said that brand perceptions were enhanced, compared to 37% amongst the lowest ranked call centres.
In the 2010 Top 50 Call Centres for Customer Service Benchmarking study Laithwaites, the largest direct seller of wine in the UK has achieved 4 place with a score of 91.32% against an overall Top 50 average of 86%. Simon McMurtie, CEO of Laithwaites comments “Whenever we survey customers as to why they continue to buy their wine from us, their answer is always the same: ‘because your people are so nice on the phone’. We push them about the wines and about other aspects of our service, all of which they rate relatively highly, but our customer service always ranks highest. ”
McMurtie continues “Half of our revenues in the UK come from customers who have been with us for more than five years. That’s proof that they like our service. Investing in our service to customers gives us a fantastic return on investment. People want to talk to real people: that’s at the heart of our winning formula!”
The study was conducted by independent Market Research Company GfK Mystery Shopping and represents the largest ever mystery shopper exercise in the call centre industry. Over 18,500 mystery shopping enquiries were made to over fifty
call centres participating in the Top 50 Call Centres for Customer Service Programme. Calls were scored according to five customer service categories, timeliness, ease of use, reliable, knowledgeable staff and personalized service.
Simon Thorpe, Programme Director at Top 50 Call Centres for Customer Service commented:
“These findings show that good service is not good enough to win the hearts and minds of today’s consumers. Those organisations that invest in delivering outstanding performance are going to generate more sales, boast higher levels of customer retention and experience greater brand loyalty than their competitors.
“Typically, an organisation may lose as many as half of their customers over a five year period. Given that it costs at least five times more to attract a new customer than to keep a current one, we now have conclusive evidence that it pays to invest in customer service. Businesses who boost customer retention by as little as 5% can see increases in profits ranging from 5 - 95%”
The study found that while an impressive 97% of callers felt that their enquiry was completely resolved, up from 94% in 2009, this alone is not enough to reap the financial rewards that come with delighted customers. To achieve an outstanding customer service score, customer service representatives need to not only resolve the caller’s enquiry within a reasonable length of time by being efficient, but also be understanding and caring, use appropriate conversation and take ownership of the enquiry.
Thorpe continues “We hope that these results demonstrating the financial benefits that can be reaped as a direct result of great customer service will inspire other call centres to achieve the standards set by the very best of our Top 50 members. As always we are grateful to Genesys, Jabra and Noble Systems for their support of the programme and their invaluable contributions to the industry.”
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call management is the process

In telecommunications, call management is the process of designing and implementing rules and parameters governing the routing of inbound telephone calls through a network. These rules can specify how calls are distributed according to the time and/or date of the call as well as the location of the caller (usually defined by the outbound Caller ID). Call Management also involves the use of Calling Features such as Call Queues, IVR Menus, Hunt Groups and Recorded Announcements to provide a customised experience for the caller and to maximize the efficiency of inbound call handling. Call management is most effective when a call logging software tool is used.

Call Management is performed on varying degrees of scale, from an individual screening unwanted calls from a residential landline to an international call carrier routing calls to different worldwide locations by percentage. Systems for governing Call Management can be in the form of hardware, such as a PBX Telephone System attached to an ISDN30 or a hosted software-based system.
Calling features

Calls are routed according to the setting up of calling features within the given system. Common examples of Calling Features include:

    * Translation – The automatic routing of inbound calls from one telephone number to another.
    * Hunt Group – A directory containing one or many destination numbers which, on receiving an incoming call, is programmed to ring them in a particular order, simultaneously or simply in the order in which they have most recently answered before being sent to a final destination if still unanswered.
    * Call Queue – A directory similar to a Hunt Group that keeps the caller on hold until one of the destination numbers becomes available.
    * Auto Attendant – A large directory of extension numbers which can be chosen by the caller, each with its own specific routing behaviour.
    * Location-Based Routing – Rules programmed in at particular points in a system to route the call on to different destinations depending on the location of the caller.
    * Time and Date-Based Routing – Rules programmed in at particular points in a system to route the call on to different destinations depending the time or date of the call.
    * Call Whisper – A message played to an agent after answering a call that can give them information about the call in advance based on the Caller ID, number dialled or route taken through the system.
    * Interactive voice response – A sound recording device to allow a caller to give information to the system verbally about what services or support they require.
    * Fax to Email – A Device for routing inbound fax calls to one or more email addresses, usually as attachments.
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Offshore software R&D

