Overview on Business Process Outsourcing

Business process outsourcing (BPO) is an outsourcing tactic in which a company sub-contracts its non-core activities to another company for services that it holds competitive advantage. Firms have been investing in many areas but only a few of these areas are of competitive advantage to them. Such firms would spend much of their resources on all these areas while only a handful of them are of competitive significance. The BPO concept shows these companies that it is only sensible to focus on the processes that it has competitive advantage. BPO implements specialization in that it encourages businesses to maximally indulge in activities that are of economic worth and leave the rest to other concerned parties. In a company's structure, there are three main segments in which business processes can be divided into:

• Core processes - Refers to processes that are of immense importance to a company and are competitively significant.

• Non-core, critical processes - These are important processes that lack competitive significance.

• Non-core, non-critical processes - Such processes are only required by the company because they are vital for the business environment to thrive.

BPO has two main categories:

· Front office outsourcing. Mainly includes customer-related services such as technical support.

· Back office outsourcing. Deals with internal functions of the business such as purchases.

Apart from the above mentioned categories, BPO can also be categorized into onshore, near shore and off shore outsourcing. Onshore outsourcing refers to businesses that have been contracted within the company's country. At times, contracting businesses to a firm neighboring the company is alternatively referred to as near shore outsourcing or it may still be regarded as onshore outsourcing. Offshore outsourcing refers to business activities that have been contracted outside the company's country.

There are a number of benefits that befall a company once it has outsourced its business activities, but I will state a few:

· BPO helps the business concentrate and invest its resources on its core business sectors. The company saves on its resources such as money, labor and time.

· It is likely to lead to increased revenue. A company is more likely to be efficient when it concentrates on its core processes. This will lead to production of better quality goods and services resulting in higher returns.

· BPO helps businesses use outside expertise. In off shore and near shore outsourcing the business is able to tap into the market of the destination country instead of recruiting experts and sending them to the country where the company operates from.

A country experiences a variety of advantages when business activities are outsourced within its territories:

· The infiltration of BPO activities in a country results in increased employment opportunities. Most businesses are outsourced to developing countries. This is good news bearing in mind that most developing countries have a high rate of unemployment. The influx in outsourced businesses creates a whole new sector that provides employment. These companies tap into the local skill market, reducing the rate of unemployment.

· Continued indulgence in BPO activities may lead to greater reserves of foreign currency. The more a country attracts BPO activities, the greater its chances of having an influx in foreign exchange. This is good news particularly if the US Dollar is involved because it is the reserve currency of the world economy. Increase in US Dollar reserves increase the financial muscle of an economy especially when engaging in international trade.

· It has mended relations and prior perceptions about developing countries. Most developed countries had bad perceptions regarding developing countries. They didn't think that these countries had the skill to match their labor force. The ill prior perception has greatly changed with the impressive results and tremendous progress of BPO. It is even improving relations among these countries.

· It is a chance for the country to scale the various levels of outsourcing. There are different aspects of outsourcing and they have an order. They are mainly categorized in reference to their degree of complexity. BPO is of a lower rank. If BPO companies are set up in a country and they are successful, that may be used as an indicator that the country is able to handle a much more complex form of outsourcing such as knowledge process outsourcing (KPO).

Business Process Modeling

Lets start with some definitions first :

Business : The occupation, work, or trade in which a person is engaged: e.g. the wholesale food business.

Process : A series of actions, changes, or functions bringing about a result: e.g. the process of digestion; the process of obtaining a driver's license.

Model : A schematic description of a system, theory, or phenomenon that accounts for its known or inferred properties and may be used for further study of its characteristics: e.g. a model of generative grammar;

"cited from : process. (n.d.). The American Heritage® Dictionary of the English Language, Fourth Edition. Retrieved April 30, 2007, from Dictionary.com website"

So Business Process Modelling can be defined as a schematic representation of activities and functions performed by an organization to achieve success in their trade and services offered to the market and customers.

I am sure that there would be a lot of gaps in above definition, if we attempt to make it complete but one thing can be inferred clearly : For a Business to go about doing its business and provide the right services and products to its customer, its understanding and control on how they perform and operate is essential and infact in current age, a competitive edge.

