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Business Process Outsourcing: An Approach to Gain Access to

World-Class Capabilities

Article  in  Business Process Management Journal · February 2008

DOI: 10.1108/14637150810849382

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Business process
Business process outsourcing: outsourcing
an approach to gain access
to world-class capabilities
23
Bhimrao Ghodeswar and Janardan Vaidyanathan
National Institute of Industrial Engineering, Mumbai, India

Abstract
Purpose – This paper sets out to review the different types of outsourcing, its drivers and process,
and to identify world-class capabilities that host organisations can leverage.
Design/methodology/approach – This paper is primarily based on a review of literature.
Findings – Outsourcing helps the organisation to achieve higher levels of value creation for the final
customer. Drivers of outsourcing emanate from organisational initiatives, improvement focus,
financial and cost objectives, or growth objectives. A wide range of core and non-core critical business
processes are increasingly being outsourced covering a large spectrum of sectors and operations,
enabling host organisations to gain access to world-class capabilities.
Originality/value – This paper identifies critical drivers of outsourcing and the process by
reviewing available literature in this area. In doing this an attempt is made to find answers to some
fundamental questions. What are the main types and drivers of outsourcing? What are the different
phases in the process of outsourcing? This paper discusses in detail the significant drivers and process
of outsourcing; and the world-class capabilities accessible by the host organisation. Case studies are
used to illustrate these aspects further.
Keywords Process management, Outsourcing, World class manufacturing
Paper type Literature review

1. Introduction
Outsourcing as a key business strategy has been used by companies in various
industries for many decades. Competitive pressures have forced companies to look
objectively and critically at business processes. Companies have been outsourcing
manufacturing operations, business services and even entire business lines
successfully for a long time now. Recently, contract manufacturing sector has
benefited with considerable outsourcing, initiated by the electronics and
pharmaceutical industries. Business processes such as information technology (IT),
payroll, logistics and human resources (HR) management are among the common ones
regularly outsourced in most of the industries. Outsourcing of core functions like
engineering, research and development (R&D), manufacturing and marketing are
being considered by corporations. Developing the ability to control and leverage
critical capabilities, irrespective of whether they reside within the organisation or
otherwise will be more vital than the ownership of capabilities (Gottfredson et al.,
2005). Competitive pressures and the need for enhanced financial performance are
driving an increase in the nature, scope and scale of outsourcing across industries Business Process Management
worldwide. Journal
Vol. 14 No. 1, 2008
The option to transfer all or part of a company’s business function to an external pp. 23-38
entity plays an increasingly important role in the strategic arsenal of organisations q Emerald Group Publishing Limited
1463-7154
(Kakabadse and Kakabadse, 2003). Traditionally organisations considered outsourcing DOI 10.1108/14637150810849382
BPMJ to rapidly improve performance and reduce operating costs. In the present era
14,1 companies are using strategic and transformational outsourcing to seek improved
business focus, mitigate risks, build sustainable competitive advantage, extend
technical capabilities and free resources for core business purposes (Bartell, 1998).
Competitive advantage can be gained when the most appropriate business processes
are performed more effectively and efficiently by external suppliers (Lankford and
24 Parsa, 1999). Organisations consider outsourcing nearly all the services they need –
printing, legal services, accounting and book-keeping, telecommunications, vehicle
maintenance, security, payroll, recruitment and many others, thus restricting their own
employees to the core functions that define the organisation’s business.

2. Methodology
The focus of this paper is on offshore business process outsourcing (BPO). A literature
review of articles on existing theoretical perspectives and empirical work on
outsourcing was conducted by the authors. By presenting an integrated viewpoint on
the drivers and process of outsourcing built up on past research findings, this paper
presents a comprehensive framework of critical dimensions of outsourcing. This
understanding is further enhanced by the case studies presented. This paper outlines a
simple, yet an integrative framework that serves to stimulate new avenues of empirical
research.