Offshore Software R&D is provision of software development services by an external supplier positioned in a country that is geographically remote from the client enterprise; a type of offshore outsourcing. In this context, it refers to the offshore development phase of a software. The main reason behind the companies to use offshore software development services is the higher development cost of the local service providers. The global software R&D services market as contrasted to ITO and BPO is rather young and currently is at early stages of its development, but India is leading the world in this field .
Countries involved

While India, Ireland, Canada and Israel were the four leading countries that controlled this business in 2003[1], the percentages shifted by 2009 when the front-runners, India and the Philippines, had a combined share of the world market for business process offshoring of about 50 per cent. The UN Information Economy Report 2010 [2] reads that "the second largest exporter, Canada, continued to shrink to 21 per cent by 2009. Beyond these top three locations, several economies from all continents are making inroads as offshoring destinations. The group of “other destinations” in figure III.5 surged from 4 per cent in 2004 to 16 per cent in 2009. The main such locations in 2009 included China, Thailand and Sri Lanka in Asia;26 and Argentina, Brazil, Costa Rica and Mexico in Latin America. On the African continent, Egypt, Mauritius, Morocco and South Africa all have more than 10,000 offshore jobs in the IT and ICT-enabled services sector (Everest Research Institute, 2009). The share of countries in Central and Eastern Europe was unchanged at 6 per cent between 2008 and 2009." According to Gartner Group[3], only these four countries are capable of scaling up enough to meet the demands of large-scale projects. Brazil has been attracting attention due to the closer timezone to the US eastern cost, besides closer cultural affinity[4]. Other offshore software development destinations include Eastern Europe (Slovakia, Armenia, Romania, Ukraine, Belarus, Serbia, Czech Republic, Poland, Hungary, Russia), Pakistan, Bangladesh, Nepal, Vietnam, Philippines, Egypt, Morocco, Sri Lanka, Argentina and Bolivia. .

Offshore R&D hubs

According to Gartner group's report, global cities are categorized into Tier I, Tier II and Tier III based on numerous factors such as the quality of infrastructure, global connectivity, and availability of human capital[3], in order to rank the best places to set up an offshore R&D location. The report concludes that cities like Bangalore, Yerevan, Mumbai, Ahmedabad, Bucharest, New Delhi, Hyderabad, Chennai, Pune, Indore, NOIDA, Gurgaon, Thiruvananthapuram, Greater Toronto Area, Ottawa, Montreal, Haifa, Tel Aviv, Dublin, Kiev, Moscow, and St. Petersburg would be the ideal places, and hence 'Tier I' cities to offshore R&D.
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Information Technology Outsourcing or ITO

Information Technology Outsourcing or ITO
Information Technology Outsourcing or ITO is a company's outsourcing of computer or Internet related work, such as programming, to other companies. It is used in reference to Business Process Outsourcing or BPO, which is the outsourcing of the work that does not require much of technical skills.
Outsourcing Information Technology to Asia

A combination of high overhead in the United States and strong cultural ties between the domestic and Asian information technology industries have led many companies to outsource labor-intensive software programming to Asia and Eastern Europe.

India has always been a major player in information technology (IT); they even make their own supercomputers for predicting monsoons. It wasn't until the Y2K bug emerged that the need for legions of cheap programmers really arose, however, and American companies began to see the potential for outsourcing overseas. After Y2K the IT service industry exploded, with American companies outsourcing everything from data entry to customer service to India and other Asian countries.

India was a natural choice for outsourcing. Many American technology companies were either created by or employ non-resident Indians (NRIs) or Indian-Americans who still have strong ties to family and friends in India. This cultural bridge combined with the vast pool of cheap, technically skilled, English-speaking engineering talent produced by India's engineering colleges creates the perfect environment for information technology.