Hence, Business Process Modeling can be viewed as a very critical activity both from a business and technology perspective. The reasons for doing process modelling can be many, but we can outline the same into following:

Process Documentation : Need for organization to document their business processes Process Improvement Exercise: Organizations looking for performing an analysis of current processes and how the same can be improved. Process modeling here would be just a part of the approach in this case. Typically a BPI activity would involve analysis of current as-is process, refinement of processes based on six sigma, lean etc. and coming out with a revise To-BE process. Enterprise Systems Implementation : Though some might call it a myopic view to process modeling, however traditionally and even today many organizations have carry out process modeling work before implementation of major IT system for e.g. ERP, CRM, Order Management systems etc. This definetely is a wise choice considering that most of the enterprise systems being deployed has an impact on how you perform your business going forward. Again details of best practices in this space can be a separate discussion itself. Especially the discussion around need for doing process modeling/analysis first or choosing the systems and then pursuing process modeling. I had a discussion with one of my clients once in which it was latter and my fundamental question was now will you change your process for the system or vice versa and whether the whole choice of the system would have been different if they already had an idea of their processes which needed automation help. Anyways there are pitfalls both sides.

Enterprise Architecture : Many organizations have a separate Enterprise Architecture practices and one area of EA is Process/Business Architecture. So organizations do carry out process modeling work as a standalone aspect to achieve a decent view. However in this case process modeling could be a very abstract representation of processes due to the high level view typically required from EA viewpoint. Organizations could go into details, but in my experience its not easy to get funding for doing Process modeling work just as a project without linking it to some specific business related project/budget. Thats a pity, sometimes as EA teams can add real value given the resources to do detailed analysis of Enterprise's architecture. Infact with SOA becoming essential approach within many EA teams, I think process modeling in detail provide greater value and help in identifying the correct service mapping.

BPM : Process modeling is also the starting point for a Business Process Management projects. Typically BPM tools will provide their own modeling tools, so care must be taken to identify the need for process modeling. Whether it should be only for the particular BPM projects or its maintained in some bigger/central process repository. I prefer a central Process repository for all process models for e.g. in tools like Telelogic system architect, aris, case wise etc. and picking out process for BPM implementations from central repository or better still create BPEL from the process models directly. However this aspect of product integration is not the most mature and care is needed before use.

Ok, I am sure there are many more benefits of process modeling and I would get time later to elaborate in other articles/blogs. Lets move into some aspects of how to build better process models. Some of the pre-requisites for process modeling are as follows:

1) People: You need to have good skills within the team from various perspectives, you need good business analysts to undertand what needs to be modeled and engage with business users accordingly. You also need a good scribe or modeler who understands how to map the requirements into models. As we are limiting it to modeling space, you may not require people with six sigma, lean,simulation skills though they would take part at appropriate phase in analysis.

2) Tools : you would need appropriate tools to model the business processes. It could start with basic word processing tools like word, move into graphic tools like visio to sophisticated tools like aris, system architect. Choice of tools would depend on requirements and objectives for modeling and obviously other factors like cost, skill sets etc. I personally feel that modeling efforts in tools like word and visio is a myopic view to modeling and processes are assets of any organizations and should be available centrally to be updated constantly. You should consider a repository based tool which supports standard modeling and reporting techniques to provide long term benefits.

3) Standards : Its very essential for an organization to choose and follow a common methodology for process modelling. We have over the years used multiple methods for process modeling like flow charts, petri-nets, Event based process charts and now with new standards like Business Process Modeling notations, the choice is much simpler. A standard based approach allows a common ground for process understanding and discussion which can be a nightmare otherwise. In my experience I have seen companies using a pot-pouri of process techniques, some which are home grown with different symbols and color combinations meaning different things to different departments in the same company. The issues become manifold when you try to come out with cross-functional process maps based on proprietary notations. So in my opinion organizations should consider formalizing on a process modeling standard before starting any major modeling exercise.

So as we can see its process modeling is an important step in providing a clearer picture to a business regarding the activities they perform and also through analysis the impact it has on its business and underlying infrastructure. The business has to play an important role in sponsoring initiatives supporting process modeling and architecture especially when embarking on a BPM/SOA journey.