3. Outsourcing
3.1 Meaning and scope
Outsourcing decision is a version of make-or-buy decision in which an organisation
elects to purchase an item that previously was made or a service that was performed
in-house (Monczka et al., 2005). It involves sourcing and using a supplier who provides
the completed item or service rather than buying the components and manufacturing
them in-house. Outsourcing is the act of transferring some of an organisation’s
recurring internal activities and decision rights to outside providers, as set forth in a
contract. Outsourcing today involves either IT or BPO. Information technology
outsourcing (ITO) which involves a third party who is contracted to manage a
particular application includes all related server networks and software upgrades. BPO
generally features a third party who manages the entire business process such as
accounting, procurement or HR. When the outsourcing facility is located outside the
principal company’s country this is termed as offshoring.
Firms essentially have three kinds of processes: core processes which give strategic
advantage, critical non-core processes which are important but not competitive
differentiators, and non-core non-critical processes which are needed to make the
environment work. Outsourcing non-core processes frees the firm’s time and resources
for core competencies. As ITO services are becoming commoditised the industry is
looking forward to BPO as a means to revitalise their organisations, reduce costs and
build competitive advantage. The service provider owns, administers and manages the
business process, based upon defined and measurable performance metrics with an
objective to improve overall business performance. Globalisation, competitive markets
and mergers and acquisitions are the primary stimuli for BPO. The prime objective of
BPO is to deliver the greatest value to all the stakeholders and to achieve and sustain
the highest degree of productivity for an organisation.
3.2 Evolution of outsourcing Business process
Outsourcing initially began with large organisations outsourcing all of their data outsourcing
center operations with an objective of achieving significant cost arbitrage
(Pfannenstein and Tsai, 2004). Then followed the era of transitional outsourcing in
the early 1990s wherein host organisations sought expertise of the IT specialists in
developing new client/server systems while still maintaining their legacy systems. As
service providers understood the functions of a data center, desktop support and other 25
standard IT areas, they began in specialising in specific domain intensive functional
areas. This marked the beginning of BPO.
Offshoring and outsourcing have a synergistic relationship. The traditional model
for insourcing keeps the work in-house and onshore. Manufacturing work during the
1980s began to migrate to areas that offered lower labor costs. Manufacturing moved
from expensive urban areas to rural areas offering relatively cheaper land, tax
incentives and holidays and skilled manpower at lower wages. In their quest to achieve
a higher cost arbitrage, global corporations started moving their internal
manufacturing, operations, and service functions such as call centers and back-office
processes to lower-cost countries while keeping them in-house as company-run
operations. This move is motivated by a desire to be closer to and gain improved
access to foreign markets in addition to pursuit of low-cost operations.
Companies also started to outsource non-core activities to local or regional suppliers
who provided specialised expertise and lower costs. The rise in the IT outsourcing,
contract manufacturing and third-party logistics industries highlights this activity.
The latest trend among multinationals is to get the work simultaneously outsourced
and offshored to countries namely India and China, with other preferred destinations
for outsourcing being Philippines, Brazil, Ireland and the Czech Republic (Monczka
et al., 2005). A well-defined strategy is the key to maximising the benefits of
outsourcing while avoiding its pitfalls. In most outsourcing engagements the service
provider agrees to execute the process at a cost lower than what the host organisation
is currently incurring and agrees to accept a service target in excess of what the host
organisation is achieving. These are called service level agreements (SLAs).

3.3 Levels of outsourcing

There are three levels of outsourcing namely tactical, strategic and transformational
(Brown and Wilson, 2005). Tactical outsourcing is used by organisations to resolve
specific problems being experienced by a firm, viz. a lack of financial resources to make
capital investments, inadequate in-house managerial competence or a desire to
downsize, etc. Tactical outsourcing is a form of traditional outsourcing and is based on
cost comparison and the make-or-buy decision. The tactical outsourcing results in
visible benefits in the form of enhanced cash savings, minimising the need for future
investments and resolving staffing issues. It involves execution of a business process
following the existing rules.
Tactical outsourcing can also extend to outsourcing peripheral activities enabling
the management to acquire industry specific capabilities by partnering with a chosen
vendor (Hussey and Jenster, 2003). This is a common method used by large mature
corporations for handling high-volume repetitive tasks. This is used for processes such
as payroll transactions, HR administration and procurement. Strategic outsourcing is
used as part of the process of redefining the organisation and results in freeing the
BPMJ management staff to refocus on the core business functions. Strategic outsourcing
14,1 relationships build long-term value resulting from the client working with a fewer
number of best-in-class integrated service providers.
Transformational outsourcing is commonly used to redefine the business (Linder,
2004). It enables an organisation to retain leadership position, build sustainable
competitive advantage and generate highest value for an organisation. Some issues
26 addressed by transformational outsourcing are good governance, maturity of business
process knowledge and adequately drafted and monitored SLAs. The levels of risk in
strategic and transformational outsourcing are higher than tactical form, but are
commonly shared with the outsourcing partner. Tested risk mitigation plans,
high-security levels, mature project management skills and proven business continuity
plans need to be put in place before an arrangement can begin in this direction.