Despite its distinct advantages for companies looking to outsource their IT services, India's volatile political climate and rampant corruption present problems. Some of the 185 Fortune 500 companies that outsource software to Asia are choosing places like Vietnam or China with more predictable politics and less corruption. Other companies that outsource their customer service are finding that their customers prefer the Americanized English of the Philippines to the British English that predominates in India, though all of these countries have their drawbacks, from censored Internet lines in China and Vietnam to Muslim militancy in the Philippines.

Despite the hiccups the IT service industry continues to grow as the software industry becomes more competitive and U.S. companies try to reduce overhead. The Asian IT service market is still in its infancy, but by 2008 industry think tank Nasscom-McKinsey predicts a $17 billion IT service industry in India alone.
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BPO INDIA | Business process outsourcing in India

 The business process outsourcing industry in India refers to the business process outsourcing services in the outsourcing industry in India, catering mainly to Western operations of multinational corporations (MNCs).

As of 2008, around 0.7 million people work in outsourcing sector (less than 0.1% of Indians). Annual revenues are around $11 billion,[1] around 1% of GDP. Around 2.5 million people graduate in India every year. Wages are rising by 10-15 percent as a result of skill shortage.
Nearly 75% of US and European multinational companies now use outsourcing or shared services to support their financial functions. 72% of European multinational companies have outsourced financial functions over the past two years.

Additionally, 71% of European companies and 78% US companies plan to use these services in the next 12–24 months. Overall, 29% of US and European companies expect to increase their use of outsourcing of financial functions, with spending expected to be nearly 16% higher than current levels.

Growth in this sector will get a further impetus as Indian BPO companies have robust security practices and emphasis is laid in developing trust with clients on this score. While earlier there were varying quality standards on this aspect, today there is focus on standardization of security, such as data and IP security. Leading BPO-ITes cities in India

Bangalore, Chennai, Hyderabad, Kolkata, NCR, Pune, Mumbai and Ahmedabad are Tier I cities that are leading IT cities in India.

With rising infrastructure costs in these cities, many BPO's are shifting operations to Tier II cities like Nashik, Sangli, Aurangabad (Maharashtra), Mangalore, Mysore, Hubli-Dharwad, Belgaum, Coimbatore, Madurai, Hosur, Nagpur, Kochi, Trivandrum, Chandigarh, Mohali, Panchkula, Ahmedabad, Bhubaneshwar, Jaipur, Vishakapatnam , Raipur and Lucknow

Tier II cities offer lower business process overhead compared to Tier I cities, but have a less reliable infrastructure system which may hamper dedicated operations. The Government of India in partnership with private infrastructure corporations is working on bringing all around development and providing robust infrastructure all over the nation.
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PRC call center in Durant, OK, plans to add 150 new jobs

DURANT — PRC LLC is recruiting 150 new workers for its Durant call center. About 625 people already work at the center, which opened four years ago and handles inbound customer service calls for clients in the telecommunications, education, entertainment, shipping and financial industries.
The jobs pay between $19,000 and $60,000 a year for positions that include associates, quality assurance representatives and managers.
"PRC's Durant center has continuously been a top performer, exceeding client expectations,” said the center's general manager Matt Hunt.
"Our expansion is a direct result of the success experienced in Durant and the quality work force that is available in this area,” he said.
Tommy Kramer, executive director of the Durant Industrial Authority, said his city has worked hard to develop a pro-business culture to create workforce growth.
PRC also announced this week that local employees pledged to contribute 1,000 hours of community service and to raise $6,000 this year to support nonprofit service organizations in the Durant area.
PRC is headquartered in Fort Lauderdale, Fla.
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Scope and Future of Knowledge Process Outsourcing

Scope and Future of Knowledge Process Outsourcing

The future of Knowledge Process Outsourcing (KPO) business in India presents an encouraging picture to rejoice for everybody in the country. Not only the scope of business opportunities shall give endless area for businesses to explore but also shall create lacs of jobs for the large amount of the talented and skilled workforce of engineers, MBAs, doctors, lawers and other professionals having skill in the core areas and computer knowledge.

