Introduction to BPO

BPO [Business Process Outsourcing] has been the latest mantra in India today. As the current sources of revenue face slower growth, software companies are trying new ways to increase their revenues. BPO is top on their list today.

IT services companies are making a quick entry into the BPO space on the strength of their existing set of clients. We hope to address all issues related to BPO in India on this portal.

We will attempt to explain what it takes to setup a BPO facility in India. Actually, setting up a call center is capital intensive. An ordinary BPO center that takes care of pure back office operation [e.g. payroll, data entry] will not be as expensive as a call center.

The philosophy behind BPO is specific, do what you do best and leave everything else to business process outsourcers. Companies are moving their non-core business processes to outsource providers. BPO saves precious management time and resources and allows focus while building upon core competencies. The list of functions being outsourced is getting longer by the day.

Call centres apart, functions outsourced span purchasing and disbursement, order entry, billing and collection, human resources administration, cash and investment management, tax compliance, internal audit, pay roll…the list gets longer everyday.

In view of the accounting scandals in 2002 [Enron, WorldCom, Xerox etc], more and more companies are keen on keeping their investors happy. Hence, it is important for them to increase their profits. BPO is one way of increasing their profits. If done well, BPO results in increasing shareholder value.

Typically, a customer calls the call center [usually a toll-free number]. After pressing numerous numbers [1 for English, 2 for Spanish, 3 for bank balance!] the operator will answer your query by accesing the database. Call centres address sales support, airline/hotel reservations, technical queries, bank accounts, client services, receivables, tele marketing, market research.

If a bank shifts work of a 1000 people from US to India it can save about $18 million a year due to lower costs in India. According to Mckinsey, giant US pharma firms can reduce the cost of developing a new drug, currently estimated at between $600 million and $900 million by as much as $200 million if development work is outsourced to India.

Benefits derived from BPO can be summarized as follows:

  1. Productivity Improvements
  2. Access to expertise
  3. Operational cost control
  4. Cost savings
  5. Improved accountability
  6. Improved HR
  7. Opportunity to focus on core business

Outsourcing is not new – it has been a popular management tool for decade. One can safely say outsourcing has evolved :-

  • 1960’s – time-sharing
  • 1970’s – parts of IT operations
  • 1980’s – entire IT operations
  • 1990’s – alliances/tie-ups
  • 2000’s – IT-enabled services

India has one of the largest pool of low-cost English speaking scientific and technical talent. This makes India one of the obvious choice to outsource to. Dell, Sun Microsystems, LG, Ford, GE, Oracle all have announced plans to scale up their operations in India.

Others like American Express, IBM and British Airways are leveraging the cost advantage India has to offer while setting up call centres. Several foreign airline and banks have too set up business process operations in India.

Indian revenues from BPO are estimated to have grown 107 per cent to $ 583 million and this particular area employs 35,000 people in the year ending March 31, 2002. Click here for updated figures!

Many European and US companies have realized that they should focus on their main business and outsource their Human Resource Department, accounting department etc. Bingo! it is here exactly India fits in! Today US corporations have embraced BPO wholeheartedly.

Managed Care Companies, which is more popularly known as Healthcare payers, are increasingly outsourcing business processes due to changing and challenging business environment and technological and legislative changes.

There is a good opportunity for Indian BPO vendors in this space. BPO vendors will need to have good domain knowledge, process know-how and competence with technological solutions to cater to these Managed Care Companies.