4. Drivers of outsourcing
Organisational competitiveness is determined by the ability of an enterprise to
constantly meet changing customer needs better than the competition. In a market
place wherein socio-techno-economic factors are dynamic, it is not feasible for an
organisation to build competitiveness and sustain the same at all the stages of the
value chain (Ramachandran and Voleti, 2004). Typically, the drivers for outsourcing
can be internal or external and these have been a focus of study by some researchers in
the past. The key drivers include financial reasons such as reducing costs, generating
additional profits and reducing capital outlays with periodic payments (Bhattacharya
et al., 2003). Technical reasons for outsourcing are quality improvement, gaining access
to new talent and technology, the easy availability of vendors with expertise, and
economies of scale. Among the tactical drivers the most prominent ones are shortage of
skilled workers and cost-reduction opportunities. Strategic reasons include refocus on
innovation and core-competencies. Leading organisations are shrinking their business
cycles and tightening feedback loops (Brown and Wilson, 2005; Greaver II, 1999), and
increasing quality standards.
Drivers of outsourcing have been classified into four categories, viz. organisational,
improvement, financial and cost, and revenue drivers as discussed below. Table I
depicts the most popular drivers of outsourcing.

4.1 Organisational drivers

The major objectives in the organisation-driven initiative are to achieve a higher
quantum of focus on core business, increase flexibility to deal with ever changing
business conditions, demand for products and services, leveraging emerging
technologies and achieving higher stakeholder value. Outsourcing the tactical
components of job functions of the management team empowers them to spend time on
strategy-related issues such as market positioning and new product development.
Outsourcing permits the redirection of resources from non-core activities towards
activities that provide a greater return in serving the customer. Functions of this nature
are identified, isolated and then outsourced to specialist vendors. The company can
also proactively identify some current core functions that are expected to become less
important due to market dynamics. These initiatives provide employees with a
stronger career path and increased commitment and energy in non-core areas.
Employees are recognised as key assets in labour intensive service industries.

Major drivers for outsourcing
Organisational drivers
Improvement drivers
Financial and cost drivers
Revenue drivers
Business process
outsourcing
To achieve a greater focus on core business
To increase flexibility to deal with ever changing business conditions
To gain access to products, services and emerging technologies
To assign operational issues to an outside expert
To have greater thrust on market positioning and new product 27
development
To redirect resources from non-core activities to greater focus in
serving the customer
To improve operating performance, quality, timeliness, and
productivity
To obtain expertise, skills, and innovative ideas
To obtain technologies which otherwise will not be available
To improve management and control of operational processes
including risk management
To improve credibility and image by associating with superior
providers
To eliminate the fixed cost of internal staff by moving the function to a
supplier
To become more flexible, dynamic to meet the changing opportunities
To reduce investment in assets
To reduce the invested capital funds in non-core business functions
To expanding its operations into a new geographical region
To reduce or control operating costs
To access an outside provider’s lower cost structure
To achieve cost reduction with enhanced performance
To handle varying demand more efficiently because of economies of
scale
To achieve aggressive growth objectives by gaining increased market
access
To leverage on the service provider’s best processes, capacity and
systems
To expand capacity to design, test and build new products and
services
To stretch its limits in handling the increased volume of business
To manage demand efficiently through outsider’s automation, process
maturity and the latest technology Table I.
To focus on enablers of business growth and strategies to fulfil them Drivers for outsourcing

4.2 Improvement drivers

The significant objectives of this initiative are to improve operating performance;
obtain expertise, skills and technologies; improve management and control; improve
risk management; acquire innovative ideas; improve credibility and image by
associating with superior providers. Performance measures of productivity, quality,
timeliness, cycle time, utilisation, etc. can be targeted for improvement. A company
when realises that its in-house skill-set is inadequate for a given function as business
dynamics change, it may entrust this function to a specialist service provider who is
highly competent in administration, use well-trained and experienced staff and have
the industry best practices. When companies outsource, they become more flexible,
dynamic and competent to change themselves to exploit changing opportunities.
BPMJ This is achieved by empowering the parent organisation to handle fluctuations in the
14,1 volume of work, eliminating the fixed cost of internal staff and move the function to a
service provider who will be paid only for the work done. Outsourcing is the best
solution for applications that need to be developed or modified for a specified time or
require high-manpower resources at one point of time, e.g. Y2K compliance.