We give below data published and prepared by various organizations which give a broad idea about the amount of the scope of business opportunities and potential likely to be created in the KPO sector in the immediate and long term future.

1. National Association of Software and Services Companies Study Report (NASSCOM):

According to a published report of National Association of Software and Services Companies (NASSCOM), the chamber that serves as an interface to the Indian Software industry, Knowledge Process Outsourcing industry (KPO) is expected to reach USD 17 billion by 2010, of which USD 12 billion would be outsourced to India. Another report predicts that India will capture more than 70 percent of the KPO sector by 2010. Apart from India, countries such as Russia, China, the Czech Republic, Ireland, and Israel are also expected to join the KPO industry.In its annual publication Strategic Review 2005, Nasscom has said the high-end activity of the BPO industry—the KPO or knowledge process outsourcing could be worth $15.5 billion by 2010.According to earlier estimates, the BPO industry itself was expected to be about $20bn by 2008, hence a very significant portion of the sector—in excess of 50% is now projected to be knowledge based. This represents significant shift of call center sector business to different model.

2. Evalueserve Study

According to a recent study by “Evalueserve, an outsourcing company having service chart for global world, the global KPO market is expected to grow at a cumulative annual growth rate (CAGR) of 46 per cent, from $1.2 billion in 2003 to $17 billion in 2010. Compare this with the prediction for the low-end outsourcing services market. This is expected to have a CAGR of 26 per cent, from $ 7.7 billion to $39.8 billion in the same period.

Evalueserve says India provided $3.5 billion of BPO and KPO (but non-IT) services in 2003 and is expected to grow at a CAGR of 36 per cent during 2004 to 2010. Hence, it is likely to earn $30 billion in 2010 by providing these services. Says country general manager, Kelly Services, Achal Khanna “India still maintains the competitive advantage for providing, the combination of the most cost-effective and high quality manpower- this is India's strength in the off-shoring business”. The projections are based on a white paper released by Evalueserve. The paper cites reasons for a possible KPO boom. It says higher savings by outsourcing knowledge based activities combined with the scarcity of specialized talent in developed countries could lead to growth in the KPO sector. Billing rates for KPO are higher at $30-45 per hour compared to just $10-14 in the BPO business. However, the paper also warns of several challenges like higher quality standards, greater investments and inadequate talent.The study estimates that while the compounded growth rate of BPO till 2010 would be just 26% KPO is expected to be grow at almost 46%.

3. Rocsearch, a UK-based research services company Study

Another study on Knowledge Process Outsourcing (KPO) sector shows a huge supply gap that threatens to cripple its growth. Rocsearch, a UK-based research services company, has gathered evidence suggesting that the KPO market may just about reach a size of $5 billion by 2010, manned by 100,000 people instead of projections of a $12 billion market supported by 250,000 employees.
This accentuates Nasscom's projections of a shortfall of 500,000 workers in ITES and BPO sectors by 2010. Assuming an average revenue per person of $55,000 over the next four years, 100,000 knowledge workers point to a $5 billion market. This size, though based on a CAGR of 32%, is still 60% less than the $12 billion potential projected by big KPOs, like Evalueserve, last year.Rocsearch COO, Ashish Sinha says the sector is restricted by low employability despite high graduate turnout, and competing demand from other sectors as jobs grow faster than the workforce.
For example, all the 2,000-odd IIM and top 10 B-School graduates are employable, while less than half the 84,000 graduates from Tier-II B-Schools would make the grade.
The study sees only 500,000 of the over 3 million workers added to the labour pool in 2005 as employable in global firms and of these, just 2 in every 100 are likely to opt for work in knowledge space.

In the future, it is envisaged that KPO has a high potential as it is not restricted only to Information Technology (IT) or Information Technology Enabled Services (ITES) sectors, and includes other sectors like Intellectual Property related services, Business Research and Analytics, Legal Processes Outsourcing, Web Development Application, CAD/CAM, Finance and Accountants Management and Consultancy, Legal Research, Clinical Research, Publishing, Market Research (Market research KPO), etc.

