The Future of Outsourcing - Research Paper Example

E-Commerce Introduction: In order to understand the present e-commerce scenario it is necessary to consider the aspects of Business Process Outsourcing: The future of BPO is very bright for the markets for which outsourcing is done and to the companies who take up the responsibilities concerned with work of outsourcing. The downside of outsourcing is the loss of jobs in markets like US, Canada and UK, where this is done in a big way. Language is an impediment with regard to other Western European countries and this activity is not being extensively followed there. This shift of jobs to markets in Asia and Russia has reached alarming proportions. But even in such a situation, companies are finding other advantages which make the situation better for domestic job market. Outsourcing companies are now saving substantially in labour costs which they put to good use in order to improve research, innovation and customer relations. In fact many companies are using this savings to improve the efficiency of domestic operations. “Many executives are discovering off shoring is really about corporate growth, making better use of skilled U.S. staff, and even job creation in the U.S., not just cheap wages abroad.” (Business Week: The Future of outsourcing. 2006). Outsourcing has become so popular that the traditional outsourcing markets like India and are about to face new competition from markets like Russia, Argentina, Philippines, Brazil, Romania and Vietnam. Areas in outsourcing: Outsourcing in now being done in almost every major area of commercial activity. The list is large, but a few areas are given to show the wide reach of outsourcing. Business process outsourcing is done in fields of information technology, accounting, engineering, customer service in the form of call centres, law, digital animation etc. Two new areas which is gaining popularity and can be broadly classified under BPO, is knowledge process outsourcing (KPO) and legal process outsourcing (LPO). KPO refers to outsourcing of activities that is data research intensive and LPO refers to outsourcing of permissible legal work. The Internet and BPO: The internet is the backbone of the BPO industry. The internet as we know it today was originally developed for military use. It was developed by the U.S. Defence Advanced Research Projects Agency (DARPA) in 1973 for communication among US defence systems across the world. This was called the intenetting project and is the forerunner of today’s internet or World Wide Web. Till the early 1980’s commercial use of the internet was forbidden. “The ICCC demonstrations prove packet-switching a viable technology, and ARPA (now DARPA, where the ‘D’ stands for ‘Defence’) looks for ways to extend its reach.” (Exhibits. 1973). It was in the early 1990’s that companies in the United States started outsourcing basic data entry works to companies in India. This worked out to the advantage of both parties and has since paved the way of this huge market. Broadband and BPO: Initially the internet was considered as just a means of communication. With the introduction of graphics and sound, communication speed became a problem and this resulted in the use of broadband technology in internet. This technology has given a fillip to the BPO industry because of transfer of large volumes of data like voice, high quality pictures and moving images, essential in many fields of BPO, became easier and less time consuming. Outsourcing and Offshoring: Outsourcing means that a job is moved to another company or individual within the same country. When it is moved to a different country, the word used is offshoring, but generally the words are often interchanged and now outsourcing has replaced offshoring to mean international transfer of jobs. So, in this context BPO will mean to be outsourcing that is international in nature. “The terms "offshoring" and "outsourcing" are often used as if they were interchangeable, but they arent.” (Miller 2004). Advantages of BPO: Cost cutting: this was the primary reason for the BPO process to begin in the first place. Wages for skilled labour for similar jobs in developing countries is 50 to 70 percent less when compared to those advanced economies. The savings through BPO can be utilized for improving efficiency and performance at home. Availing of expertise: In-house expertise on required areas of business was available only with bigger corporations because it was expensive to staff. But with BPO, expertise can now be outsourced as and when needed and this has helped smaller companies. Even for larger organizations, it need not keep a permanent in house staff, thereby saving costs. Availing of services that lie outside core competency: Each company will be having its own core competency as regards to its area of business, but is impossible to have it in many areas. By making use of BPO this too can be achieved. More focus on business at home: By reducing routine and cumbersome work load, the outsourcing company can concentrate on its home base operations and improve performance and profitability. Faster completion of work or orders: This too is advantageous for any organizations because the work is delegated and will result in early or on time completion, which in turn will increase customer satisfaction. The Time Zone advantage: With the time zone difference between outsourcing and service providing countries, it is now possible to conduct business activities for 24 hours every day. “Another benefit of outsourcing is seeing a big increase in your profits, productivity, level of quality, business value, business performance and much more.” (The benefits of outsourcing. 