28 4.3 Financial and cost drivers

The objectives of this initiative are to reduce investment in assets, free-up resources for
other purposes, and generate cash by transferring assets to the service provider. These
business processes when outsourced reduce the investment required by the host
organisation to modernise them. Outsourcing can also improve certain financial
measurements by eliminating the need to show return on equity from capital
investments in non-core areas. Outsourcing is a viable and important alternative to
building the needed capability if an organisation is thinking of expanding its
operations into a new geographical region. It also helps in reducing or controlling the
operating costs. Access to an outside provider’s lower cost structure is one of the most
compelling short-term benefits of outsourcing. Other benefits sought by organisations
are cost reduction with enhanced performance and conversion of fixed costs into
variable costs. Service providers can handle varying demand more efficiently because
of economies of scale, automation, process maturity, and investment in the latest
technology.

4.4 Revenue drivers

The major objectives of this initiative are to achieve aggressive growth by gaining
increased market access and leveraging the service provider’s best-in-class processes,
capacity and systems. Most organisations have a finite capacity and limited
capabilities. Expanding capacity may take several years to design, test and build the
facilities, need a substantial level of investment, and result in lost market opportunity
due to higher “time to market”. The host organisation can achieve higher sales and
production levels even when such expansion cannot be financed internally by the
organisation. Outsourcing can involve the transfer of assets from the host organisation
to the service provider. Equipment, facilities, vehicles and licenses used in current
operations have a value and are, in effect, sold to the provider as part of the transaction,
resulting in a cash infusion.

5. Outsourcing process
Figure 1 shows the typical process and phases of outsourcing ranging from decisions
to continuous management and performance evaluation along with the life cycle of the
relationship between the host organisation and the business process vendor.
The processes illustrated in the figure are part of any outsourcing engagement
(Brown and Wilson, 2005; Gonalgo et al., 2005). The strategy phase is often the take-off
point for an outsourcing initiative. The host organisation determines the objectives,
scope and feasibility of the outsourcing concept before furtherance in this initiative. In
addition, the total time, budget and necessary resources are estimated. A request for
information (RFI) may be drafted, floated and responses from interested service
vendors may be obtained at this stage. This enables the host organisation to gain more
insight into various particulars of the outsourcing engagement. In the next phase on
 Outsourcing decision Outsourcing management

Strategy Scope Negotiation Implementation Management Completion Support

Defining
Decision to Signing of Launching Monitoring Delivering
the scope
outsource contract project performance results
of work

Budgeting
Negotiating Integrating Completing
&
agreement delivery contract
forecasting

Planning Managing End of

transition partnerships contract
Maintaining and supporting

Cost/Budget
Administration

Renewal ?

Pre-contract Contractual execution Post-contract

Source: Brown and Wilson (2005); Gonalgo et al. (2005)

outsourcing

Process of outsourcing
Business process

Figure 1.
29
BPMJ scoping, the baselines and service levels expected from the vendors are established.
14,1 Further clear delineation is agreed on the functions that are to be outsourced and the
functions that will remain in-house. A request for proposal (RFP) is drafted at this
stage by the host organisation. Only vendors who have qualified on the basis of merit
of the RFI response are eligible for responding to the RFP. Responses of the RFP are
analysed and vendors are qualified. The next phase involves negotiation. Here, the host
30 organisation can develop a request for quotation (RFQ) wherein the host organisation
attempts to understand the pricing model of the qualified vendor. The most common
pricing models used are cost per full time equivalent, time and material, price per unit,
volume-based pricing, managed service fee, no cure – no pay, fixed price, etc. (Bartell,
1998). This ends the pre-contractual phase.
Negotiations culminate in a contract signed between the host organisation and the
chosen vendor. Vendors may also be asked to demonstrate capabilities indicated in the
response to the RFP/RFQ by executing a pilot project. The host organisation
then examines the services provided by the vendor during the pilot phase to assess the
competence of the vendor to execute the proposed service. As discussed above, the
nature of the outsourced work may involve only a single time engagement for
non-continuous services indicating a one-time contract. For business processes that are
continuous in nature a multi-year renewable contract is signed. The implementation
phase marks the transition of the in-house process to the outsourced vendor. This often
involves a requirements assessment sub-phase where the process is studied in detail by
the vendor. The vendor can re-engineer the process to optimise the operations.
After successful transition the phase of continuous monitoring and management is
carried out in the management phase. The host organisation now has external
organisations performing business processes and it has to seamlessly integrate its own
processes with these and define suitable interfaces between the host organisation and
the service providers (Gonalgo et al., 2005). Initiation and implementation of change
management is one of the key elements of this phase for a successful outcome. This
marks the end of the contractual phase and marks the beginning of the
post-contractual phase. Management of end-of-life arrangements is executed in the
completion phase. Contracts that come up for renewal are assessed in this phase. Host
organisations make vital decisions on extension of the contract, amicable separation
with the vendor to consider engagement with another vendor or executing the function
in-house. Renewal of a contract indicates the cyclical nature of the process. The
decision to outsource has associated risk that can be mitigated by adequate planning
(Aron et al., 2005). While some of the risks are strategic in nature often caused by the
vendor’s action, others are operational in nature caused by the complexity of the
business process itself.