Outsource2india Findings and Report on KPO

"Over the past year or two, the outsourcing industry has been throwing up jobs for Doctors, Engineers, CAs, Architects," says Jacob William of the Bangalore-based Outsource2India, which employs 500 people and offers services in the big-buzz, big-bucks area of knowledge process outsourcing. "Unlike the first wave which was more about entering data and answering phone calls, these jobs involve skill and expertise."

The high-end KPO opportunities are immense for Indian firms. For instance, look at some of the figures pertaining to intellectual property research.

Drafting and filing of patent applications in the US is quite expensive. A typical application costs about $10,000 to $15,000 to draft and file with the United States Patent and Trademark Office. Cost savings from offshoring even a portion of the patent drafting process can easily save up to 50 per cent of the cost for the end client, according to Alok Aggarwal, chairman of Evalueserve. According to Pangea3, the cost of 10 patents in USA is approximately $30000 whereas around 50 patents can be got filed by outsourcing the said activity at a cost of less than $10000.Also, of course, the talent is much more affordable. "Law firms in the US charge an average of $400-450 per hour, and we do the same work for $75 to $100 an hour" says Kamlani" who is an outsourcing provider in the same area.

Quite predictably, law business firms such as Patent Metrix, Cantor-Colburn and Schwegman, Lundberg, and Woessner & Kluth, have already established their offices in India.There are a few others who are associating with Indian companies to encash the emerging opportunity.
Offshoring R&D in pharmaceuticals and biotechnology is another area where there is enormous potential for KPO. Aggarwal says destinations such as India offer significant cost advantages (as much as 40 to 60 per cent) in the areas of contract research and clinical trials.

Companies such as AstraZeneca and GlaxoSmithKline have recently set up drug discovery centres at low-cost destinations to offshore R&D activities.

Chip design and embedded systems is another critical area. A paper presented by Aggarwal says the reason why all major integrated design manufacturers such as Motorola, Intel, Analog Devices, National Semiconductor, IBM, Cisco, Cypress Semiconductor, Nokia and Philips have set up offshore design centres is simple.

The compensation for a chip design engineer with a master's degree and five years' experience is about $7,000 a month in the US.An engineer with the same qualification and experience in India gets about $1,200 a month.

Naturally, the cost savings in KPO is enormous. For example, data-mining services companies can save as much as 60 to 70 per cent on analytics and inventory management costs by off-shoring them.The cost differential between PhDs/engineers in the US and India is almost $60,000 to $80,000.

Companies like Evalueserve, GE Caps, MarketRx have set up centres at low-cost destinations to provide these services. And more are expected to follow soon.

A major reason why companies in India will have no option but to move up the value chain from BPO to KPO is quite simple. By 2010, India may have become too costly to provide low-end services at competitive costs.For example, Evalueserve says Indian salaries have increased at an average of 14 per cent a year. If this trend continues, they are expected to increase 2.5 times the current salaries (in constant dollars) by FY 2010, thereby reducing the cost-arbitrage benefit from the present 40 to 25 per cent.This, the low-end work may move to relatively cheaper countries like Ukraine, the Czech Republic and Malaysia.

Moreover, commoditisation of BPO services will further boost the transition of present low-end destinations to the higher end of the value chain. The better margins expected at the higher end of the value chain might act as a deterrent for companies in accepting low-end work.

The number of professionals working in the offshore industry is expected to increase as more and more companies decide to become involved in BPO and KPO. This will further drive the trend towards the migration of low-end services to high-end services, especially as offshore service vendors (as well as professionals working in this sector) gain experience and capabilities to provide high-value services.

During 2000 to 2003, the US offshored 2,38,000 IT service jobs. Evalueserve predicts that this is likely to increase to 7,75,000 jobs by FY 2010.

Further, by the end of March 2004, the US had offshored about 1,36,000 BPO (non-IT) jobs, mostly in the call centre segment.
Forrester predicts that it is likely to offshore 1.314 million BPO (non-IT) jobs by FY 2010.
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Why India To Be preferred to other countries

Why India To Be preferred to other countries

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