2008). Disadvantages: The main disadvantage is the loss of jobs in countries where outsourcing is practiced in a big way. Another disadvantage is the security risk that may exist because of a lot of information is passed on the service provider, which could be misused. Proper monitoring is difficult because of geographical distances between the outsourcer and service provider will be huge. A typical BPO model: In BPO there will be the client organization that out sources their work and the service provider who accepts it. The outsourcing company will be having core activities and non core activities. The practice generally followed by companies is that its core activities are done in house and only the non core activities are outsourced. A diagrammatic representation of a typical outsourcing model is shown below: In this example the company is shown to have three area of service, namely data processing, administrative service and call centre. Model of BPO (Business process outsourcing model. 2007). The Outsourcing Company: the outsourcing company is usually situated in developed economies like US, Canada and UK. Outsourcing is done to economies where skilled requisite skilled labour exists along with lower wage rates. Core and Non-core activities: As mentioned earlier in most cases only the non core activities of the company are outsourced. Core activities are those that are critical to the existence and success of the company. Another way of looking at is to see the degree of risk involved in an activity. If it is a classified as high risk, then it is considered to be a core activity. But the trend is slowly changing and even ‘low risk’ core activities are being outsourced. “One reason for the trend of increased outsourcing of core activities is the realization that a core activity might not be a mission-critical activity; it might be a low-risk activity which can be effectively outsourced.” (Global Outsourcing. 2005). Data Processing: Data processing includes the actual entry of data of varying size, its verification for accuracy and the transfer of processed data back to the customer. Administrative operations: This includes processing of data in areas like payroll and accounting, search engine optimization of client websites, managing of content of websites etc. This list is not exhaustive, but only an indication as to the activities performed. Call centre operations: This area includes but is not limited to telephone and computer telephony service for client’s customers, correspondence with them through email, and other facilities like online web chat. Definition of BPO: Business Process Outsourcing can be defined as “….the transfer of responsibility for some business processes to an outsourcing company. Outsourced processes can include finance, HR and transaction processing. Business Process Outsourcing can help reduce costs and direct process activities to specialized organizations. (Business Process Outsourcing (BPO). 2007). In reality it is difficult to provide an exact definition because the nature of BPO keeps changing and new activities areas are being introduced regularly. BPO and its benefits to developing countries: as mentioned earlier the business process outsourcing sector will continue to grow. More and more countries are waking up to the benefits that will accrue to the economy of the country through BPO. Some countries like India and Chin had understood its potential early and have managed to have a head start and has garnered a sizable percentage of the world BPO market. Both India and China also have a large population of technically qualified work force willing to work at as low 20 % of the salary found in developed economies. India has the additional advantage of having a larger English speaking population than what is found in most developing countries including China. The benefits of BPO can be harnesses even in countries where communication technology is poor. Basic data entry work can be outsourced to these countries even without huge band widths. One disadvantage for most Asian countries is the lack of a sizable number of educated English speaking people. The only exception is India, where the medium of instruction in higher education is English. But those countries that have woken up to the advantages of BPO have begun ambitious plans to create a sizable number of qualified English speaking candidates. Relevance of e-commerce in contemporaneous business world: In the present context, the e-managers are confronted with the fundamental question of how to “capture, analyze and project “the changeover of the impact of the ecommerce on the important or significant aspects of core processes of the business enterprise. This is achieved as follows. “It allows an organization to execute electronic transactions with any individual entity along the value chain—suppliers, logistics providers, wholesalers, distributors, service providers, and end customers.” (Fahey et al 2001). In the context of e-commerce it needs to be seen that knowledge is not just about the assimilation of factual data but needs to concern itself also with its logical sequentialising and patterning the thinking process, which also forms significant part of the e-commerce activities. How e-commerce could possibly contribute to useful and positive contribution to technological changes is also a matter of conjecture and thought process and need to be contextualised for improving the quality and scope of