5.1 Building relationships

Relationships between principal corporation and vendors are decided by the strategic
impact of the outsourced business process on the principal corporation and the extent
of vendor substitution possible. A vendor offering services higher up in the value-chain
cannot be easily substituted by another vendor. The dyadic relationship between a
host organisation and a service provider is mainly based on an exchange perspective in
which these two partners are working in synergy to create a new value together, higher
than what each one individually can achieve (Zineldin, 2002). It is beneficial for a host
organisation to consider and establish a long-term relationship with a service provider Business process
eliminating the sources of insecurity and uncertainty. Sharing information, learnings outsourcing
and experiences often facilitate in building a higher level of trust and a better
atmosphere for strengthening ongoing strategic business relationship.
In the initiation phase the nature of relationship between both the host organisation
and the service provider is transactional wherein the scope is narrow, risk of
non-performance is low, degree of innovation incremental and the type of advantage 31
the host organisation gains is tactical (Ryals and Rogers, 2006). The host organisation
may have ongoing contracts with several vendors simultaneously for the same or
different tasks with the sole objective of achieving operational efficiency and cost
reduction. In the growth phase, the host organisation identifies suitable processes to be
outsourced to the existing pool of qualified service providers. This results in a
co-operative relationship where a few service providers are identified to perform higher
order tasks and process greater volumes leading to reduction of risk and better
predictably in executing operations. The focus is on enhancing service responsiveness,
technical competence, and skills. In maturity phase, the host organisation and the
service provider become interdependent wherein a minimum level of openness and
trust has been already established. This marks the beginning of a long-term stable
relationship by signing multi-year contracts for core business processes. The
measurement focus is on cost of the outsourced service, delivery timelines (turn around
times) and quality. In this stage both the host organisation and the service provider
are bounded contractually and legally in the most weak form of inter-enterprise
relationship.
As the host organisation acquires insight into higher order tasks that can be
outsourced, the scope broadens to further strengthen the relationship. The degree of
innovation required by the service provider is radical as the scope of the outsourced
task broadens. This leads to better risk mitigation as risk is now shared between the
host organisation and the service provider. During this phase the service provider
functions as an extension of the host organisation wherein the boundaries dissolve and
there are permanent teams working on either side to fortify the efforts. Joint initiatives
are taken to realise the full potential of both organisations with an objective of
long-term relationship leading to integrated operations and higher return on
investment. Host organisations may consider single sourcing as very few vendors
qualify to reach to this stage and sustain thereafter.