e-commerce in the context of modern technology and commerce. It is also seen that, in simple terms, e-commerce deals with connectivity or establishing relationships and communicative abilities along the supply chain. This electronic connectivity may be used for different purposes to suit the requirements of the organization. The main aspects of connectivity over the e-commerce could be seen as: Finding solution to customer wants and desires and making honest attempts to achieve them. What are the kinds of customers and the problems that beset them and how e-commerce could possible take care of future customer solutions? The next aspect is in terms of rivals; how is it that in the case of business rivals, only certain customers are responsive to their marketing overtures while the rest are not? What are the criteria that determine the movements of the market place and whether the induction of e-commerce could bring about innovative models for strategic planning and execution that could vastly improve future business prospects of the company? The use of e-commerce strategic models are also necessary to overcome the threats posed by competitive rivals and there is also a need for progressive firms to be able to integrate their business to suit the new e-commerce models, in order to reap the benefits of long-term benefits. In this case, it has been seen that certain firms are more successful in adapting to e-commerce, when compared to others, and the strategic reasons for this also needs to be known, understood and utilised in the right perspective. This is because they are favourably inclined to bring about new strategic models for the use of e-commerce in the firm, or institution. The second aspect of e-commerce is with respect to overcoming the activities and scope of rival firms. It is seen that a rival firm that could successfully integrate e-commerce into its working environment would definitely stand in a more advantageous position with one, who which is less successful in doing so. Since most of the competitive and viable manufacturers, distributors or dealers are now enjoying the benefits of e-commerce through intranet and internet access, the firms that do not use e-commerce would be significantly disadvantaged, in terms of supply chain management servicing and also meeting the challenges posed by competitive and rival firms. “Moreover, in today’s markets, where demand for a product can suddenly shift, a manufacturer needs to be able to configure and reconfigure a supply-chain network quickly, to meet changing demand.” (Shaw 2000, p.17). It is also necessary to perform a benefit analysis to know whether the deployment of e-commerce has resulted in overall gains for the organisation. It is necessary to know which assets have gone up and which assets have fallen in value, or in other words, the appreciation and depreciation in asset value need to be taken into account. It is necessary to evaluate the performance of real assets in the e-commerce business and whether it has yielded desired results. “The business environment is rapidly changing, and intellectual capital has become a key asset of the enterprise. By managing its knowledge assets, an enterprise can improve its competitiveness and adaptability and increase its chances of success.” (Birman & John 2001). Nowadays, it is seen that a large number of transactions are being handled through the e-commerce gateway which has resulted in faster, efficient and prompt servicing of clients. It has been possible to linkup different locations of a firm or company in diversely spread locations through the use of WAN networks and bring about a better business servicing and better customer servicing. “The characteristics of the transmission facilities lead to an emphasis on efficiency of communications techniques in the design of WANs. Controlling the volume of traffic and avoiding excessive delays is important.” (Fairhurst 2001). It has also been possible for outsourcing of materials or supply chain management to be aligned into the e-commerce for excellent corporate results. Such acquisition, dissemination and utilisation of vital business information helps corporate to function in a more streamlined and efficacious manner and being about all-round benefits in its operations. The challenges offered by internet and intranet transactions have redefined the scope and operational abilities of e-commerce and has also redefined the contours of this business facility. It is also necessary to review the disadvantages and negative aspects of e-commerce in the present context. One of the most vital dangers of e-commerce and internet related business is that it could be subjected to identity thefts and fraudulent impersonation for illegitimate gains. Technology, though extremely beneficial to any field, also suffers from some disadvantages if used without care and discretion. Similar is the case of the application of use of e-commerce. Major concerns: The main concerns in this sector are as follows: 1. Online thefts: It is possible for unauthorised persons to gain passwords, access codes and useable personal details and then have them illegally used by impersonators and fraudsters. 2. Systems breakdowns: There may be a total systems failure due to malfunctioning of critical components. If alternatives are not presented, this could lead to massive losses. 