6. Access to world class capabilities

Outsourcing can empower organisations to use global assets effectively and efficiently
by using the industry best practices in enhancing their value chain and enter and
create new markets (Farrell, 2004). By the very nature of their specialisation,
outsourcing providers bring extensive world-class resources to meet the needs of their
customers. Partnering with an organisation with world-class capabilities can offer
access to new technology, tools and techniques that the organisation may not currently
possess; more structured methodologies, procedures and documentation; and a
competitive advantage through expanded skills. Outsourcing enables the organisation
to consistently perform functions better that its competitors and continually improve
on the activity as markets, technology and competition evolves (Quinn and Hilmer,
1995). Host organisations thus are empowered to deliver higher value-added services to
BPMJ their customers. Manufacturing knowledge-based organisations benefit in R&D,
14,1 product design, process design, logistics, market research, advertising, marketing,
distribution and customer services.
Grid computing allows companies to use a large number of computing resources on
demand, no matter where they are located. Grid computing enables organisations to
move faster, improve flexibility and resilience, bolster productivity and enhance
32 collaboration on a global level (IBM Grid Computing, 2004). Grids let an organisation
draw on resource pools within and, in some cases, outside the organisation to
accomplish a given computing task. Organisations can take collective advantage of
improvements in microprocessor speeds, optical communications, raw storage
capacity, and the internet. By using the technique to disaggregate their computer
platforms and distribute them as network resources, companies can vastly increase
their computing capacity. For example, companies are using grid computing to
accelerate the pace of drug development, process complex financial models, and
animate movies. Linking geographically dispersed computer systems can lead to
staggering gains in computing power, speed, and productivity.
Outsourcing enables host organisations to build flexible long-term platforms
capable of adaptation or evolution. Many organisations focus on building skills in
narrow areas where they currently excel. To keep pace with the emerging market
dynamics outsourcing allows host organisations to buy technology from a vendor that
would have been financially intensive and difficult to build internally (Lankford and
Parsa, 1999). With changing market dynamics, outsourcing enables these
organisations to consciously build dominating skills that the end customer will
continue to value over time and also build unique sources of leverage in the value chain
leading to intellectual advantages and greater profitability in highly competitive
markets (Figure 2).
Based on the various outsourcing functions, the capabilities have been classified in
eight groups, namely, HR services, knowledge and decision services, operations
support services, back office transaction processing, marketing services, customer
interaction services, IT and software, and finance and accounting services.
In the growing global economy, HR services are becoming increasingly complex
and resource-intensive. Outsourcing specialists facilitate the client organisation in
developing HR strategies and policies, sourcing and selecting employees, leading and
managing employees, creating rewards and incentive programmes, administering
benefit and retirement programmes, and managing payroll. The end-to-end HR
outsourcing model includes more strategic processes such as employee acquisition
functions, viz. recruitment, pre-employment testing, temporary staffing in addition to
optimisation functions such as absence management, compensation or incentive
planning and e-learning. This enables the HR department of the client organisation on
leveraging employee performance and supporting strategic initiatives.
With global businesses becoming more competitive, the cycle time for introducing
products and services has become shorter and customers are more demanding with
respect to the quality of products and/or services provided. This has forced enterprises
to adopt systems and business models that will not only provide operational efficiency,
but also add strategic value to their products and services. Knowledge and decision
services encompass content solutions, e-learning and education solutions, project
management, supply chain management, decision support systems, data warehousing,
 Business process
Human Resource
Services
outsourcing
- Benefits Administration
- Hiring and Recruitment
- Payroll
Operations Finance - Staffing Services- Knowledge and
and Accounting Services - Training and Staff Development Decision Service

- General Accounting & Audit

-Content Solutions 33
- E-learning and Education Solutions
- Accounts Receivable & Payable -Project Management
- Banking & Financial Services Solutions - Supply Chain Management
- Credit & Tax Services - Systems Integration and Consulting
- Insurance Processing - Decision Support Systems
- Billing Systems - Data Analytics
- Compliance - Data Mining
- Management Reporting - Data Warehousing

Information
Technology and Software Operations Support
Services
- Applications & Systems Development
- Applications Maintenance & World class - Re-engineering
Re-engineering - Facilities Management
- Cyber security & Infrastructure Support
capabilities
- Global Delivery and Sourcing
- IT Strategy and Planning - Venture Capital Outsourcing
- Application Service Providers - Real Estate Management
- Data Base Management - Telecommunications
- ERP Implementation - Office Solutions
- Logistics

Customer Interaction Back Office Transaction

Services Processing
- Administrative and Management
- Call Centers Support Services
- CRM & Telesales - Banking/ATM/transaction Processing
- Customer Contact Services - Document Management and Processing
- Government Sourcing - General Transaction Processing
- Order Processing - Tuition and Scholarship Services
- Customer Support - Accounts Receivables Processing
- Warranty Administration Marketing Services - Payment Processing
- Customer Feedback - Forms Management
- Marketing Programs - Billing Services
- Sales and Sales Management
- Strategic Planning
- Advertising & Business Communication
- Public Relations Figure 2.
- Web development
World-class capabilities
accessed by host
organisation
Source: Brown and Wilson (2005)

data mining, and data analytics. This delivers high value to organisations by
providing domain-based processes and business expertise rather than just process
expertise. These processes demand advanced analytical and specialised skill of
knowledge workers that have in-depth domain expertise.
Operations support services are crucial to the success of any organisation in the
dynamic marketplace today. This includes critical services for re-engineering, facilities
management, global delivery and sourcing and logistics and dispatch services. These
capabilities are directed towards improving efficiency of the operations in the host
organisation. Back office transaction processing is an important sector in shared
services, which is responsible for performing prime tasks such as ATM and
transaction processing, payment processing, forms management, general transaction
processing and accounts receivables processing. Service providers handle large
volumes for multiple clients in the shared facility and thus provide the client with
economies of scale, process maturity, higher quality and faster turn around times.
BPMJ This enables the host organisation to acquire capabilities to drive their front-end tasks
14,1 by a powerful back office engine.
Marketing services forms an important function of several organisations. A whole
host of services can be outsourced under this. Client organisations acquire capabilities
in executing marketing programmes, printing and publishing, advertisement, sales
and sales management, strategic planning, business communication, publications and
34 web development. This ensures enhanced levels of success for the client organisation
in addition to higher value addition to the customer and shorter time to market.
Customer interaction services require unique set of capabilities that facilitate the
building of customer contact centers, enable CRM and telesales, warranty
administration, order processing, and customer feedback. These are important
capabilities a host organisation in the services sector must acquire for sustainable
competitive advantage. Information technology and software services form the
backbone of any organisation in today’s era. Capabilities can be acquired to facilitate
application and systems development, ERP implementation, fortifying cyber-security,
providing infrastructure support and database management. Additionally, capabilities
on the finance and accounting services domain can strengthen the market leadership
position of the host organisation. The capabilities can encompass general accounting
and audit, compliance, accounts payable and receivables, management reporting,
credit and tax services, insurance processing and billing systems.

7. Case studies
We adopted a case study method to examine the nature of services in two different
BPO organisations in India, each one specialising in a particular domain of providing
outsourced offshore services. Our objective was to examine the nature and depth of
services provided by these organisations to their clients. These case studies facilitate
building an understanding about the offerings made by both organisations to their
target market. As elaborated, both companies A and B can provide a wide range of
offshore outsourced services that gradually scale up the value chain. These services
range from non-core services lower in the value offering tier to services in core areas
highest in the value tier. Unique benefits are embedded in the value offerings that
enable host organisations to achieve execution of processes by best-of-breed practices,
have access to an experienced talent pool, cost arbitrage, process maturity, quality
excellence and quicker turn around times. The outsourcing arrangement with the host
organisation in providing the value offerings offshore can be a shared facility or
dedicated facility. Strategically Company A and B first engage with a host
organisation to provide shared services in non-core areas. As the host organisations
start noticing the benefits of the partnership, the offshore offerings sought are higher
up in the value chain and the relationship between partners gets stronger.

7.1 Case study: Company A

Company A specialises in providing outsourcing services only in the healthcare
vertical. The company has operations in Asia, Europe and USA. The company
pioneered the concept of providing service solutions for the healthcare payers and
providers (Figure 3). They offer clients with best shore service solutions to payers,
providers and enablers. Payers are health insurance companies. Providers consist of the
physicians, hospitals and entities offering long-term and ambulatory care. Enablers are
vital to the health science vertical as they provide pharmaceutical, biotechnology and Business process
biomedical products and services. outsourcing
For the payer segment the service offerings comprise of claims processing, claims
adjudication, underwriting and risk management. The service suite also includes third
party administrator services. The services move higher and closer towards the core
and critical functions in the value chain. Claims processing includes conversion of
paper claims into their digital counterparts for speedy adjudication. Adjudication is a 35
rule-based processing of insurance claims which often culminate in accounts payable
and providing advice on the remittance to the claimant physician or hospital.
Underwriting and risk management are inherent components of an insurance system.
The company began operations initially by offering services for claims processing
which included an inbound mailroom, sorting, scanning and data capture using
manual data entry and optical character/mark recognition for clients in the USA. The
delivery of these jobs was associated with high quality and quick turn around times.
For US state governments the service was executed onshore and for private insurance
companies a blended shore model was used. In the blended shore model mailroom,
sorting and scanning are provided on shore, whereas data capture is executed offshore.
Cost to value leadership is the advantage of the blended shore operation. Skilled
manpower with specialised certifications needs to be groomed into performing the
above activities. Employees specialising in this domain need to be informed about
the medical diagnosis and procedure codes. Claim adjudication is the process wherein
the claim data are analysed by experts and clean claims are identified. Clean claims are
paid in total as part of the accounts payable services in claims adjudication along with
an advice on remittance provided to the physician/hospital called the “explanation of
benefits”. Rejected claims are re-priced and remitted or rejected and the claimant has to
represent the same. Underwriting and risk management are integral to any form of
insurance. Experts from this company provide advice on topics in underwriting and
risk management to a few customers in addition to handling the complete domain of
underwriting and risk management.
Company also offers services to the healthcare provider segment which include
medical transcription and coding, revenue cycle management, electronic medical
records and consulting services for business process re-engineering. Transcription is the
conversion of medical notes dictated by a physician into editable text. This being a
labour intensive task is relatively economical when performed in India as compared to