3. Viruses such as worms, Trojan horses, etc could attack the systems and cause severe damage to it. This is possible since unknown hackers could cause viruses or other form of attacks to invade the systems. Cyber attacks have become a major cause of concern in modern day internet settings.” In computers, a Trojan horse is a program in which malicious or harmful code is contained inside apparently harmless programming or data in such a way that it can get control and do its chosen form of damage.” (Trojan horset. 2003). Security systems work well, but in the event of a crisis, it could be severely tested. Therefore, it becomes necessary that the security aspect is prioritised as first and foremost, during the installation of the system itself. This can possibly ensure prevention of future breakdowns. Also regular ‘mock’ exercises need to be conducted to make the employees acquaint to such crises and remain operationally competent and fighting fit. 4. ‘Phishing’ is a cause of major worry in today’s internet world. Under this system, fraudsters, posing as authentic websites, require sensitive personal details like Access Codes, Credit Card and Bank Account Numbers etc. Having gained knowledge about these details, they systematically use it for illegally siphoning off funds from accounts, or for other fraudulent purposes. “The messages may look quite authentic, featuring corporate logos and formats similar to the ones used for legitimate messages. Typically, they ask for verification of certain information, such as account numbers and passwords, allegedly for auditing purposes.” (Kay 2004). Conclusion: The very virtues of the e-commerce system, that is its transparency, openness and easy mode of operations could be disadvantageous to itself. Therefore, it is necessary to inculcate several layers of security to thwart nefarious plans of hackers, invaders or infiltrators from anywhere; and it could also be reinforced to prevent virus or other forms of attacks from undefined sources. The best way to overcome these threats would be to rise to the challenges posed by doubly reinforcing the security and protection aspects on a constant and regular basis and to protect the internet from possible acts of violation of internal privacy and the subversive actions of criminals and fraudsters. This needs to be co-ordinated with a team of IT specialists and professionals in the field who have hands-on experience in dealing with such kind or internet piracy and invasions. The implementation of a robust and strong system along with the backup of suitably strong and deterrent legislation is necessary in order to ensure that the over +1 billion strong internet users in the world are being provided the best services in terms of e-commerce utility value and usage and the phenomenal growth of internet shall remain undeterred in future. In this context, it also needs to be mentioned that e- commerce e-commerce methods offer multiple means to develop the human connections that must not only surround the electronic interconnectivity, but that in turn, enable insights and intelligence to emanate that are fundamental to the unavoidably tough decisions that characterize moving (and many times moving rapidly) to e-business-driven operating processes.” (Fahey et al 2001). BPO Model – Accenture: The name Accenture brings to mind of the famous slogan ‘”. Accenture was earlier known as Anderson Consulting and was a part of the Anderson Group. Anderson Consultancy was initially engaged in just consultancy work. But in 1991 it accepted a BPO offer from British Petroleum regarding certain areas of accounting and finance. In 1997 it changed its name to Accenture and by 2001, it was a multinational company having presence in 47 countries, and a turnover of more than $ 9 billion in revenue. The company focuses on three areas of business, consultancy services, technology and outsourcing. Outsourcing has three divisions, namely, application outsourcing, infrastructure outsourcing, and business process outsourcing . The first two could come under knowledge process outsourcing comes under the category of knowledge process outsourcing. According to the company the benefits it extends to its customers through BPO services are as follows: 1. Helps to increase the competitiveness of its customers 2. Helps with innovation of products and services 3. Helps to focus an customer’s core competency 4. A shift to variable costs from fixed costs 5. Cost savings 6. Increase customers to speed up operations. 7. Overall improvement in customer’s business “Outsourcing is now a key strategy for achieving high performance—why? And, perhaps more importantly, why are so many choosing Accenture as their outsourcing partner?” (The Advantages of Outsourcing, 1996-2008). These benefits are similar to those mentioned at the beginning of this paper titled ‘Benefits of BPO’. In early 2001, India began to be noticed as a emerging BPO destination, especially in the software sector. This caused a certain amount of consternation among tech companies in the US. But Accenture took a surprise step by opening a BPO centre in India. This way it could start competing with emerging BPO companies in India with the added advantage of having expertise in consulting and outsourcing experience it had acquired all these years. “When the Indian outsourcing upstarts came on strong five years ago, it looked as if some giants of the $ 600 billion tech services industry would fall like top-heavy pal trees in a Category 4 hurricane.” (Hamm). Bibliography BIRMAN, Alex Ritsko & JOHN, J (2001). Preface. [online]. Entrepreneur.com. Last accessed 21 February 2008 at: http://www.entrepreneur.com/tradejournals/article/82373855.html Business Week: The Future of Outsourcing. (2006). 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