Value

Risk Management

Underwriting

Enrollment management

Claims adjudication
Figure 3.
Claims processing Capabilities extended to
health insurance
organisations
Core processes
BPMJ the USA. Revenue cycle management includes processes to build medical claims and
14,1 sends them to the insurance company. The service includes constant follow-up with the
insurance company for outstanding claims and is an integral part of the accounts
receivables services ensuring faster receipt of claims submitted translating into reduced
outstandings. Electronic medical records and consulting services are offered to select
physicians/hospitals by Company A. The service portfolio provided to the providers
36 also moves higher in the value chain from non-core less critical areas to core critical
areas.
By using a unique combination of people, process and technology, the Company A
offers specialised services to the customers in the healthcare industry. Operations of
the company are compliant with regulations of the US Government. There is a business
continuity plan for providing seamless 24 £ 7 operations to their clients.

7.2 Case study: Company B

Company B is a third-party data analytics BPO which was started through a
collaboration of two well-established enterprises. This company is a pioneer in offering
solutions for industries specialising in market research assisting customers in
analysing behavioral and attitudinal data. The company has its offshore operations
located in central Mumbai. The service offerings for market research include data
collection, survey designing and programming, data processing and report writing in
addition to services for online research (Figure 4). Data collection uses various
methodologies for primary and secondary data collection. Primary data collection
instruments include mailers and panels. Survey designing and programming includes
building the questionnaire (paper or web-based). Data processing includes complex
data cleansing and tabulation assignments which are delivered in the client specified
electronic formats. Higher value added services comprising of report writing complete
the delivery chain offering end-to-end services for clients desirous of a complete
offshore solution. Company B also provides consulting services to market research
companies who wish to improve operational efficiency by automation, reducing
processing times and increasing quality levels.
The company has talent pool with rich expertise in varied analytics tools like SAS,
SPSS, STATA, CART, CHAID (knowledge seeker), MARS, Treenet, Minitab,
Value

Report Writing

Data Processing

Survey Designing

Figure 4. Data collection

Capabilities extended to
market research
organisations
Core processes
Neuralware (neural networks tool) and many more for solving diverse analytics Business process
problems. In addition, the workforce is also experienced in providing advanced outsourcing
statistical analysis and mathematical modeling.
The company initially bagged a single multi-year contract with a large market
research company in the USA. The services provided to this company included
end-to-end solutions for data collection, analysis and reporting. These services were
then offered to other companies in similar segments. The company has been certified 37
by various independent agencies in various areas of process and output quality, people
competencies and data security.

8. Conclusion
The concept of outsourcing non-core functions of a business has been used in one form
or the other by the companies worldwide. Divesting a business process allows a
company to focus on the core functions of its enterprise and alleviates the need to build
skills in areas tangible to its business goals. Outsourcing enables organisations to
consistently perform the outsourced business process more effectively than any of their
competitors. Data entry, transaction processing, call-centers, customer support, etc. are
among the numerous business processes commonly outsourced. As illustrated in the
case studies outsourcing companies can provide end-to-end full scope services for
specialised functions like health insurance and market research. These enable the host
organisation to access the capabilities of the service provider who has optimised people
skills and competencies, processes capability and technology platforms to achieve
greater focus on core businesses resulting in building competitive advantage.

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Corresponding author
Bhimrao Ghodeswar can be contacted at: ghodeswar@nitie.edu; bmg_nitie@yahoo.co.in

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